Confusion often exists around whether business owners need an Enterprise Agreement, Employment Agreement or both. Below I’m going to break down the differences between an Enterprise Agreement and an Employment Agreement and explain the circumstances where you would need either one.
An Enterprise Agreement is an optional agreement you can choose to make between yourself and your employees. It sets out their terms and conditions of employment for a group of employees.
The Fair Work Commission must be satisfied that your Enterprise Agreement meets all legislative requirements in the Fair Work Act before they’ll approve it.
This includes that it passes the ‘better off overall test’. This test requires that each of your employees who are covered by the Enterprise Agreement are better off overall than if they were to be covered under the relevant award.
An Enterprise Agreement can be used to set out the minimum employment conditions that apply to:
- Your business or businesses;
- Your employees.
If an Enterprise Agreement is in place the award no longer applies. But there are still requirements you must meet such as:
- Your Enterprise Agreement must not pay less than the award;
- You must meet National Employment Standards.
An Enterprise Agreement is optional, however some of the reasons organisations chose this option:
- It can make your business a more appealing place to work if you set minimum standards that are higher than the award.
- It can also be tailored to fit the needs of a specific enterprise.
In Australia, we most commonly associate Enterprise Agreements with companies with large number of employees which are industry or occupational specific.
Unlike an Enterprise Agreement, an Employment Agreement is compulsory. You must establish an Employment Agreement between you and your employees. An Employment Agreement gives you the capacity to layout clear expectations and responsibilities for your new employees; including full time, part time and casual employees.
Employment Agreements often cover legal provisions such as remuneration, bonus, share scheme, expenses, motor vehicle benefits and many more. Your Employment Agreement must comply with the current Fair Work Act 2009 and the National Employment Standards (NES).
Ensure all terms of employment are set out in writing – unless something is in writing, there is the possibility for it to be implied. Creating uncertainty and the potential for legal disputes. At the very least there should be a formal letter of engagement to all new employees.
To further complicate things, certain positions and roles are not covered by the award, for example managers and professionals who have negotiated their own individual contracts. But if an award is in place, even if an individual employment agreement exists, the award forms the background of any individual agreement.
In a nut shell, what does this mean?
Every employee must have an employment agreement, but every employee does not need to be covered by an enterprise agreement. Be sure to check that all your employees have a signed employment agreement in place. Verbal agreements are difficult to enforce and easy to challenge.
Enterprise agreements are for groups of employees at one or more workplaces and are publicly registered through Fair Work; employment agreements are for individuals and are conducted privately.
Enterprise agreements operate in place of the award and are not generally negotiated by the individual employee. Employment agreements or common law contracts are negotiated individually between the employer and employee.
In both instances, the rate of pay cannot be less than the award.
As a lawyer, what would I do?
- Make sure you have all your employment relationships documented in writing – full time, part time, contractors and casual staff. Verbal agreements are very difficult to prove and can lead to ambiguity and disagreements, which can result in legal action.
- Check the relevant awards that may apply to any of your staff to ensure you are compliant.
- Review your employment agreements to ensure they are still relevant, especially when employing new staff.
If your unsure of your obligations as an employer schedule a strategy session. We can provide advice on employment contracts, enterprise agreements and the relevant awards. There are many issues involved with awards and enterprise agreements and their relation to employment contracts.
* This blog is for general guidance only. Legal advice should be sought before taking action in relation to any specific issues.