Passing the fair work BOOT test

One of the trickiest employment law or fair work assignments is to be asked to design a program for a client under which a proposed enterprise agreement will meet the Fair Work Act’s better off overall test; or at least that is my experience as someone who does this for a living.

Here is an extract from a case which sets out the applicable principles.

“A major consideration as to whether the Commission can approve an agreement is a determination that the agreement passes the ‘better off overall test’ (BOOT). That requirement is set out at s.186(2)(d) of the Act.

. . .
[64] It is trite to observe that an agreement does not necessarily fail the BOOT because employees do not receive weekend penalty rates, public holiday loadings or any other Award term or condition. Such a simplistic test would be to adopt an incorrect approach to the exercise of ensuring employees (and prospective employees) are ‘better off overall’ under the Agreement, rather than the relevant reference instrument. It is not an exercise in which the Commission ‘negotiates’ with the parties over remotely unlikely ‘what if’ scenarios about implausible or fanciful work patterns or rosters which the employer has never utilised and never intends to. This would be a barren and wasted exercise, perhaps of some obscure academic novelty, but of no practical utility.

[65] The BOOT is a balancing exercise – not a ‘line by line’ comparison. In NTEU v UNSW [2010] FWAA 9588, Lawler VP said as follows:

‘It is trite to observe that awards typically contain both monetary and non-monetary terms and conditions. Obviously enough, the BOOT calls for an overall assessment. Comparing monetary terms and conditions is, at the end of the day, a matter of arithmetic. There is an obvious problem of comparing apples with oranges when it comes to including changes to non-monetary terms and conditions into the “overall” assessment that is required by the BOOT. In such circumstances the Tribunal must simply do its best and make what amounts to an impressionistic assessment, albeit by taking into account any evidence about the significance to particular classes of employees covered by the Agreement of changes to particular non-monetary terms that render them less beneficial than the equivalent non-monetary term in an award. In my view, it may also be relevant to consider the terms of any existing agreement and whether there is a relevant change of position when compared to that existing agreement.’

[66] In the present case, the assessment of the BOOT is relatively straightforward. This is so because the Agreement does not provide any other terms or conditions which are more beneficial than the reference instrument, other than the higher loaded rates of pay which apply for ordinary time worked during the week and on the weekend and public holidays.

[67] In my judgement, the decision of the Full Bench of the Commission in Hart v Coles has no application to this matter, for one significant reason. In Hart v Coles, the employer was invited, but refused, to provide undertakings, under s.190 of the Act, to address the identified concerns with the BOOT. By refusing to do so, the decision of the Commission not to approve the Agreement, was hardly surprising. That is not the position here. Beechworth has conceded a number of individual circumstances (mostly unlikely, given the rostering and employment arrangements of the business) which might result in a small cohort of employees not being ‘better off overall’ under the Agreement, rather than the relevant Award. The only identifiable real circumstance was one employee who, for purely personal reasons can only work on Sundays, which meant she was ‘worse off’ than if the Award applied. This was readily acknowledged and corrected, by an undertaking, that any employee who works solely on a Sunday or public holidays (highly unlikely) would be paid at a rate to ensure they would not be ‘worse off’ under the Agreement, compared to the relevant Modern Award. However, for reasons I will explain later, this may not be sufficient.

[68] It cannot be ignored (for the purposes of the BOOT) that a higher base rate of pay applies for all purposes. In other words, other terms and conditions such as annual leave, personal and long service leave, superannuation, overtime, casual loadings etc. will all be calculated by reference to the higher base rate, thereby making those terms more beneficial than if they are calculated at the Award rate. In my opinion, this is an appropriate matter to be taken into account when balancing all the relevant matters to ensure employees are ‘better off overall’.

[69] I would add that, in some ways, the comparison between the Agreement and the relevant Awards, at the ‘test time’ is an artificial and unreliable guide as to whether the Agreement throughout its nominal term, will be able to guarantee all employees, (let alone prospective employees), will be ‘better off overall’. Given the ‘test time’ is a snapshot in time; that is, when the application to approve the Agreement is filed with the Commission (s.193(6)), it is difficult to imagine in a dynamic business environment, that rosters which exist at the ‘test time’ will remain static and unchanged for the nominal term of the Agreement, of up to four years. Moreover, it seems to me there would be nothing to prevent an employer from changing rosters, subject to lawful notice, within weeks of the Agreement being lodged and which might result in employees not being ‘better off overall’ for the balance of the Agreement’s nominal term. Of course, an appropriate reconciliation undertaking may ensure that this scenario is not possible under this Agreement.”

……………………….Consideration

S.186(1) of the FW Act establishes a “basic rule” that where an application for approval of an enterprise agreement is made under s.185 (which prescribes the time in which such an application must be made and its content), the Commission must approve the agreement if the requirements in ss.186 and s.187 are met. S.186 and s.187 set out a range of approval requirements. S.186(2) sets out approval requirements in relation to the safety net, and relevantly provides as follows:

186 When the FWC must approve an enterprise agreement—general requirements
…
(2) The FWC must be satisfied that:

…
(d) the agreement passes the better off overall test.

