Enterprise Bargaining and Labour Productivity under Fair Work Act of 2009

This research paper delves into analysis of legal obligation and entitlement created under the Fair Work Act when forming enterprise agreements; the problems associated with measuring labour productivity and finally the views of trade unions and employer organisations concerning the link between enterprise agreements and labour productivity.

EMPLOYMENT RELATIONS
INTRODUCTION
Enterprise bargaining was introduced in Australia in the early 1990s. The concept was
introduced as a new strategy to negotiate employment terms and new wages. The then minister
for Industrial relations introduced the amendments to the Australian parliament with a speech
highlighting the importance of enterprise bargaining. The amendment was incorporated into Fair
Work Act of 2009 which contains matters relating to employment in Australia. This research
paper delves into analysis of legal obligation and entitlement created under the Fair Work Act
when forming enterprise agreements; the problems associated with measuring labour
productivity and finally the views of trade unions and employer organisations concerning the
link between enterprise agreements and labour productivity as discussed below
ENTERPRISE AGREEMENTS UNDER FAIR WORK ACT OF 2009
Enterprise bargaining refers to the process of negotiation between employers and employees or
through their representatives to form an enterprise agreement.1 The whole process of enterprise
bargaining, contents of enterprise agreement, legal requirements, rights, duties, obligations and
the entitlements of each negotiating parties are contained in the Fair Work Act 2009 (FWA). The
FWA also contains provisions for registration and approval of the enterprise agreements for legal
enforceability in case of any disputes.
An enterprise refers to any kind of an undertaking, a business or a project activity. Enterprise
agreements are done at the enterprise level.2 The agreement cannot be entered into with one
1 Fair Work Act s 12 Dictionary of the Act
2 n 1 above s 12

employee.3 The process takes the form of collective bargaining negotiations which are carried
out in good faith by the parties. Parties intend to be legally bound by the terms and conditions of
the agreement once it is approved and registered. Enterprise agreements are classified into the
below explained categories;
a. Single enterprise agreement
This kind of agreement is entered into by a single employer or two or more employers having a
single interest and employees. The employees are to be employed during the time when the
agreement is made. Single interest employers refer to different employers engaging in a common
enterprise, a joint venture or corporations that are related.4 Single interest employers could also
include franchisees authorized by the Fair Work Commission or declared as so by the Minister of
Employment.5
b. Multi enterprise agreements
This type of an agreement is an enterprise agreement entered into by two or more employers not
having a single interest and the employees. The employees are supposed to be employed upon
the agreement being made and that their interest will be covered by the agreement formed.6
c. Greenfields agreement
This kind of an enterprise agreement is entered into before employees are employed. It is made
because of an employer in either single party agreement or multi-party agreement introducing a
3 n 1 above s 175 (6)
4 n 1 above s 172(5)
5 Fair Work Act 2009 s 172(2)
6 n 3 above s 172 (3)

new enterprise hence requiring more employees. This kind of an agreement is entered into by the
employers and employees’ trade unions. 7
Terms that must form the contents of an enterprise agreement
Terms in an enterprise agreement constitutes the following; relationship between the employees
and the employer; relationship between the employer and the trade unions; authorized deductions
from the wages by the employer; operation parameters of the agreement itself, the duration of the
agreement which cannot exceed four years from the date the agreement was approved by the Fair
Work Commission; dispute settlement clause setting the dispute settlement procedures
conforming with the National Employment Standards (NES); individual flexibility clause
required for both employers’ and employees’ needs; consultation clause obligating the employer
to consult the employees before initiating major changes affecting the work place. Consultation
clause as well as flexibility clause is mandatory terms of the enterprise agreement8
Procedure for initiating and forming an enterprise agreement
The employees must be notified by the employer of their right to have a bargaining
representative on the negotiation table.9 The notification is however not a requirement under the
Greenfields agreement since the other party to the negotiation table is always an employee’s
Organisation or a trade union. The above notification must be made to employees within 14 days
after a notification for commencing the bargaining has been issued.10 Under the process for
Greenfields agreement, the employer must issue a written notice for the proposed agreement to
the trade union. The trade union seats on the negotiating table as the representative of the
7 n 3 above s 172(4)
8 Fair Work Act 2009 202 and 205
9 Fair Work Act 2009 s 173
10 n 8 above s 173(3)

