Enterprise agreements and how Fair Work Commission approval works

An enterprise agreement is a registered, legally binding set of terms and conditions negotiated between an employer and the employees it will cover, then approved by the Fair Work Commission (the FWC). Once approved it takes the place of the modern award that would otherwise apply to those employees, which is why it exists: a business can tailor pay, hours, penalties, allowances and rosters to how it actually operates instead of working around an award written for a whole industry.

The trade-off is a strict safety net. The agreement cannot undercut the National Employment Standards (the NES), and every employee it covers must be better off overall than they would be under the award. The approval process is where most of the risk sits: the FWC does not rubber-stamp a vote, and checks how bargaining was conducted, whether employees genuinely understood what they were approving, and whether the terms stack up against the award. This guide sets out who is involved, the steps from starting bargaining to approval, and where agreements most often come unstuck.

The parties and the regulator

Bargaining involves more than the employer and its employees, and each participant has a defined role:

Employer: initiates or agrees to bargain, gives the required notices, runs the vote, lodges the application for approval and operates the agreement once approved.
Employees: decide whether to approve the agreement by voting, and can appoint someone to represent them in bargaining.
Bargaining representatives: every employer and employee can be represented. A union is the default bargaining representative for its members unless the employee appoints someone else in writing (s 176 of the Fair Work Act 2009 (Cth) (the Act)). Anyone the employee appoints in writing can act instead.
Employee organisations: a union can bargain, and can ask the FWC to record that the agreement covers it, which makes it a party to the agreement (s 183).
The Fair Work Commission: approves or refuses agreements, makes orders about how bargaining must be conducted, deals with bargaining disputes, and in a deadlock can declare bargaining intractable and impose terms on the parties.

The types of enterprise agreements

Part 2-4 of the Fair Work Act 2009 (Cth) recognises three main types (s 172):

Single-enterprise agreement: made between one employer, or two or more related employers, and its or their employees. Related employers include bodies corporate in the same group, joint venturers and franchisees of the same franchisor carrying on similar business.
Multi-enterprise agreement: made between two or more employers that are not all related, usually in the same sector. Two variants matter in practice: a supported bargaining agreement, made by employers covered by a supported bargaining authorisation in an industry or sector where low rates of pay prevail and the employers share clear common interests (ss 242 to 243), and a single interest employer agreement for employers covered by a single interest employer authorisation.
Greenfields agreement: made for a genuinely new enterprise that has not yet employed any of the people who will do the work, negotiated between the employer and one or more unions (s 172(4)).

A few structural limits apply. An agreement cannot be made with a single employee; at least two employees must be covered (s 172(6)). It can only deal with "permitted matters", essentially the employment relationship, deductions authorised by employees, and how the agreement operates (s 172(1)). And a multi-enterprise agreement that is not a greenfields agreement cannot cover employees doing general building and construction work (s 186(2B)).

Starting bargaining

Bargaining does not begin the moment the employer wants it to. The "notification time" is triggered by one of a defined set of events (s 173(2)): the employer agrees to bargain or initiates bargaining, the FWC makes a majority support determination or scope order, a supported bargaining authorisation comes into operation, or an employee's bargaining representative asks in writing to bargain for a replacement single-enterprise agreement where the earlier agreement passed its nominal expiry date no more than five years earlier.

Within 14 days of the notification time, the employer must take all reasonable steps to give each employee who will be covered a notice of employee representational rights, the notice that tells them they can appoint a bargaining representative (s 173(3)). This notice is not optional paperwork. The FWC cannot be satisfied that the agreement was genuinely agreed to unless the notice requirements were met (s 188(4)).

Employees who want to bargain can also force the issue. If a majority of the employees who will be covered want to bargain, a bargaining representative can apply for a majority support determination, and once it comes into operation the employer must bargain (s 236).

Good faith bargaining

Once bargaining is underway, each bargaining representative must meet the good faith bargaining requirements in s 228 of the Fair Work Act 2009 (Cth): attending and participating in meetings at reasonable times, disclosing relevant information in a timely way (other than confidential or commercially sensitive information), responding to proposals promptly, giving genuine consideration to them and reasons for responses, avoiding capricious or unfair conduct that undermines freedom of association or collective bargaining, and recognising and bargaining with the other representatives.

The Act is explicit that good faith bargaining does not require a representative to make concessions or to reach agreement (s 228(2)). You can hold your ground. What you cannot do is refuse to engage, withhold information, or talk past the other side.

There are consequences for not engaging. The FWC can make bargaining orders requiring specific conduct, which can even exclude a representative from bargaining (ss 229 to 231). A bargaining representative can ask the FWC to deal with a dispute about the agreement (s 240). And if bargaining has genuinely broken down, the FWC can declare bargaining intractable once the minimum bargaining period has passed, which is nine months after bargaining starts or, where an existing agreement applies, nine months after its nominal expiry date (s 235). The effect is serious: the FWC will then make an intractable bargaining workplace determination, effectively writing the terms of the agreement itself (s 269). Losing control of the terms is the worst-case outcome of a bargaining process.

