Have you got a ‘zombie’ workplace agreement in your business?

Even though a ‘zombie agreement’ may sound like it could be describing the next zombie apocalypse Hollywood hit, it is in fact a term commonly used to describe enterprise bargaining agreements which are past their nominal expiry date, particularly agreements made during the WorkChoices era and before the Fair Work Act 2009 (“FWA”) came into effect.

It is important to note that agreements made under the WorkChoices legislation were not subject to the “better off overall test” and could leave employees worse off than they would be under a Modern Award.  The WorkChoices legislation was later repealed, however, many of the agreements created during this period still endure. This has created the term ‘zombie agreements’ within the media.

In more recent times, outdated enterprise agreements have been under increased scrutiny and a significant number of them have been terminated by the Fair Work Commission. In addition, the Australian Labor Party has announced their commitment to abolish all Zombie WorkChoices agreements if they are elected in the upcoming Federal election.

A number of large businesses have been in the headlines as a result of their ‘zombie agreements’. Notably, Justin Hemmes’ Hotel and restaurant empire, the Merivale Group had been paying its 3000 staff in accordance with an outdated workplace agreement approved during WorkChoices. It was found staff were being paid significantly less than what is provided in the applicable Modern Award (“Award”) and consequently, after application by employees with the assistance of the union, the Fair Work Commission (“Commission”) terminated the Merivale Group agreement which has resulted in the company now being required to pay the applicable Award rates which has caused significant disruption and impact on the business. An Australian law firm also confirmed that it was accepting class action registrations to recover any underpayments for all current and former Merivale Group employees. This has created a double hit to Merivale Group which could see an underpayment claim of between 15 to 25 million dollars. It is unclear however whether any underpayment claim can be successful as the operation of Zombie agreements are legal and provided for under the FWA.

In addition, Godfreys had their historical agreement terminated in December last year as it was alleged to have paid its 500+ employees under an outdated workplace instrument. The application was brought by the Shop Distributive & Allied Employees Union who revealed that the last time the agreement had provisioned a pay rise was in 2011.

A number of other large organisations have also had their outdated agreements terminated such as Noni B (which includes Millers, Katies, Crossroads, Autograph and Rivers) and Bakers Delight.

How an agreement may be terminated?

Under the FWA, agreements from either WorkChoices era or those made in accordance with the FWA continue to operate after their nominal expiry date until the FWC approves a replacement or terminates the agreement. Either an employee individually or with the assistance of a union or the business itself may apply to the FWC to terminate the enterprise agreement.

In this regard, we recommend employers check whether their enterprise agreements have expired, in particular if the agreement was created during the WorkChoices era, and get on the front foot of this issue.  As demonstrated with Merivale Group, when employees and/or unions apply to have an agreement terminated, it can cause significantly adverse impacts to a business that is not well prepared. For instance, not only did Merivale Group receive significant negative publicity regarding their outdated agreement but was provided only 6 weeks to update their entire payroll system and transition their 3000 employees across 70 venues to the applicable modern award. Merivale’s group human resources manager had stated that the company would also need to complete a full review of its workforce and consider reclassifying some employees in accordance with the Award.

Timely Reminder about Underpayments and Award Compliance

There is now much greater scrutiny on businesses not complying with the FWA. The issue of employers paying below the minimum modern award requirements continues to be a highly publicised issue. In this regard, the Fair Work Ombudsman is continuing to target the exploitation of young workers and noncompliance of the FWA, specifically in the fast food, restaurant and café industry as well as the retail sector.

In this regard, in December 2018, the Fair Work Ombudsman targeted popular restaurants and cafes in Melbourne CBD with unannounced workplace audits. Earlier in 2018, the Fair Work Ombudsman audited specific popular dining streets in Sydney and Brisbane which revealed 72% of businesses were non-compliant and led to more than $470,000 in recoveries for workers.

More recently in March 2019, a fruit delivery business was ordered to backpay a delivery driver double time for all hours worked beyond 5.5 hours each day during his 4-year employment because it was found that he never received a meal break. Specifically, the delivery driver was covered by the Road Transport and Distribution Award 2010 and claimed that throughout his employment he never once took the 30-minute meal break prescribed within the Award. In response, the company claimed that the driver had been taking his regular meal breaks, however offered no evidence to substantiate its claim and did admit that the driver’s timesheet showed he had not been taking breaks. The employer also argued that it was the responsibility of the driver to appropriately structure his day to have time to take his regular break. However, this was rejected and instead judgment in favour of the driver was delivered. As the applicable award in this instance, requires a worker to be paid double time if they are not provided a break during the first 5.5. hours of their shift, the business was ordered to backpay the worker a substantial sum of money in this regard.

Lessons for Employers

Accordingly, and in light of the above, we recommend employers continually review whether they are complying with relevant applicable industrial instruments. Specifically, employers should:

1. Review whether their business is covered by one or more Awards;
2. If an employer has an enterprise agreement in place, review whether the agreement has expired and/or whether it is complying with the minimum employment requirements;
3. Review whether employees are classified correctly within the applicable award or whether their duties have now evolved and/or they have gained greater responsibilities and should be moved up in terms of classifications;
4. Review whether your employees are being paid in accordance with minimum requirements including for penalty rates, overtime and allowances (including meal allowances when applicable);
5. Ensure general compliance with the applicable award(s) in relation to rosters, hours of work and providing adequate breaks for employees; and
6. Ensure the business has appropriate recording keeping methods in place to ensure rosters, meal breaks, rest breaks and the like are properly documented.

If you wish to discuss any aspect of this article or require our specialist advice or assistance in relation to an employment law matter, please do not hesitate to contact us.

This alert is not intended to constitute, and should not be treated as, legal advice.