employees yet to be employed in the new enterprise. The notice sent to the trade union must state
the commencing date of the six month duration for Greenfields agreement negotiation.
Individuals or organisations that can be bargaining representatives
According to Fair Work Act, the following people or organisations can be bargaining
representatives; a trade union whose one of its members is going to be positively affected by the
agreement unless the members specifies in writing another person to represent him. An employer
who is to be covered by the agreement is also a bargaining representative. The other
representatives include a trade union representing employees under a Greenfields agreement;11 a
person specified as a representative by an employee or employer. The specification has to be
made in writing.12 All the people represented whether employees or employers must be covered
by the agreement being negotiated.
Bargaining representatives have a legal obligation to disclose any financial benefit they will get
from a certain term of the agreement being negotiated.13 The disclosure has to be made using a
disclosure document which sets out the details of the financial benefit being disclosed.14 The
disclosure document must be handed over to the employer the employer Organisation or a trade
union. The employer upon receipt of the document will then hand it to the employees.
Requirements of bargaining in good faith
While participating in the enterprise agreement negotiations, bargaining representatives are
supposed to act in good. They are supposed to attend negotiation meetings on time; disclose any
insensitive or non-confidential information that is relevant and respond to proposals from the
11 n 8 above s 177
12 Fair Work Act 2009 s 176(1)
13 n 11 above s 179(1)
14 n 12 above s 179(4)

other party on time. They also supposed to offer consideration with reasons thereto to proposals
given by the other parties.
In upholding good faith, the bargaining representatives are required not to act capriciously or
unconscionably in a way that violated the right to have a collective bargaining agreement and
freedom of association. Bargaining representatives must recognize the other representatives and
bargain effectively.15 The Fair Work Commission will only approve an enterprise agreement
upon being certain that the parties have discussed in good faith. In order to ascertain that the
agreement was entered into in good faith, it must not be prejudicial or unfair to one of the parties.
Procedure for approving an enterprise agreement
Upon completion of collective bargaining and negotiations, the draft enterprise agreement must
be presented to the employees covered under it for a vote of approval. Seven days before the
voting day employees must receive a copy of the draft enterprise agreement and any other
material information attached to it from the employer.16 The employees must also be notified
about the venue, time and method of voting by the employer.17 The employers have an obligation
to explain the terms of the enterprise agreement to employees so that they vote on an informed
perspective about what they are voting for.
The above explanations have to be made in a suitable manner that is understandable to each
category of employees, whether young, old, from different cultural backgrounds or those who
did have representatives during bargaining.18 The voting must take place 21 days from the date of
15 Fair Work Act 2009 s 228(1)
16 Fair Work Act 2009 s 180(2)
17 Fair Work Act 2009 s 180(3)
18 n 15 above s 180(5)(6)

notification to employees on their right to be represented by a bargaining representative. The
endorsement of the enterprise has to take place by being voted for by the employees.19
Successful endorsement of the enterprise agreement by employees’ valid votes
Where the agreement is a single-enterprise agreement, it will be successfully endorsed by a
majority number of the employees of an employer or employers having a single interest in a
common venture. The votes casted must be valid for the endorsement to be successful.20 In a
multi-enterprise agreement, the endorsement is deemed successful where majority employees of
at least one of the employers cast a valid vote. The agreement will therefore cover employers
whose employees have participated in endorsing it through voting.21 After endorsement, the
multi-enterprise agreement is adjusted and varied accordingly to remove employers whose
employees did not participate in voting to endorse and approve the agreement.22 Under
Greenfields agreement, there are no employees thus the approval and endorsement is by way of
signing by each employer and trade unions covered by the agreement.23
Fair Work Commission Approval
Approval by the commission is commenced upon application by a bargaining representative.24
The lodging of the application for approval with the Fair Work Commission must be done within
14 days from the date the agreement was made where the agreement is not Greenfields
agreement.25 The application period may however be extended with the consent of the
commission. The application to the commission must have attachments of a signed copy of the
19 Fair Work Act 2009 s 181(1)(2)(3)
20 Fair Work Act 2009 s 182(1)
21 Fair Work Act 2009 s 182(2)
22 Fair Work Act 2009 s 184(1)(2)
23 Fair Work Act 2009 s 182(3)
24 Fair Work Act 2009 s 185(1)
25 Fair Work Act 2009 s 185(3)

