Enterprise agreements in Australia are negotiated between an employer and its employees (or their bargaining representatives) and approved by the Fair Work Commission under Part 2-4 of the Fair Work Act 2009. An enterprise agreement sets out the terms and conditions of employment for the employees it covers — including pay rates, hours, leave entitlements, and dispute resolution. The agreement must pass the Better Off Overall Test (BOOT) — each employee must be better off overall under the agreement than under the applicable modern award. Once approved, the enterprise agreement replaces the modern award for the employees it covers — but the NES remains the absolute floor.

This guide covers how enterprise agreements work, the BOOT, the negotiation and approval process, and how leave entitlements are set.

Key takeaways

  • Enterprise agreements are negotiated between employers and employees (or bargaining representatives) under Part 2-4 of the Fair Work Act 2009.
  • The agreement must pass the Better Off Overall Test (BOOT) — each employee must be better off than under the applicable modern award.
  • The agreement is approved by the Fair Work Commission — which must be satisfied the agreement was genuinely agreed to and passes the BOOT.
  • Enterprise agreements set pay rates, hours, leave, and conditions — but cannot provide less than the NES.
  • The agreement replaces the modern award for the employees it covers — but only for the terms the agreement addresses.
  • Enterprise agreements have a nominal expiry date of no more than 4 years from approval.

What an enterprise agreement can cover

An enterprise agreement can cover:

Area What it can set
Pay rates Base rates, wage increases, salary sacrifice
Hours Maximum hours, overtime, shift patterns
Leave Annual leave, personal leave, compassionate leave — above the NES minimum
Allowances Travel, meal, uniform, and other allowances
Penalty rates Rates for overtime, weekends, public holidays
Dispute resolution Process for resolving disputes about the agreement
Redundancy Redundancy payments above the NES minimum
Other terms Consultation, training, flexibility

The agreement cannot provide for less than the NES — the NES is the absolute floor. The BOOT ensures the agreement provides more than the modern award overall.

The BOOT (Better Off Overall Test)

The BOOT is the critical test for enterprise agreement approval. Under s.193, the Fair Work Commission must be satisfied that each award-covered employee is better off overall under the agreement than under the applicable modern award.

The assessment compares:

  • Base pay rates
  • Overtime and penalty rates
  • Leave entitlements (including loading)
  • Allowances
  • Other conditions

The Commission assesses the BOOT at the time of approval — not at the nominal expiry date. If the agreement’s terms result in some employees being worse off in some scenarios, the Commission may not approve the agreement unless the employer can demonstrate that, overall, each employee is better off.

The negotiation process

Bargaining representatives

The employer and employees each appoint bargaining representatives to negotiate the agreement. Employees can be represented by:

  • A trade union (if the employees are members)
  • An employee-elected representative
  • Another person chosen by the employees

Good faith bargaining

Under s.228, the employer and bargaining representatives must:

  • Meet at reasonable times and places
  • Disclose relevant information
  • Respond to proposals in good faith
  • Not engage in unfair conduct

Employee vote

Once the agreement is negotiated, it must be put to a vote of the employees covered by the agreement. The vote must be by Australian ballot (secret ballot) and a majority of the employees voting must approve the agreement.

Before the vote, the employer must provide a Fair Work Information Statement to all employees and take reasonable steps to ensure employees understand the terms of the agreement.

Fair Work Commission approval

After the employee vote, the employer applies to the Fair Work Commission for approval. The Commission must be satisfied that:

  1. The agreement was genuinely agreed to by the employees.
  2. The agreement passes the BOOT.
  3. The agreement includes a dispute resolution procedure.
  4. The agreement specifies a nominal expiry date (no more than 4 years).
  5. The employer complied with the notification and access requirements before the vote.

The Commission can approve the agreement with modifications if it is satisfied that the modifications do not disadvantage employees.

Leave entitlements in enterprise agreements

Enterprise agreements commonly set leave entitlements that are more generous than the NES:

Annual leave

  • Enterprise agreements frequently provide 5 weeks’ annual leave (or more) for all employees — not just shift workers.
  • Many agreements provide annual leave loading of 17.5% or a flat loading payment.
  • Some agreements allow employees to cash out a portion of annual leave (subject to NES restrictions).

Personal/carer’s leave

  • Some agreements provide more than 10 days per year.
  • Some agreements allow employees to take personal leave for a broader range of family members.

Other leave

  • Study leave — paid leave for employees undertaking approved study.
  • Extended service leave — additional leave after long service.
  • Volunteer leave — paid leave for community volunteering.

When the agreement expires

When the nominal expiry date passes, the enterprise agreement continues to operate — it does not automatically end. The agreement remains in force until it is replaced by a new agreement, terminated by the Commission, or superseded by a new agreement.

The Fair Work Commission can terminate an expired agreement on application by the employer or employee — s.225. If the agreement is terminated, the applicable modern award applies again.

Common pitfalls

1. Not passing the BOOT

An agreement that provides lower pay rates or fewer leave entitlements than the modern award will not be approved. The employer must demonstrate that each employee is better off overall.

2. Not genuinely agreeing to the agreement

The Commission must be satisfied that the employees genuinely agreed to the agreement. If the employer pressured employees or failed to provide adequate information, the Commission may not approve the agreement.

3. Not including a dispute resolution procedure

The agreement must include a procedure for resolving disputes about the agreement. An agreement without this procedure will not be approved.

4. Forgetting the nominal expiry date

The agreement must specify a nominal expiry date of no more than 4 years. An agreement without an expiry date or with a date beyond 4 years will not be approved.

Putting it into practice

Five steps to manage enterprise agreement compliance:

  1. Identify the applicable modern award — the award is the benchmark for the BOOT.
  2. Map the agreement terms against the award — ensure the agreement provides more in every area.
  3. Track the nominal expiry date — begin negotiating a new agreement before the expiry date.
  4. Manage the employee vote — ensure the voting process is compliant and the majority approves.
  5. Apply for Commission approval promptly — the agreement is not enforceable until the Commission approves it.
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A leave management system that tracks leave entitlements under the enterprise agreement, manages the BOOT comparison, and alerts you when the agreement approaches expiry keeps the process on track.

Sources

This article is general information, not legal advice. Enterprise agreement compliance depends on the specific agreement and its interaction with the modern award — consult the Fair Work Commission or an employment lawyer for specific situations.