How enterprise agreements work, a guide to collective bargaining

Collective bargaining lets an employer set pay and conditions for a whole workforce in one negotiated document. Done well, it replaces a patchwork of award rates, individual arrangements and ad hoc promises with one consistent set of rules that payroll, rostering and frontline managers can actually apply.

In Australia the process is not a free-form negotiation. It is a statutory scheme in Part 2-4 of the Fair Work Act 2009 (Cth) (the FW Act), and the document it produces, called an enterprise agreement, has no legal effect until the Fair Work Commission (the FWC) approves it. This guide explains how the scheme actually operates: who is involved, which bargaining stream applies to you, what the law requires at each step from first proposal to approval, and how an agreement behaves once it is in force. It matters most if you employ award-covered staff and want consistent terms, or if a union or your employees have already asked to bargain.

Who is involved in bargaining

The scheme brings together a small set of players, each with a defined role.

The employer or employers: One business can bargain on its own, or related businesses can bargain together. Related employers include franchisees of the same franchisor, which is why a franchise network can make one agreement covering outlets that are separate companies (s 172(5A)(c) of the FW Act).
The employees: The people who will be covered by the agreement. Each employee can appoint a bargaining representative, usually their union but sometimes another person. An enterprise agreement cannot be made with a single employee; there must be at least two (s 172(6)).
Bargaining representatives: The employer, and any union or other person an employee appoints, each act as bargaining representatives. They are the ones who must meet the good faith requirements discussed below.
The Fair Work Commission: The FWC runs the rails of the system. It makes authorisations and orders during bargaining, oversees protected action ballots, approves agreements, and settles disputes under an agreement's dispute resolution term.
The Fair Work Ombudsman: Once an agreement is in force, the Ombudsman is the agency that investigates non-compliance, including underpayment, and takes enforcement action through the courts.

Choosing a bargaining stream

Bargaining can start because the employer initiates it, because employees or a union request it, or because the FWC makes a determination. Before that happens, it pays to know which type of agreement you are heading towards, because the type fixes who must be involved and which approval rules apply.

Single-enterprise agreements: made by one employer, or two or more related employers, with their own employees (s 172(2)). This is the default for most small and medium businesses.
Multi-enterprise agreements: involve two or more employers that are not all related (s 172(3)). There are three streams: a single interest employer agreement, which follows a single interest employer authorisation covering employers with a common interest such as franchisees in the same network; a supported bargaining agreement, which follows a supported bargaining authorisation for employers that share characteristics and face barriers to bargaining on their own; and a cooperative workplaces agreement, where employers choose to bargain together voluntarily, with at least some of the covered employees represented by a union during bargaining (s 186(2A)).
Greenfields agreements: made for a genuine new enterprise that has not yet employed the people who will work in it, and negotiated with the relevant union or unions rather than voted on by employees (s 172(4)).

The streams are not interchangeable once you are in one. If an employer is named in a single interest employer authorisation, that employer can only make a single interest employer agreement with the employees covered by the authorisation, and cannot bargain for any other kind of agreement with them (s 172(5)). The same restriction applies to employers named in a supported bargaining authorisation (s 172(7)). There is also a hard exclusion: the FWC must not approve a non-greenfields multi-enterprise agreement that covers employees doing general building and construction work (s 186(2B)).

The rules that govern the negotiation

Once bargaining is underway, every bargaining representative must meet the good faith bargaining requirements in s 228 of the FW Act. In short, each representative must:

attend and participate in meetings at reasonable times;
disclose relevant information in a timely way, other than confidential or commercially sensitive information;
respond to proposals made by other representatives in a timely way;
give genuine consideration to proposals, and give reasons for responses;
refrain from capricious or unfair conduct that undermines freedom of association or collective bargaining; and
recognise and bargain with the other representatives.

Two points are easy to misunderstand. First, the requirements do not force anyone to make concessions or reach agreement (s 228(2)). Bargaining in good faith is not the same as agreeing to everything. Second, the FWC can enforce the rules: it can make a bargaining order that directs particular conduct, and a party that ignores the process can find itself on the wrong side of an intractable bargaining declaration, with the FWC eventually able to arbitrate the dispute.