agreement and relevant declarations as required by the commission.26 Before the commission
approves it must be certain and satisfied that the employees covered by the agreement have
genuinely negotiated and agreed. In the case of a multi-enterprise agreement, the employers
covered must have agreed freely without, duress or undue influence caused by threats, coercion
or favour. A trade union or an employee Organisation acting as a representative in an enterprise
agreement negotiation that is not Greenfields agreement is entitled to write a notice to the
commission seeking approval to be covered by the agreement it negotiated.27
The agreement in general must fulfill and pass the required test of Better Off Overall Test
(BOOT).28 For the agreement to be approved it must have legal terms that are consistent with
NES and Textile Clothing or Footwear (TCF) outworkers. Other requirements for approval
include: fair selection of the employees covered, availability of dispute settlement clause,
flexibility arrangement clause, consultation clause, and evidence of good faith negotiations.
Employees who approved the agreement must be the only covered by the agreement. Both the
TCF outworkers and those under industrial instruments awards must have fair terms that are not
detrimental to either of the parties.29
Greenfields agreements will be approved on a condition that the trade unions covered by the
agreement are supposed to represent the interest of majority workers for purposes of public
interest.30 If the employer and the trade union fail to reach a consensus within six months of
negotiating a Greenfields agreement,31 the employers can still proceed to lodge the application
for approval to the Fair Work commission. The same criteria discussed above applies whereby
26 Fair Work Act 2009 s 185(2)
27 Fair Work Act 2009 s 183(1)
28 Fair Work Act 2009 s 186(2)(d)
29 Fair work Act 2009 s 186,187
30 Fair Work Act 2009 s 187 (5)(6)
31 Fair Work Act 2009 s 178(b)

the Greenfields agreement has to fulfill the above discussed requirements including passing the
BOOT test, NES, TCF and any standards of the relevant industry.
The enterprise agreement enters into force and commences operation seven days after approval
by the commission or at a later date stated in the agreement itself. Once the agreement is in
operation, the terms and conditions of contract of service or employment shall be referred from
the enterprise agreement including settling the employment disputes. An enterprise agreement
will expire on a date stated in the agreement or if not stated, two years from the date it was
approved by the commission.32
Handling a bargaining dispute
Bargaining disputes mostly arises where a party fails to bargain in good faith. Where the dispute
escalates to a grave matter beyond representative’s solution, one of the parties may apply to the
Fair Work Commission for an amicable solution.33 The commission will then issue a bargaining
order relating to the proposed agreement.34 The bargaining order will contain the actions that the
commission can take to promote a fair ground for effective negotiations.35
Before the commission makes a bargaining order, it must ensure that the other bargaining
representatives have been notified by the party that made the application. The aggrieved
representative must give reasonable to the other party to respond to concerns raised.36 The order
will only be made upon the commission being certain that one or more parties are not meeting
the good faith bargaining requirements. The commission must also be curtained that there is
32 Fair Work Act 2009 s 189(4)
33 Fair work Act 2009 s 229(1)
34 Fair Work Act 2009 s 230(1)
35 Fair Work Act 2009 s 231 (1)
36 Fair Work Act 2009 s 229(4)