S.193 prescribes that which is necessary for an enterprise agreement to pass the better off overall test. It relevantly provides:

193 Passing the better off overall test

When a non-greenfields agreement passes the better off overall test

(1) An enterprise agreement that is not a greenfields agreement passes the better off overall test under this section if the FWC is satisfied, as at the test time, that each award covered employee, and each prospective award covered employee, for the agreement would be better off overall if the agreement applied to the employee than if the relevant modern award applied to the employee.
…
Award covered employee

(4) An award covered employee for an enterprise agreement is an employee who:

(a) is covered by the agreement; and

(b) at the test time, is covered by a modern award (the relevant modern award) that:

(i) is in operation; and

(ii) covers the employee in relation to the work that he or she is to perform under the agreement; and

(iii) covers his or her employer.

Prospective award covered employee

(5) A prospective award covered employee for an enterprise agreement is a person who, if he or she were an employee at the test time of an employer covered by the agreement:

(a) would be covered by the agreement; and

(b) would be covered by a modern award (the relevant modern award) that:

(i) is in operation; and

(ii) would cover the person in relation to the work that he or she would perform under the agreement; and

(iii) covers the employer.

Test time

(6) The test time is the time the application for approval of the agreement by the FWC was made under s.185.

FWC may assume employee better off overall in certain circumstances

(7) For the purposes of determining whether an enterprise agreement passes the better off overall test, if a class of employees to which a particular employee belongs would be better off if the agreement applied to that class than if the relevant modern award applied to that class, the FWC is entitled to assume, in the absence of evidence to the contrary, that the employee would be better off overall if the agreement applied to the employee.

It may be seen from the above that an enterprise agreement will pass the better off overall test if the Commission is satisfied, as at the test time, that each award covered employee, and each prospective award covered employee, for the agreement would be better off overall if the agreement applied to the employee than if the relevant modern award applied to the employee.

The application of the better off overall test is not to be applied as a line by line analysis. Rather it is a global test requiring consideration of advantages and disadvantages to award covered employees and prospective award covered employees of an agreement’s application compared to the application of a relevant modern award. The application of the better off overall test therefore requires the identification of terms of an agreement which are more beneficial to the relevant employees when compared to the relevant modern award, the terms of an agreement which are less beneficial or detrimental when compared to the relevant modern award and then an overall assessment of whether each relevant employee would be better off under the agreement. 4

Turning then to the first basis of appeal, the gravamen of the SDA’s contention was that the Deputy President did not correctly apply the better off overall test. This was because:

• the Deputy President failed to consider or deal with the issues raised by the SDA relating to a comparison between the terms and conditions under the Agreement compared with the relevant reference instrument and accordingly issues of fact which required determination by the Deputy President bearing upon the satisfaction of whether the Agreement passed the better off overall test were not addressed;
• the Deputy President concluded that the decision inHart v Coles Supermarkets Australia Pty Ltd and Bi-Lo Pty Limited5 was irrelevant to his consideration because undertakings were not offered in that case;
• the Deputy President purported to discharge his task by finding that the scenarios advanced were “implausible, fanciful or rosters which the employer has never utilised and never intends to”; and
• the Deputy President did not consider whether the Agreement might affect employees – either existing employees or prospective employees detrimentally in the future.

The SDA submitted that whilst implausible or fanciful rosters perhaps need not be considered, the mere fact that an employer has never utilised a roster and, at the time of approval, does not intend to, cannot mean that the possibility of such a roster being introduced over the life of an agreement can be dismissed out of hand.

The SDA submitted that the task of assessing whether the Agreement passed the better off overall test is not only to consider how the Agreement would operate under existing conditions, but also how it might operate in the future if employees are required to work in different ways. The SDA contended that the Deputy President did not do this because he accepted the employer’s current intention not to change. Such intentions might themselves change, so too might the management of a business, or the conditions under which it has to operate. An agreement is a form of legislative instrument which will continue to apply regardless of those changes. It must also pass the better off overall test in those possible circumstances.

The respondent accepted that the proper application of the better off overall test requires the identification of terms which are more beneficial for an employee, terms which are less beneficial for an employee, and an overall assessment of whether an employee would be better off under the agreement. However, it submitted that the Deputy President gave detailed consideration of the matters raised by the SDA as can be seen from the lengthy recitation of the matters raised by the SDA in its written submissions and at the hearing in paragraphs [29] to [54] of the Decision.

The respondent submitted that the Deputy President did not distinguish Hart on the basis that the undertakings were not given. It submitted that the methodology in Hart was followed and this is evident in [66] to [68] of the Decision.”

Shop, Distributive and Allied Employees Association v Beechworth Bakery Employee Co Pty Ltd t/a Beechworth Bakery (2017) FWCFB 1664 delivered 6 April 2017 per Hatcher VP, Gostencnik DP and Bissett C