Industrial action is the pressure valve in this system, and it is tightly controlled. Strikes or lockouts connected with bargaining are only lawful if they are protected. To get there, a union must apply for a protected action ballot order (s 437), the FWC must make the order if the statutory requirements are met (s 443), employees must vote in a ballot, and a majority must approve the proposed action. The ballot cannot be conducted by a show of hands (s 451(2)), and written notice must be given before the action starts. Unprotected action can be stopped by FWC order and can expose the organisers to liability, so employers facing a ballot are usually best served by engaging seriously with the bargaining rather than resisting the process itself.

What can go into the agreement

An enterprise agreement can only deal with certain matters, called the permitted matters: things pertaining to the relationship between the employer and the covered employees, things pertaining to the relationship between the employer and any covered union, deductions from wages that an employee authorises, and how the agreement will operate (s 172(1)). Terms that fall outside this list are unlawful terms, and the FWC will not approve an agreement that contains them (s 186(4)).

The agreement also sits on top of a non-negotiable floor. It cannot exclude the National Employment Standards (the NES), the ten minimum standards covering things like maximum weekly hours, annual leave, personal and carer's leave, parental leave and notice of termination (s 55). The FWC must be satisfied the agreement does not contravene s 55 before it approves it (s 186(2)(c)). And the base rate of pay under the agreement cannot be less than the rate the employee would get under the relevant modern award, or the national minimum wage where no award applies (s 206).

Four further terms are compulsory. Every agreement must include a flexibility term, which lets an individual employee and the employer agree an individual flexibility arrangement that varies how the agreement applies to them, so long as it is genuinely agreed and leaves the employee better off overall than they would be under the agreement (ss 202-203). It must include a consultation term covering major workplace change and changes to rosters or ordinary hours (s 205), and, following the Closing Loopholes No. 2 reforms, a delegates' rights term for workplace delegates (s 205A). Finally, it must include a dispute resolution term that lets the FWC, or another independent person, settle disputes about matters arising under the agreement and about the NES, with employees allowed representation in that process (s 186(6)).

Before the vote: the pre-approval steps

Before an employer can ask employees to vote, the FW Act imposes pre-approval steps in s 180. The employer must take all reasonable steps to make sure employees who will be covered are given, or given access to, the final agreement and related documents, and must not knowingly or recklessly make false or misleading representations in those documents (s 180(4A)-(4C)). The employer must also take all reasonable steps to ensure the terms of the agreement, and their effect, are explained to employees in an appropriate manner that takes account of their circumstances and needs. The Act names examples: employees from culturally and linguistically diverse backgrounds, young employees, and employees who did not have a bargaining representative (s 180(5)-(6)).

These steps replaced an older, more prescriptive regime. Under the Secure Jobs, Better Pay Act 2022 (Cth), the fixed seven-day access period that used to apply before voting was removed for bargaining that commenced on or after 6 June 2023. The FWC now focuses on whether the agreement was genuinely agreed, which is tested in part by whether these pre-approval steps were followed (s 186(2)(a) and s 188). If your bargaining started before that date, different transitional rules may apply, so it is worth confirming which version of the test applies to you.

The vote and how an agreement is made

Once the pre-approval steps are done, the employer requests a vote under s 181. For a single-enterprise agreement, the agreement is made when a majority of the employees who cast a valid vote approve it (s 182(1)). A multi-enterprise agreement is made employer by employer, with the majority test applied to the employees of each employer that will be covered (s 182(2)). A greenfields agreement is different: it is made when it is signed by the employer and each relevant union (s 182(3)).

A common practical mistake is treating the vote as the finish line. It is not. The agreement still has to be approved by the FWC, and the way the vote was organised, communicated and explained will be scrutinised as part of that approval.

Approval by the Fair Work Commission

The employer applies to the FWC for approval of the agreement. Under s 186 the FWC must approve it if it is satisfied of a checklist of matters:

the agreement was genuinely agreed to by the covered employees (s 186(2)(a));
its terms do not contravene the NES interaction rule in s 55 (s 186(2)(c));
it passes the better off overall test (s 186(2)(d));
the group of employees covered was fairly chosen, taking into account whether the group is geographically, operationally or organisationally distinct if it does not cover all employees (s 186(3)-(3A));
it contains no unlawful terms (s 186(4));
it specifies a nominal expiry date no more than four years after the day of approval (s 186(5)); and
it includes the required dispute resolution term (s 186(6)).

If the FWC has a concern about a particular requirement, it can accept a written undertaking from the employer that fixes the issue, rather than refusing the agreement outright (ss 190-191). Undertakings are common where the FWC identifies a BOOT problem, such as a weekend penalty rate that comes up short. Only in exceptional circumstances, where approval would not be contrary to the public interest, can the FWC approve an agreement that does not pass the BOOT; the Act gives the example of an agreement that is part of a reasonable strategy to deal with a short-term crisis (s 189).