multiplicity of bargaining representatives thus the process is not moving on effectively on a fair
ground.37
Consequences of violating a bargaining order issued by the Fair Work Commission
Where an order to ensure good faith bargaining is contravened, investigation may be commenced
into the alleged contravention. The Fair Work Ombudsman is tasked with the duty to investigate
and take a legal action against the offender. The penalties for such contravention include a fine
of up to $12,600 where the offender is an individual and $ 63,000 for a corporation.38
Handling a deadlock where parties are unable to reach the agreement
In the case of parties or bargaining representatives reaching a deadlock and failing to agree on
the proposed enterprise agreement, one of the representatives may apply to the Fair Work
Commission for assistance.39 The Fair Work Commission will then make a determination
relating to work place terms and conditions after 21 days of assistance to reach a consensus but
the parties still fail to agree.40 Where there is a breach of a bargaining order issued earlier on, the
commission will make declaration for serious breach of the orders by the offending
representative.41
Alternatively the employees may commence an industrial action upon their representatives
reaching a deadlock. The Fair Work Act 2009 provides for strict rules and regulations governing
industrial action. The regulations state the rights, duties, responsibilities and obligations of the
employers, employees and their organisations in terms of industrial action.42
37 Fair Work Act 2009 s 230(3)
38 Fair Work Regulations 2009 r 5.05
39 Fair Work Act 2009 s 240 (1)
40 Fair Work Act 2009 s 262
41 Fair Work Act 2009 s 235
42 Fair work Act 2009 s 408-430

Fair Work Commission assistance to low paid workers
Where it is in the public interest for the commission to authorize low-paid bargaining, the
commission will make such authorization upon application by a trade union or a bargaining
representative.43 Before granting the authorization, the commission will consider the bargaining
strength between the employer and the employees involved, productivity and service delivery
improvements due to the authorization, difficulties faced in negotiation, current employment
terms and conditions and whether it is the first time parties are negotiating.44 After the
commission has ascertained the above factors, it will then assist the low-paid employees and
their employers bargain and conclude a multi enterprise agreement. The commission can also
determine some issues under certain circumstances in the course of negotiations.45
KEY PROBLEMS AFFECTING MEASURING OF LABOUR PRODUCTIVITY
Labour productivity is one of the key factors of determining the performance of an economy.
Productivity is however combined with other factors such as efficiency, funding and others to
boost organizational growth. Labour productivity is vital in decision making on policies and
incentives to be introduced in an Organisation. Measuring labour productivity however faces
numerous challenges such as lack of a universal measurement standard among others which
might impair the decisions made as discussed below;46
Lack of a universal method used to measure labour productivity
43 Fair Work Act 2009 s 242(1)
44 Fair Work Act 2009 s 243(2)(3)
45 Fair Work Act 2009 s 246
46 William Ruch, A, ‘Measuring and Managing Individual Productivity,’ chapter 5 of Organisational Linkages:
Understanding the productivity Paradox(1994

There is no one particular universal standard used to measure worker productivity. The method
chosen depend on the type of input being target, the industry type and the services being
rendered. The method selected will also depend on the setting of the environment where the
measurement data is being assembled.47 Comparability of the previous data to the current data or
with firms from different countries or sectors may not be possible due to variety of results
obtained.
Use of single work places which does not represent the whole industry or sector in an economy
When evaluating employees’ performance in an employment sector, the evaluators measure a
single work place at a time. The work place chosen does not represent the other sectors since
different work places have different factors affecting employees’ performance. Limitation in
terms of the work place being measured therefore gives a narrow view of productivity results in a
particular employment sector
Productivity aspects are multi-dimensional hence measuring only one dimension may not give
the best results
For accurate productivity results to be realized, evaluators have to consider different dimensions.
The various dimensions of labour productivity include time, quality and quantity dimensions
among others. It is however difficult to measure all the productivity dimensions at the same time.
Results based on one dimension are not accurate since numerous factors contribute to labour
productivity.
47 Ichniowski, C., and K. L. Shaw, “Insider econometrics: Empirical studies of how management matters.” In:
Gibbons, R., and J. Roberts, Handbook of Organizational Economics. Princeton, NJ: Princeton University Press,
2013; pp. 263−311.

