It has been well over 10 years since the Fair Work Act 2009 introduced substantial changes to employment law in Australia. When the Fair Work Act was introduced, many employers already had an enterprise agreement (EA) in place. These agreements often included references to old awards (now known as ‘pre-modern awards’), now-outdated legislation (e.g. the Long Service Leave Act 1992 (Vic)) or tribunals (e.g. the Australian Industrial Relations Commission), and often provided terms and conditions far different to modern award minimums (e.g. lower shift penalties).  

Those EAs have reached their nominal expiry date. Over time, many employers negotiated new terms and are now confident employees are receiving terms and conditions in line with the modern award minimums. However, because renegotiation is not a mandatory process after the agreement reaches the nominal expiry date, some employers still operate with pre-2009 agreements. These agreements are known as ‘zombie agreements.’

Can employers use zombie agreements in complete substitution for the applicable modern award?

No. The Fair Work Act contains some protections for employees working under zombie agreements. For instance, an employee must be paid a base rate which at least equals the modern award rate (or, where a modern award does not apply, the national minimum wage order rate). This means that if the base rate in the zombie agreement is less than the award minimum, the latter will apply.

In addition to rates of pay, the minimum employee entitlements contained in the National Employment Standards (NES) will also apply if the entitlements in the zombie agreement are less favourable.

Notwithstanding the above, the zombie agreement will still be the applicable industrial instrument and will continue to govern other employee entitlements. This means entitlements that are only found within the modern awards, such as shift penalties and weekend loadings, are not a term of the agreement and do not apply (i.e. only the penalties and loadings expressly stated in the body of the agreement will be applicable).

Why are zombie agreements under scrutiny?

There is a risk of underpayment and a risk of breaching the NES. As explained earlier, the Fair Work Act provides a number of employee protections, including minimum base rates of pay, which must be complied with.

Given the modern award base rate of pay must be maintained, but other penalties and loadings may not, it can be confusing for an employer and easy to make a mistake.

Financially speaking, however, employees under a zombie agreement may be lawfully worse-off than employees covered by the modern award. It is vital that careful consideration is given to what does and does not apply as it can leave a business at risk of various challenges.

Are there plans to require employers to renegotiate or terminate zombie agreements?

Attempts have been made to change the law, but as of yet, no such law has been introduced. That said, the Fair Work Commission (FWC) summarised the scenario in a recent decision, commenting: “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.”

Planning to renegotiate your enterprise agreement?

If you need support or advice concerning your strategy or assistance negotiating an EA, our workplace relations consultants can guide you through every step, including the following:

• Training managers in negotiation and agreement making
• Negotiating on your behalf
• Drafting, lodging and implementing agreements
• Ensuring compliance with new obligations, including the duty to bargain in good faith, fulfilling the ‘Better Off Overall Test,’ use of the Fair Work Information Statement, and adhering to strict new procedures and rules.

A common pitfall for employers is embarking on the negotiation process without a clear understanding of the strengths and weaknesses of the existing EA. If you aren’t sure where to start, get in touch and we can talk through your options and help you develop a strategy. This can include reviewing your current agreement or benchmarking it against similar businesses.

To find out more about enterprise agreements, the Victorian Chamber’s approach, or for assistance with interpreting complex clauses, please call the Workplace Relations Advice Line on 03 8662 5222.