Zombie agreements – The clock is ticking, act now

23 February 2022

‘Zombie’ agreements is a term used to describe enterprise agreements that have passed their nominal expiry date but remain preserved in law. These include enterprise agreements made between 1 July 2009 to 31 December 2009 in the ‘bridging period’ prior to the introduction of the Fair Work Act 2009 (Cth). The key difference between zombie agreements made (and approved) during the ‘bridging period’ or earlier and those made and approved from 1 January 2010, is that the terms and conditions of zombie agreements are not required to be as favourable as the terms of the current corresponding modern award. Employees that have zombie agreements applied to their employment are merely required to be paid no less than the minimum base rate of pay to their corresponding modern award.

This means employers are legally able to pay only per the zombie agreement which frequently applies a flat rate of pay with no penalties or overtime payable to employees. While at first instance this appears to be a competitive advantage in favour of an employer, at any time, an employee may apply to the Fair Work Commission to have the zombie agreement terminated.

This has recently occurred in the decision of Empire Holdings (Qld) Pty Ltd t/a Empire Hotel and Cloudland [2022] FWCA 62 (11 January 2022) (Cloudland Decision). Commissioner Hunt commented “if employers are enjoying a comparative benefit in reduced wages by application of very old agreements, which do not provide for penalty rates near-equivalent to the modern award that would otherwise apply, the clock is essentially ticking for those agreements.”

In the Cloudland Decision, the employer sought an extension to May or June for the termination of the zombie agreement to take into consideration wage costs for events that had been booked and paid for. In addition, it was advanced that “significant administrative effort” would be required on part of the employer for the transition from paying a flat rate to the applicable penalties in the corresponding modern award.

Commissioner Hunt took into consideration an employee vote regarding the potential termination of the zombie agreement and unsurprisingly, found the majority in favour of termination. Commissioner Hunt found that notwithstanding the pandemic environment, the business was doing quite well, evidenced by the opening of a new venue. Commissioner Hunt ruled the termination to be effective from the end of month, being approximately two weeks from the hearing date.

The IR Omnibus Bill had proposed a sunset deadline for zombie agreements being 1 July 2022, however, a narrower version of the Bill passed Parliament, removing this sunset date.

Key takeaways for employers

If an employee seeks to terminate a zombie agreement, it is now even more likely the Fair Work Commission will rule in favour of the termination, exposing employers to sudden increases in wages. This needs to be understood by employers and employers should consider and prepare for workplace arrangements to be covered by an appropriate modern award.

Adverse publicity can also arise if reports of underpaying employees circulate, despite the technicality, that it is legal to pay at the zombie agreement rates.

If a zombie agreement currently applies in your business, we recommend undertaking a review to determine the wage costs to the business if the agreement is terminated based on modern award obligations and consider negotiating a new enterprise agreement.

If your business is operating with a zombie agreement that is, an enterprise agreement that was approved during the bridging period and you wish to seek advice on how to prepare for the transition in the event of termination of the agreement please contact a member of the Workplace Relations & Safety team.

This article was written by Heinz Lepahe, Partner, Michelle Chadburn, Senior Associate and Tania Godagama, Associate.

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