What the agreement must include, and what it cannot include

The FWC will not approve an agreement that is missing any of the mandatory terms. An enterprise agreement must include (s 186 and Division 5 of Part 2-4):

a term providing a procedure for settling disputes about matters arising under the agreement and in relation to the NES, allowing the FWC or another independent person to settle the dispute and allowing employees to be represented (s 186(6));
a flexibility term, which allows an individual employee and the employer to make an individual flexibility arrangement varying the effect of the agreement to meet their genuine needs (ss 202 to 203);
a consultation term, requiring the employer to consult employees about major workplace change likely to have a significant effect on them, and about changes to their regular roster or ordinary hours of work (s 205);
a delegates' rights term, for agreements voted on on or after 1 July 2024, dealing with the rights of workplace delegates (s 205A).

Where an agreement omits the flexibility or consultation term, the model terms determined by the FWC are taken to be included (ss 202(4) and 205(2)), but the safer course is to draft them deliberately rather than rely on the default.

The agreement must also specify a nominal expiry date that is no more than four years after the FWC approves it (s 186(5)), and it must not include any unlawful terms (s 186(4)). Unlawful terms include discriminatory terms, objectionable terms, terms excluding the unfair dismissal protections in Part 3-2, terms inconsistent with the industrial action provisions, and terms that let an employee or employer opt out of coverage (s 194). A term in this category is enough on its own to sink an application.

The safety net: the NES and the better off overall test

Two tests operate as the floor beneath every agreement.

The NES are minimum standards that cannot be displaced, even by an agreement (s 61 of the Fair Work Act 2009 (Cth)). They cover maximum weekly hours, flexible work requests, casual employment, parental and related leave, annual leave, personal and carer's leave, compassionate leave, family and domestic violence leave, community service leave, long service leave, public holidays, superannuation contributions, and notice of termination and redundancy pay. An agreement can supplement the NES but cannot exclude any of it.

The second test is the better off overall test (the BOOT). The FWC must be satisfied that each award-covered employee, and each reasonably foreseeable employee, would be better off overall if the agreement applied than if the relevant modern award applied (s 193). The comparison is global, not line by line: the FWC weighs the terms that are more beneficial against the terms that are less beneficial across the agreement as a whole (s 193A(2)). It must also have regard to the patterns or kinds of work, and types of employment, that are reasonably foreseeable when the agreement is made, and to the views of the parties, giving primary consideration to any common view of the bargaining representatives (s 193A).

Two practical consequences follow. First, the BOOT is not satisfied by offering a generous hourly rate if penalties, allowances or overtime are cut in a way that leaves some classifications worse off. Second, the agreement must be tested against the work the business actually does, and is reasonably likely to do, not just a model roster. Even the base rate of pay under the agreement cannot be less than the base rate under the relevant modern award or the national minimum wage (s 206).

The vote

Before employees can vote, the employer must comply with the pre-approval requirements in s 180 of the Fair Work Act 2009 (Cth). If an employee organisation gives the employer a document about the agreement, and in certain cases where the employer is required to prepare one, copies must be given to the employees who will be covered before voting starts (s 180(4A) and (4B)). The employer must not knowingly or recklessly make false or misleading representations in those documents (s 180(4C)).

The employer must also take all reasonable steps to ensure the terms of the agreement, and their effect, are explained to employees in a way that is appropriate to their circumstances and needs (s 180(5)). The Act specifically calls out employees from culturally and linguistically diverse backgrounds, young employees, and employees without a bargaining representative (s 180(6)). An explanation copied and pasted from the agreement itself is unlikely to satisfy the FWC, which will want to see that employees genuinely understood what they were approving.

The timing rules are strict. The vote cannot be requested until at least 21 days after the last notice of employee representational rights was given (s 181(2)). The FWC's guidance also expects you to give employees at least seven days' notice of the vote and access to the agreement and any materials incorporated in it, so build that into the timeline even though it is guidance rather than a statutory period. The vote can be conducted by ballot or electronically (s 181(3)).

A single-enterprise agreement is made when a majority of the employees who cast a valid vote approve it (s 182(1)). Once made, a bargaining representative must apply to the FWC for approval within 14 days (s 185(3)).

What the FWC checks before approving

The FWC must approve an agreement if the requirements in s 186 are met. In practice it examines:

Genuine agreement: the FWC must be satisfied the employees genuinely agreed, taking into account the statement of principles made under s 188B. The employees who voted must have a sufficient interest in the terms and be sufficiently representative of the group the agreement covers (s 188(2)). The Federal Court has described the inquiry as going to the authenticity of the employees' agreement, including whether those who voted had an informed and genuine understanding of what was being approved (One Key Workforce Pty Ltd v CFMEU [2018] FCAFC 77). Minor procedural errors can be disregarded if employees were not likely to have been disadvantaged (s 188(5)), but systemic failures in the notice, explanation or vote are fatal.
The BOOT and the NES: the agreement must pass the better off overall test and not contravene the NES (s 186(2)(c) and (d)).
Fairly chosen group: the group of employees covered must be fairly chosen, and if the agreement does not cover all employees, the FWC considers whether the group is geographically, operationally or organisationally distinct (s 186(3) and (3A)).
Mandatory and unlawful terms: the agreement must include the dispute, flexibility, consultation and delegates' rights terms and must not contain unlawful terms (s 186(4) and (6)).
Multi-enterprise requirements: each employer must have genuinely agreed, and no one may have coerced or threatened to coerce an employer into making the agreement (s 186(2)(b)).

