Enterprise Agreement: Definition & How It Works

An enterprise agreement is a collective agreement made between an employer and its employees that sets out the terms and conditions of employment, including pay rates, leave entitlements, and working conditions. Governed by the Fair Work Act 2009 and overseen by the Fair Work Commission (FWC), enterprise agreements are a cornerstone of Australia’s workplace relations system.

For Australian employers, an enterprise agreement offers flexibility to tailor conditions to your workforce — but the approval process is rigorous, and the agreement must leave employees better off overall compared to the applicable modern award.

Key Takeaways

• An enterprise agreement is a legally binding collective agreement between an employer and employees under the Fair Work Act 2009.
• Enterprise agreements must pass the Better Off Overall Test (BOOT) against the applicable modern award.
• They cover pay rates, leave, overtime, shift patterns, and other conditions specific to the workplace.
• The Fair Work Commission must approve the agreement before it takes effect.
• Enterprise agreements can provide more flexibility than modern awards but require ongoing compliance and review.

What Is an Enterprise Agreement?

An enterprise agreement (EA) is a written agreement that sets out the terms and conditions of employment for a group of employees at a specific enterprise or workplace. Unlike a modern award — which is a generic safety net covering an entire industry — an enterprise agreement is tailored to the particular employer and workforce.

Enterprise agreements replaced the older Workplace Bargaining Agreements (WBAs) and Australian Workplace Agreements (AWAs) when the Fair Work Act came into effect on 1 January 2010. They are now the primary collective bargaining instrument under Australia’s system.

Who Can Make an Enterprise Agreement?

An enterprise agreement can be made between:

• An employer and all of their employees, or
• An employer and one or more employee organisations (unions) representing their employees

The agreement covers all employees in the specified coverage, whether or not they are union members.

How Enterprise Agreements Work

Enterprise agreements go through a structured process from negotiation to approval:

1. Bargaining

The employer and employees (or their union representatives) negotiate the terms of the agreement. During bargaining, both parties must bargain in good faith under section 228 of the Fair Work Act. This means:

• Attending meetings at reasonable times
• Disclosing relevant information
• Responding to proposals honestly and in a timely manner
• Not undermining the bargaining process

2. Employee Vote

Once negotiations are finalised, the agreement is put to a vote of the employees covered by the agreement. A majority of employees must vote in favour for the agreement to proceed to approval.

3. Fair Work Commission Approval

The employer applies to the Fair Work Commission for approval. The FWC assesses the agreement against several criteria, most importantly the Better Off Overall Test (BOOT).

4. Commencement

Once approved, the agreement commences seven days after approval (or a later date specified in the agreement). It replaces the applicable modern award for the covered employees.

Stage	What Happens	Typical Timeline
Bargaining	Negotiation between parties	2–6 months
Employee Vote	Majority must approve	1–2 weeks
FWC Application	Employer submits for approval	1–2 weeks to file
FWC Assessment	Commission reviews against BOOT	2–8 weeks
Commencement	Agreement takes effect	7 days after approval

Enterprise Agreement vs Modern Award

The key distinction between an enterprise agreement and a modern award is scope and specificity.

Factor	Enterprise Agreement	Modern Award
Scope	Specific employer/workplace	Entire industry or occupation
Negotiated	Between employer and employees	Set by the Fair Work Commission
Flexibility	Tailored to workplace needs	Standardised minimum conditions
BOOT	Must meet or exceed the award	Is the benchmark
Duration	Expires after 4 years maximum	Ongoing, reviewed periodically
Coverage	Named employer and employees	All employers in the industry

When Should You Pursue an Enterprise Agreement?

An enterprise agreement makes sense when:

• You want to offer conditions above the award to attract or retain talent.
• Your workforce has specific scheduling or shift patterns that the award does not accommodate well.
• You want flexibility to trade off certain conditions (e.g., higher pay in exchange for different leave arrangements).
• You are in an industry where enterprise bargaining is standard practice (manufacturing, hospitality, education, healthcare).

The Better Off Overall Test (BOOT)

The BOOT is the most critical part of the FWC approval process. Under section 193 of the Fair Work Act, each award-covered employee must be better off overall under the enterprise agreement than they would be under the applicable modern award.

The FWC compares:

• Base pay rates
• Overtime and penalty rates
• Allowances
• Leave entitlements
• Hours of work and flexibility provisions

If the agreement leaves any employee worse off on a net financial basis, the FWC may request amendments before granting approval.

Frequently Asked Questions

How long does an enterprise agreement last?

An enterprise agreement has a maximum nominal expiry date of four years from the date of FWC approval. After expiry, the agreement continues to operate until it is replaced by a new agreement or terminated by the FWC.

Can an enterprise agreement reduce leave entitlements?

An enterprise agreement can include different leave provisions from the modern award, but the employee must be better off overall under the BOOT. This means you cannot reduce leave entitlements below the award minimum without providing compensating benefits elsewhere in the agreement.

What happens if no enterprise agreement is in place?

If there is no enterprise agreement, the applicable modern award covers the employees. The modern award sets out the minimum pay rates, leave entitlements, and conditions for the industry or occupation.

Can employees choose not to be covered by an enterprise agreement?

Individual flexibility arrangements (IFAs) allow individual employees to vary the terms of an enterprise agreement to meet their specific circumstances. However, the employee must be genuinely better off under the IFA, and the variation cannot apply to certain protected award terms.