The results based on one dimension may end up giving a wrong perspective of productivity. If
such information is relied on for decision making by the managers, it may result to making of
wrong decisions which may affect the whole industry or sector in the economy. One has to
measure the three dimensions mentioned above separately using different measurement methods
then relate the result to come up with the true evaluation of labour productivity.
Not easy to measure individual productivity where performance is to be ascertained at team level
In some industrial sectors or economy, productivity can only be measured in terms of team work.
It is therefore difficulty to ascertain the performance and productivity of an individual working in
a team. Individual working behaviour is very important when measuring individual
productivity.48 There could be few members of the team working very hard to spearhead the team
and steer it towards realizing good results in terms of input and output to deliver their best to the
people. The rest could be just lazing around and joyriding on other peoples’ back. It will
therefore be difficult to sport the low productivity of the lazy individual since they are all in a
team with high productivity based on the efforts of few individuals.49
High cost of measuring an individual’s labour productivity
It is almost difficult and impossible to measure the productivity of each individual worker in an
industry. This is due to the high cost and the tediousness of such an exercise. Employers and
other stakeholders therefore evaluate the performance of individuals based on key performance
indicators to determine their productivity. Performance indicators are general and apply to
48 Douglas H, organizational linkages; understanding the productivity paradox, (National Academy Press
Washington, D.C. 1994)
49 Shaw, K., and Lazear, E, “Tenure and output,” (2008) Labour Economics 15:4, pp 704−723.

everyone equally without some degree of uniqueness of an employee’s was of delivering output.
The performance indicators may therefore not offer the based results of individual person’s
labour productivity.50
Negative effects on workers due to wrongly chosen measuring strategy
Where the evaluators decide to use a wrong performance measures, the results could be distorted
hence demotivating the workers yet they are wrong results. Distorted results will have negative
effects to workers causing them to down their tools even if they were working hard. Negative
results on productivity based on wrong method of measurement may lead to wrong decision
making which in turn will have a huge impact on productivity. Some organisations or sectors
directly use workers’ productivity to award incentives.51 Studies have recently shown that
monetary incentives improve performance output and labour productivity.52
It is always difficult to find and settle on one best method since the productivity sector is
multidimensional. The aspect of being multi-dimensional requires one to select different methods
for measuring different dimensions at a time. Due to selection of these different methods one
may end up choosing a wrong method. The inappropriate method chosen will end up distorting
the results and causing serious consequences in terms of decision making issues of managing and
supervising employees.53
50 Sauermann, J, “Performance measures and worker productivity,” (2016) IZA World of Labor, ISSN 2054-9571,
Institute for the Study of Labor (IZA), Bonn, Issue 260
51 Ferraz, C., and F. Finan, Motivating Politicians: The Impacts of Monetary Incentives on Quality and Performance.
NBER Working Papers No. 14906, 2009.
52 Bandiera, O., I. Barankay, and I. Rasul, “Social incentives in the workplace,” (2010) Review of Economic Studies
77:2, pp 417−458.
53 Douglas H, Organizational linkages; understanding the productivity paradox, (National Academy Press
Washington, D.C. 1994)

TRADE UNIONS AND EMPLOYERS’ ORGANISATIONS’ VIEWS ON THE LINK
BETWEEN ENTERPRISE AGREEMENTS AND LABOUR PRODUCTIVITY
Most of the trade unions and employer organisations seem to concur with the Fair Work
Ombudsman statement that enterprise bargaining has resulted to increased productivity and high
economic performance. The position of trade unions was illustrated in a statement given by the
then secretary general of the Australian Council of Trade Unions (ACTU), Mr. Billy Kelty. The
secretary general proposed for formation of different variety of enterprise agreements to cover
different types of employees under different natures of employment.54
Billy Kelty described enterprise agreement using words almost similar to those of the Fair Work
Ombudsman. He stated that enterprise bargaining is a modern approach towards new wage
negotiation strategy. Enterprise bargaining is designed to offer exclusively rewarding jobs
financially with better working conditions. He further explained that enterprise agreements will
result to direct involvement of employees in specifying and designing their workplace
environment and operations. The result of such arrangement will be reformed enterprise
management and increased productivity levels. It is presumed that workers will deliver high
performance output in an environment that they are comfortable and have participated in
formulating the terms and conditions of employment.55
During the background speech before the introduction of legislative amendments introducing
enterprise bargaining in the Fair Work Act the then Minister for Industrial Relations Mr. Peter
Cook stated the aims of the amendments. He justified the legislative amendments by stating that
the introduced enterprise bargaining design the workplace contracts between employers and
54 Tseng, Yi-Ping and Wooden, Mark (2001) Enterprise Bargaining and Productivity: Evidence from the Business
Longitudinal Survey.
55 Bill Kelty speech delivered at the 1991 ACTU Congress; Evatt Foundation (1995), p 73

