No one likes a zombie and changes to the Fair Work Act 2009 (Cth) aim to rid them once and for all.
If your organisation or company has an older enterprise agreement that it has not replaced or formally terminated (through the Fair Work Commission), then you may need to think about your ‘zombie’ which may cease to exist come 7 December 2023.
What is a Zombie Agreement?
The term ‘zombie agreement’ was more colloquially used prior to the first set of significant workplace reforms introduced by the Federal Government to describe older enterprise agreements. Specifically, those made before the Fair Work Act 2009 (Cth) began operating in 2009.
Enterprise agreements are usually renegotiated and replaced every 3 to 5 years given that the maximum ‘life’ of the agreement under the legislation is 4 years. However, if an agreement, even a very old one made 15 or 20 years ago, is not replaced by another Fair Work Commission approved enterprise agreement, or terminated by the Fair Work Commission, it still operates. That can create some complexity and in some cases, a disadvantage for employees where legislative and other standards have changed but the workforce are not entitled to the benefit of the changes because of the preservation of these older agreements.
Approaching Sunset: What happens once zombie agreements cease to operate
The Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 (Cth) addresses this curious feature of older agreements. From 7 December 2023, ‘zombie’ agreements, that is, agreements made prior to 1 July 2009, will cease to operate through the legislative mechanism, even if another agreement is not in place or employees have not agreed to terminate the agreement.
The Fair Work Commission has the power to extend the life of the ‘zombie’ on application from a party to the agreement. That process involves making submissions and providing evidence to the Commission about why the agreement should be extended.
Importantly, after this date, assuming no extension has been granted, the relevant modern award which would otherwise cover the workforce will automatically replace the zombie agreement. Compliance with an award is a statutory obligation and a breach of that obligation can expose an employer to a Court prosecution, regulator investigation and/or penalties of up to $93,900 for a single breach.
If your organisation has a ‘zombie’ lurking, then the steps to consider in preparation of the change in December 2023 include:
- Checking if you issued the compulsory notice to employees about the end of the zombie agreement on or before 6 June 2023;
- Identifying what industrial instrument may apply after the agreement ceases;
- Internal planning about whether the organisation will move towards making another agreement or not;
- Updating payroll systems to reflect new payment rules and conditions that drive payment;
- Updating employment contracts as required;
- Providing notification to employees about what next after the zombie; and
- Assessing whether an application for an extension to the default period is appropriate and would have reasonable prospects.
Extending the life of the zombie agreement
The legislative changes do enable a party to seek to extend the life of the zombie agreement. The extension can be for no more than four years.
The legislation provides that the FWC must extend the default period if it is satisfied that:
- the relevant circumstances as described in the legislation exist and it is otherwise appropriate in the circumstances to do so; or
- that it is reasonable in the circumstances to do so.
In Suncoast Scaffold Pty Ltd 2009 [2023] FWCFC 105 (Suncoast), the Full Bench considered whether to extend the default period of the collective agreement-based transitional instrument (zombie agreement) to 31 March 2027. This required assessment of the particular criteria which states an extension must be granted if:
- the employee would be covered by a modern award; and
- it is likely that the employees, viewed as a group, would be better off overall if the instrument applied to the employees than if the relevant modern award applied.
The Full Bench provided detailed guidance on how the requirement in that section differs from the well-known ‘BOOT’ test. The Full Bench stated (emphasis added):
“… The requirement for the better off overall criterion in subitem 9(b) to be assessed by reference to the award covered employees ‘viewed as a group’ appears to allow for the possibility that the criterion may be satisfied, notwithstanding that some individual employees are not better off overall than under the relevant award, as long as there is a discernible advantage for the employees considered as a collective. Further, there only needs to be satisfaction as to the ‘likelihood’ of such a discernible collective advantage; that is, it only needs to be probable rather than certain. Taking these matters together, it is apparent that the better off overall criterion is less stringent that the BOOT in s 193 of the FW Act.”
The Full Bench concluded it would not be reasonable in the circumstances to extend the default period for the agreement given that:
- the agreement is beyond its 14th year of operation and no longer reflects award entitlements now applicable under the FW Act;
- There was ‘no independent evidence,’ to suggest the employees were satisfied with the current arrangement;
- The agreement only continued to apply to one third of the workforce and was therefore of limited relevance; and
- There was nothing to suggest that the continued operation of the agreement was critical or even important for the viability or efficiency of the Suncoast Business.
How we can help
Our Workplace Relations team can assist you to review your existing industrial instrument(s) and develop a pathway forward before the December deadline, including considering whether to make an extension application.
Contact us
Please contact us for more detailed and tailored help.
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Disclaimer: This article provides general information only and is not intended to constitute legal advice. You should seek legal advice regarding the application of the law to your organisation.