Can you avoid a wage increase scheduled in your current enterprise agreement terms to preserve business viability?

10 June 2020

Many employers are experiencing financial strain due to the consequences of reduced trade, restrictions imposed upon their business operations and an unpredictable cash flow at present.

While the initial focus for employers was understandably on dealing with the immediate impact of COVID-19, it is important for employers to now consider ways to minimise any future labour cost obligations that could add to their financial strain or threaten the survival of their business.

For businesses that have suffered a downturn in revenue as a result of COVID-19, delaying or removing the obligation to implement wage increases under an enterprise agreement in the short term may be critical to survive this short-term crisis and assist in reviving its operations.

To hold off implementing a wage increase due under an enterprise agreement, a majority employee agreement is required and an application will need to be made to the Fair Work Commission (Commission) to vary the terms of your enterprise agreement.

Requirements for varying the terms of an enterprise agreement

In summary, the requirements that must be met to make an application to the Commission for flexibility around any scheduled wage increase include:

  • Providing employees with access to a copy of the proposed variation for 1 calendar day prior to a vote on the proposed change – this has temporarily been reduced from 7 days in response to the COVID-19 pandemic1;
  • Obtaining approval from the majority of employees who are eligible to vote on the proposed variation to the enterprise agreement; and
  • Making the application to the Commission within 14 days of the vote by employees.

The Commission has created a specific email to expedite applications to vary an enterprise agreement arising from the impacts of COVID-19 –

To approve an application to vary an enterprise agreement to either reduce or avoid a wage increase, the Commission must still be satisfied that the amended enterprise agreement will pass the ‘better off overall test’. However, currently the Commission may approve a variation to an enterprise agreement that does not pass the ‘better off overall test’ if, due to exceptional circumstances, approval of the agreement would not be contrary to public interest, such as, where the proposed variation is part of a reasonable strategy to assist the employer manage a short-term crisis.

A precedent has been set

The first application that sought to vary a wage increase as a result of the COVID-19 pandemic was CVSG Electrical Construction Pty Ltd2 and the decision provides useful guidance for employers who have wage increases due to take effect under an enterprise agreement in the coming weeks, in particular on 1 July 2020 and who need to manage a short term crisis.

CVSG Electrical sought to vary its obligation to pay a 3% wage increase to employees from 31 March 2020, and remove the 2020 rates of pay from a schedule of wage rates stipulated in the enterprise agreement.

The variation proposed by CVSG Electrical had been approved by a majority of its 65 employees who were covered by the enterprise agreement.

The Communications, Electrical and Plumbing Union of Australia (CEPU) opposed the application on the basis that the employee ballot had occurred prior to the announcement of the JobKeeper wage subsidy.

The CEPU argued that the introduction of the JobKeeper wage subsidy would ameliorate the financial strain on CVSG Electrical’s business caused by COVID-19, such that the removal of the 2020 rates of pay from the schedule was no longer justified. On this basis, the CEPU alleged that the Commission could not be satisfied that the variation had been genuinely agreed to by employees.

The Commission did not accept the CEPU’s argument and approved the variation to the enterprise agreement.

In its determination, the Commission noted that the question of whether employees had genuinely agreed to approve an enterprise agreement, or a variation to an enterprise agreement, must be considered at the time the employee’s agreement was given, taking into account the circumstances known at that time.

It was also noted by the Commission that it was not clear at the time whether CVSG Electrical would be eligible for the JobKeeper wage subsidy.

Key takeaways

The decision in CVSG Electrical highlights that the Commission is prepared to expedite consideration of applications to vary enterprise agreements in circumstances where doing so would provide additional flexibility to help employers address the far-reaching impacts of the COVID-19 pandemic and help ensure ongoing financial viability of a business.
Employers have the option to seek to vary an enterprise agreement to withhold or reduce a pending pay increase pursuant to an enterprise agreement.This option should be explored by employers experiencing financial difficulties due to COVID-19.

There are likely to be further developments and changes in this area as more employers seek to vary enterprise agreements as the new financial year approaches.

As the impact of COVID-19 on Australian workplaces continues to evolve, please do not hesitate to contact a member of our national Workplace Relations and Safety Group if you would like further advice on varying an enterprise agreement, or to discuss what other practical options may be available to assist in managing the effects of COVID-19 on your business.

This article was written by Peta Tumpey, Partner, Keely Horan, Senior Associate and Alexandra Abbott, Solicitor.

1. Fair Work Amendment (Variation of Enterprise Agreements) Regulations 2020.

2. [2020] FWCFB 1747.

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