See Fair Work Act 2009 s.193
An enterprise agreement that is not a greenfields agreement passes the better off overall test if the Fair Work Commission is satisfied, as at the test time, that each award covered employee, and prospective award covered employee, would be better off overall if the agreement applied than if the relevant modern award applied.
The better off overall test considers the terms that are more beneficial and less beneficial to employees in an agreement, compared to the terms in the relevant modern award.
The better off overall test requires the identification of agreement terms which are more beneficial, and the terms which are less beneficial, and then an overall assessment is made as to whether employees would be better off under the agreement than under the relevant award.[4]
The better off overall test is not applied as a line by line analysis. It is a global test requiring consideration of advantages and disadvantages to award covered employees and prospective award covered employees. The application of the better off overall test therefore requires the identification of the terms of an Agreement which are more beneficial to employees when compared to the relevant modern award, and the terms of an Agreement which are less beneficial and then an overall assessment of whether an employee would be better off under the Agreement.[5]
The Commission must be satisfied that each award covered employee and each prospective award covered employee would be better off overall if the agreement applied to the employee than if the relevant modern award applied to the employee.[6]
The question posed by the better off overall test is not whether each employee is better off under the Agreement compared to their particular existing working arrangements but whether they are better off overall if the Agreement applied rather than the relevant modern award.[7]
An agreement may pass the test even if some award benefits have been reduced, as long as overall those reductions are more than offset by the benefits of the agreement.[8]
When determining whether employees will be better off overall the Commission must disregard any individual flexibility arrangement agreed to by an employee and employer under the flexibility term in the relevant modern award.[9]
This is because it is assumed that any arrangements made under the flexibility term in a modern award would be considered in the negotiating process, and potentially will form part of the agreement, or be negotiated again under the flexibility term in the agreement if approved.
The better off overall test is applied as at the test time – this is the time when the application for approval of the agreement was made (the date the application was lodged with the Commission).[1]
An award covered employee for an enterprise agreement is an employee who:
Note: The enterprise agreement will only apply to an employee once it commences operation (ie after the agreement is approved by the Commission).
A prospective award covered employee for an enterprise agreement is a person who, if he or she were an employee at the test time of an employer covered by the agreement:
Prospective award covered employees are considered in the application of the better off overall test because sometimes an agreement may cover classifications of employees in which no employees are actually engaged at the test time. Extending the application of the better off overall test to these types of employees guarantees the integrity of the safety net.[2]
A prospective award covered employee is a future employee – a person who will be employed under the terms of the enterprise agreement.
An illustrative example is provided in the Explanatory Memorandum:[3]
The Moss Hardware and Garden Supplies Pty Ltd Enterprise Agreement 2010 covers the classification of Assistant Store Manager. At the test time for the better off overall test, Moss Hardware and Garden Supplies Pty Ltd does not employ any Assistant Store Managers. However, it has recently announced that it will restructure its staffing arrangements to introduce this new position. The Assistant Store Manager classification is covered by the relevant modern award. Assistant Store Managers employed after the agreement commences operation would therefore be prospective award covered employees. The Commission would need to be satisfied that the agreement passed the better off overall test in respect of these persons.
[1] Fair Work Act s.193(6).
[2] Explanatory Memorandum to Fair Work Bill 2008 at para. 824.
[3] Explanatory Memorandum to Fair Work Bill 2008 at para. 824.
[4] Re Armacell Australia Pty Ltd [2010] FWAFB 9985 (Giudice J, Acton SDP, Lewin C, 24 December 2010) at para. 41, [(2010) 202 IR 38].
[5] Ibid.
[6] Hart v Coles Supermarkets Australia Pty Ltd and Bi-Lo Pty Limited T/A Coles and Bi Lo [2016] FWCFB 2887 (Watson VP, Kovacic DP, Roe C, 31 May 2016) at para. 6.
[7] Re Australia Western Railroad Pty Ltd T/A ARG – A QR Company [2011] FWAA 8555 (Williams C, 14 December 2011) at para. 5.
[8] Ibid., at para. 8.
[9] Fair Work Act s.193(2).