Dusk of the dead: the end for "zombie" agreements
By Megan Kavanagh and Jay Keenan
Employers be aware that enterprise agreements made prior to the introduction of the Fair Work Act continue to operate beyond their nominal expiry date in the absence of an application to have them terminated or replaced.
In brief
Employers need to be aware that enterprise agreements made prior to the introduction of the Fair Work Act 2009 (Cth) (FWA) continue to operate beyond their nominal expiry date in the absence of an application to have them terminated or replaced
As time passes, the terms and conditions of these agreements deteriorate and decay against the minimum guarantees of progressing modern awards. This has earned them the colloquial label of "zombie" agreements.
Employers may not be aware of historic agreements, still in place, which have not been terminated or replaced, which may be creating unintended obligations.
At the same time, some employers may be holding onto these agreements, and their more favourable terms, as a means of avoiding negotiating better off overall enterprise agreements against the terms of modern awards.
Brisbane's hospitality industry has recently come under fire for retaining zombie agreements. According to the Fair Work Commission (FWC), Mantle Group and Empire Holdings have each benefited from expired zombie agreements for over a decade or more, avoiding paying employees basic entitlements like penalty rates. The FWC is committed to taking a tough stance against zombie agreements in future and has indicated a willingness to accept applications under section 225 of the FWA by unions or employees to terminate such agreements.
Attack against the Zombies
In Application by Henry Thom [2022] FWCA 1543, the FWC considered an agreement that nominally expired in 2002. Commissioner Jennifer Hunt criticised the employer's decision to maintain the agreement and deprive its employees of penalty rates "simply because it lawfully could do so", going on to call the move a "disgrace".
The subject was further deliberated in the decision of Empire Holdings (QLD) Pty Ltd T/A Empire Hotel and Cloudland [2022] FWCA 62. Again Commissioner Hunt issued a dire warning to employers who retained Work Choices "zombie" agreements, stating the clock is ticking.
Empire Holdings sought an extension to the termination decision, citing grounds that future events were tendered and costed on the basis of the zombie agreement provisions. They submitted that the company will face "significant administrative effort" to shift employees to the hospitality award. These factors were unequivocally rejected by the FWC. Commissioner Hunt said "the burden should rest with the employer when compared with the loss to employees of substantial (penalty rates)".
Is it time to replace your enterprise agreement?
An application to have an existing "zombie" agreement terminated may cause an employer sudden and potentially steep increases in wage costs where they have not otherwise kept pace with the provisions of modern awards.
To manage these risks, employers should factor in the real probability that their zombie agreements may not be long for this world. The cost (both in wages and administration/pay roll costs) should be factored into future cost projections to ensure businesses remain sustainable.