employees. The government as one of the employers viewed collective enterprise agreements as
one way of increasing productivity of workers. The minister further explained that the end
benefits of such agreements will be improved standards of living and work for employees.56
A report by Business Council of Australia (BCA) proceeded to quantify results of productivity
level increase after operation of enterprise agreements. The BCA report quoted the productivity
upward shift as 25% increase upon the entering into force of the new amendments introducing
enterprise bargaining. The percentage increase was an indicator that employees were comfortable
with their job terms and will to increase their output performance to boost their productivity.57
According to Australian Workplace Industrial Relations (AWIRS) survey report, most of the
employers and workplace managers incorporated collective bargaining into their contracts of
employment. In the survey most of the employers who gave their responses explained that their
main aim and expectation of incorporating enterprise bargaining into their employment policy
was increased productivity at the work place. They had a lot of expectations in terms of high
performance output that is commensurate to the input and other factors affecting the success of
an Organisation.58
From the above discussed reports is evident that most employers and trade unions presume
enterprise agreement to boost labour productivity in terms of performance output. The
presumption is however not the case in some of the states in Australia. Some states have
56 Peter Cook speech delivered in parliament in 1992 to justify the reasons for introducing legislative amendments
with enterprise agreements
57 Business Council of Australia [BCA] Industrial Relations Study Commission (1989), Enterprise based Bargaining
Units: A Better Way of Working, BCA, Melbourne
58 Loundes, J. (1999), ‘Labour Productivity in Australian Workplaces: Evidence from the AWIRS’, Melbourne
Institute Working Paper Series No. 19/99, University of Melbourne, Melbourne.

continued to recently record a downward trend of labour productivity despite having enterprise
agreements in place.59
Professor David Peetz who is an Australian economist and industrial relations researcher and
scholar argues that there is no link between enterprise bargaining and increased labour
productivity. He asserts that the arguments advanced by the BCA report lack economic evidence
directly linking the increased performance output to enterprise bargaining or individual contracts.
According to Peetz, productivity rate only increased in 1990s when the amendments were made
introducing enterprise bargaining. Since 1990s the trend has continued to go down annually
reaching very low levels than the rate under the previous award system of 1980s.60
Peetz uses the case study of Western Australia labour productivity to justify his arguments. He
states that the state of Western Australia repealed its laws on individual labour contracts based
on collective bargaining yet the productivity in Western Australia has been constantly increasing
over the years. This scenario therefore proves that there is no link between increased productivity
rate and the enterprise bargaining agreements.61
CONCLUSION
Enterprise agreement in the labour sector in Australia is similar to what is commonly referred to
as Collective Bargaining Agreements (CBA) in other common law jurisdictions. The negotiation
procedure and legal requirements for signing and approval are provided for under the Fair Work
Act 2009. The approval is done by the Fair Work Commission while the ground rules are
provided for under the Fair Work Regulation 2009.
59 Hawke, A. and Wooden, M. (1998), ‘The Changing Face of Australian Industrial Relations: A Survey’, The
Economic Record 74, March, 74-88.
60 Four Corners, Monday 26 September 2005, Brave new workplace: investigation into proposed industrial relations
reforms, transcript, p.10
61 David, P, submission 33, p.20

Most of the employers and the Australian Council of Trade union view the enterprise agreement
as the best way of integrating employees into determining their own workplace conditions.
Direct measure of labour productivity is very important for useful decision making and policy
formulations such the type of incentives to be awarded to worker and the working condition to be
put in place. Employers should however be careful and exercise caution while relying on direct
worker’s productivity report to make decisions.
The caution has to be taken because of the above discussed numerous challenges facing
measurement of labour productivity. The trade unions and employer organisations are assertive
that the enterprise has resulted to increased productivity and better living standards. David Peetz
however has a different view and states that the government labour agencies reports linking
increased productivity directly to enterprise bargaining lack economic evidence. Peetz gives an
opposite case scenario of New South Wales State which repealed its individual contract laws yet
productivity has been constantly increasing in that state.
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