The better off overall test

The BOOT is the substantive heart of approval. An agreement passes it if the FWC is satisfied that each award-covered employee, and each reasonably foreseeable employee, would be better off overall under the agreement than under the relevant modern award (s 193). The comparison is a global assessment: the FWC weighs the terms that are more beneficial against the terms that are less beneficial for each employee, rather than line-by-line (s 193A(2)).

The modern award still matters here even though the agreement will replace it for covered employees. The award is the yardstick for the BOOT, and it also sets the base-rate floor in s 206. When applying the test the FWC can have regard to the patterns or kinds of work employees actually do, or are reasonably foreseeable as doing, which is why realistic roster data matters so much in the modelling. There is even a post-approval mechanism: if employees later work in patterns the FWC did not consider, an employer, employee or covered union can apply for the FWC to reconsider whether the agreement still passes the test (s 227A).

Operating the agreement

Once approved, an enterprise agreement applies to the covered employees and the relevant modern award stops applying to them (s 57). The NES still applies on top, and nothing in the agreement can reduce those entitlements. The agreement also does not lapse when its nominal expiry date passes; it continues to operate until it is replaced or terminated.

Day-to-day compliance tends to be where agreements come unstuck. The two highest-risk areas are payroll and rosters. Payroll systems must implement the agreement's pay tables, allowances, loadings and higher duties provisions exactly, because the FW Act requires accurate time and wage records and pay slips, and underpaying against an agreement is a civil remedy provision that the Fair Work Ombudsman investigates. Rostering must respect the agreement's ordinary hours, overtime and penalty structures, and the consultation term must be triggered before major change, including restructures and significant roster changes.

Varying, replacing or terminating an agreement

An agreement is not permanent. It can be varied if the affected employees approve the variation by a majority of valid votes and the FWC approves it, which involves a fresh look at the approval requirements including the BOOT (ss 207-216, 209). It can also be terminated, again with employee approval and FWC sign-off (ss 220-226). Because an agreement continues past its nominal expiry date, many employers start bargaining a replacement well before expiry so they are not negotiating from a position of drift.

Where the process commonly stalls

The failure points in this scheme are remarkably consistent.

Vague coverage clauses: create problems at approval, because the FWC must be satisfied the covered group was fairly chosen and can reject a group that is not geographically, operationally or organisationally distinct (s 186(3A)).
Unrealistic BOOT modelling: the most common cause of undertakings or refusals. An agreement that cuts weekend penalties will not pass if the roster data shows employees genuinely work weekends, unless other terms offset the reduction.
Skipping the explanation: undermines genuine agreement. If employees were not given a real explanation of what they were voting on, the agreement can fail approval even though a majority voted yes.
Multi-employer misfires: happen when an employer joins a stream without understanding that the authorisation locks them into that stream, or that building and construction work is excluded (s 186(2B)).
Transitional rules: catch people who assume the current test applied to their older agreement. Whether an agreement is tested under the pre-2023 or post-2023 rules depends on when bargaining started.

When to bring a lawyer in

Most of the value a lawyer adds in this area comes early, and the decisions are cheap to fix at the start and expensive to fix at approval. A practitioner can help you choose the right bargaining stream, scope the coverage so the group is fairly chosen, model the BOOT against real roster data before you commit to a proposal, and draft the agreement, the explanation materials and the disclosure documents so they survive scrutiny. If the FWC raises a concern, a lawyer can negotiate the terms of an undertaking, and later can guide you through variations, termination and replacement bargaining before the nominal expiry date catches you out.

The approval risk hidden in your rosters

Everything in this scheme ultimately comes back to one question: can you show the FWC, from documents and data you already have, that the agreement was genuinely agreed to and that every current and reasonably foreseeable employee is better off overall? The rosters, payroll reports and consultation records you keep during bargaining are the evidence that answers that question, and the BOOT now explicitly lets the FWC look at the work patterns those records reveal. An agreement that looks fine on paper but ignores how your staff actually work will surface at approval, in an undertaking, or in a later reconsideration. Getting the data right before you propose terms, and taking legal advice on the stream and the modelling while the choices are still open, is far cheaper than re-running a failed approval or defending an underpayment claim after the agreement is in force.