News & Insights

Pay increases in an EBA have been removed, in the first coronavirus-driven application to vary an enterprise agreement, despite opposition from a union.

The ruling means that employers can attempt to reduce their costs during these troubling economic times by varying enterprise agreements to remove or reduce pay increases and the FWC will genuinely consider such applications.

Employers anticipating a slow down in activity over the next 12 months need to be assessing and considering what their EBAs provide for now.

what happened

In this instance, the variation was genuinely agreed and importantly, passed the better off overall test (BOOT) and therefore removed the obligation for 12 months for the employer to pay the 3% wage increase.

A Brisbane-based electrical company, CVSG Electrical (CSVG), applied to the FWC to seek to remove their obligation to pay a 3% wage rise for a 12-month period, due to the financial impact of COVID-19, despite opposition from the Communications, Electrical and Plumbing Union of Australia (CEPU).

The fairness of varying the enterprise agreement was debated in light of the Federal Government’s JobKeeper initiative. Essentially, the initiative provides wage subsidies to eligible employers of $1,500 a fortnight per employee.

While the variation won approval from the 65 CVSG employees covered by the agreement, the CEPU argued it couldn’t have been “genuinely agreed by the employees” because the vote occurred before the JobKeeper initiative was announced.

The FWC disagreed and said the question of whether a variation has been genuinely agreed should be considered at the time the employees gave their agreement, in this case prior to the announcement of the JobKeeper initiative.

The FWC weighed up the time-frames associated with varying the EBA which removed the obligation to increase wages for 12 months and the JobKeeper arrangement which lasts for six months.

The FWC also considered the other significant economic pressures flowing from CVSG and determined that it wasn’t “clear to what extent the JobKeeper program would ameliorate the [employer’s] financial and operational situation, or how, if at all, it would affect the rationale for the variation of the agreement”.

best practice for employers

The coronavirus is hurting employees and employers worldwide. It is imperative that employers do their best to stay afloat and remain commercially viable.

Where employers have an enterprise agreement in place, a variation to this agreement may defer increasing costs, noting that any variation will still be required to pass the better off overall test.

It is important that companies ensure stringent compliance with the requirements for variations under the Fair Work Act 2009 (Cth) as they will inevitably come under considerable union scrutiny if an application to vary an EBA is made during this time.

Australian employers who have EBAs in place should:

1. consider whether they need to seek a variation (e.g. of wage increases) noting the potential costs savings of seeking such a variation;
2. put such matters for a proposed variation to a vote by the employees;
3. marshal the evidence and rationale for any queries raised and ensure any agreement made is reasonable and without duress; and
4. make an application for a variation to the FWC.

Careful planning and consideration is required for such strategies to succeed and legal advice is recommended.

Please contact John-Anthony Hodgens or any member of our Employment, Safety and Migration team if you require further COVID-19 guidance generally, assistance with varying enterprise agreements or if you require advice as to how your business is affected by the above changes.