If the FWC has a concern about a specific requirement, it can approve the agreement with undertakings, binding written commitments from the employer that address the concern (s 190). An undertaking cannot cause financial detriment to employees or result in substantial changes to the agreement, so it is a tool for fixing technical concerns, not for rewriting the deal. If the only problem is the BOOT, the FWC can still approve in exceptional circumstances where approval would not be contrary to the public interest, for example where the agreement is part of a reasonable strategy to deal with a short-term crisis in the enterprise (s 189). Otherwise approval is refused and the process starts again, which is the costly outcome the process is designed to avoid.

Life after approval

Once approved, the agreement applies to the exclusion of the modern award for the employees it covers (s 57), and its base rates take over from the award rates. The NES continue to apply as a floor. Only one enterprise agreement can apply to an employee at a time, and a replacement agreement cannot apply until the earlier agreement has passed its nominal expiry date (s 58).

The nominal expiry date matters in other ways too. While the agreement is in force, neither side can organise or engage in industrial action until the nominal expiry date has passed (s 417). After that date the agreement keeps operating until it is replaced or terminated. Terminating an agreement before its nominal expiry date requires the agreement of the employer and employees, followed by FWC approval (ss 219 to 223). After the nominal expiry date, an employer, employee or union can apply to terminate it, and the FWC must terminate where continued operation would be unfair to employees, the agreement covers no employees, or its continued operation would pose a significant threat to the viability of the business (ss 225 to 226).

Two recent changes are worth knowing about. Pre-2010 agreements, sometimes called zombie agreements, were automatically terminated on 7 December 2023 unless the FWC extended them. And the FWC can now reconsider whether an approved agreement passes the BOOT if patterns of work it did not consider at approval later emerge (Division 7A of Part 2-4), so the modelling done at drafting time can be revisited years later.

An agreement does not displace the rest of employment law. The unfair dismissal, general protections and redundancy provisions of the Act continue to apply on top of whatever the agreement says, so a well-drafted agreement still needs to sit alongside compliant contracts and policies.

Where agreements come unstuck

Most failed applications trace back to one of a handful of recurring problems:

The BOOT was modelled on only part of the workforce: If the analysis covers one classification or one roster but not part-time, casual, evening or weekend patterns, a reasonably foreseeable employee will be missed. Model every realistic scenario.
The explanation was hollow: The FWC scrutinises whether employees were given a genuine opportunity to understand and ask questions. Plain English summaries, translated material where needed and a real chance to raise concerns all count.
Timing errors: A vote requested before the 21-day period has run, a notice given late, or an application lodged after 14 days gives the FWC grounds to refuse, even if the terms are good.
Missing or unlawful terms: Forgetting the delegates' rights term on a post-1 July 2024 vote, or slipping in a term that excludes unfair dismissal protection, fails the s 186 checklist.
Multi-enterprise complications: Before employees of a multi-enterprise agreement can vote, the employer must have written agreement from the relevant employee organisations or a voting request order (s 180A).
Misalignment with contracts and policies: If individual contracts and policies contradict the agreement, disputes follow. The agreement should be the foundation, with contracts and policies built to match it.
Poor records: If approval is challenged, the employer carries the burden of showing what was explained, when notices were given and how the vote was run. Documentation is the evidence.

When to get a lawyer involved

An enterprise agreement project has several points where professional input pays for itself. A lawyer can help you decide whether an agreement is worth pursuing at all, since many small businesses are better served by an award plus well-drafted contracts and policies. If you do proceed, a lawyer can model the BOOT across your actual and reasonably foreseeable work patterns, draft the mandatory terms so they are compliant and workable, and build a process checklist for the notices, explanation and vote that the FWC will later examine.

Later in the cycle, a lawyer is valuable when the FWC raises concerns, since a well-drafted response with undertakings can save an application that would otherwise be refused, and when you need to vary or terminate an agreement, which itself requires votes and FWC approval. If bargaining reaches a dispute or an intractable bargaining application, the stakes rise sharply because the FWC can impose terms, and legal representation becomes difficult to do without.

The pre-application groundwork

Everything the FWC decides, it decides on evidence of process and modelled outcomes, not on what the parties intended. The notice dates, the explanation given to employees, the BOOT analysis across every foreseeable roster and classification, and the conduct of the vote are the things that will be scrutinised, and they are all in place before the application is lodged. The cost of rework after a refusal, or of an FWC-imposed determination after a bargaining breakdown, far exceeds the cost of getting the preparation right at the start. An initial conversation with an employment lawyer can scope whether an agreement is worth pursuing for your business, and if it is, what the process will realistically take.