Navigating employment law in Australia can be complex, especially when modern awards don’t fully support the operational needs of your business. That’s where enterprise agreements (EAs) come in. These legally binding agreements give employers and employees the flexibility to create tailored employment terms that go beyond award minimums.
Whether you’re in manufacturing, healthcare, education, or hospitality, this article, by our employment law team, will help you in understanding when, why, and how to implement an enterprise agreement can help you stay compliant while enhancing productivity, employee satisfaction, and business performance.
Key Takeaways
Enterprise agreements provide greater flexibility than modern awards and can be tailored to suit specific operational needs.
All EAs must pass the Better Off Overall Test (BOOT) to ensure employees are better off compared to the relevant award.
The Fair Work Commission (FWC) must approve all enterprise agreements before they take effect.
EAs are particularly useful in complex or specialised industries like healthcare, construction, and education.
Small and large businesses alike can benefit from EAs, especially when seeking to improve employee relations and productivity.
What is an Enterprise Agreement?
An enterprise agreement (EA) is a legally binding document negotiated between an employer and a group of employees (or their representatives), setting out terms and conditions of employment.
Unlike standard employment contracts or modern awards, enterprise agreements allow customised employment arrangements suited to specific operational or industry needs.
When Should a Business Have an Enterprise Agreement?
The decision to implement an enterprise agreement depends on the nature of the business, its size, and the industry-specific needs. Here are some situations when a business may consider an EA:
1. When the Modern Award Is Too Limiting
Modern awards offer a baseline of employee entitlements but may lack the flexibility some businesses need. An enterprise agreement allows employers to tailor work hours, overtime, and penalty rates.
Example: A hospitality business operating outside standard hours may require greater flexibility in rostering than the award allows.
2. To Enhance Employee Relations
Enterprise agreements involve formal bargaining, often improving employee engagement and workplace communication. Involving staff or unions can promote mutual trust and reduce disputes.
Example: A manufacturing company could negotiate improved conditions in return for increased output or efficiency.
3. For Complex or Regulated Industries
Industries such as healthcare, construction, and education often require conditions that go beyond standard award coverage. Enterprise agreements provide room for industry-specific provisions.
Example: A healthcare provider may need to address night shift differentials and patient care obligations not detailed in the award.
How to Establish an Enterprise Agreement
The process of creating an enterprise agreement is strictly regulated under the Fair Work Act 2009 (Cth) to ensure fairness and compliance. Below are the steps to follow:
1. Start the Bargaining Process
An enterprise agreement is negotiated between the employer and employees (or their representatives, such as a union). The employer must notify employees of their right to be represented by a bargaining representative.
Example: In the education sector, a school may enter into negotiations with teaching staff to establish an agreement that adjusts work hours during school holidays.
2. Meeting the Better Off Overall Test (BOOT)
All enterprise agreements must pass the Better Off Overall Test (BOOT), which ensures that employees are better off under the EA than they would be under the relevant modern award. This test ensures that employee rights are protected and that the enterprise agreement provides favorable conditions.
Example: A transport company seeking to implement flexible work schedules for its drivers must ensure that the EA passes BOOT by offering higher pay or additional benefits in exchange for changes to rostering.
3. Fair Work Commission Approval
Once the agreement has been negotiated and approved by the employees, it must be submitted to the Fair Work Commission (FWC). The FWC ensures that the agreement is lawful, meets all statutory requirements, and passes the BOOT before approving it.
Example: In the construction industry, a business that creates an EA to address project-based work conditions must submit the agreement to the FWC for approval, ensuring it complies with safety and wage regulations.
To better understand the legal framework surrounding enterprise agreements, refer to our employer guide to the Fair Work Act.
Why Should a Business Have an Enterprise Agreement?
Enterprise agreements offer several advantages to businesses, particularly those operating in dynamic, high-skill, or complex industries. Here’s why a business may choose to have an EA:
1. Flexibility in Employment Arrangements
Enterprise agreements allow businesses to negotiate flexible work arrangements that are specifically suited to their operational needs. This can include changes to overtime rates, penalty rates, and work hours.
Example: A technology company may need to offer flexible work arrangements, including remote work and flexible hours, that are not covered by the industry award.
For a deeper understanding of minimum entitlements, see our guide on employment contracts and the National Employment Standards.
2. Competitive Advantage in Employee Retention
By offering better-than-award conditions through an enterprise agreement, businesses can attract and retain skilled employees in competitive industries. This is particularly important in sectors where specialized skills are in high demand.
Example: A mining company may negotiate higher pay rates and better leave entitlements to retain skilled workers in remote locations.
3. Improving Productivity and Efficiency
Enterprise agreements often include productivity and performance-related clauses that can help improve overall business efficiency. In return for offering better pay or benefits, businesses can negotiate productivity targets or flexible work practices.
Example: A logistics company may offer additional leave entitlements or bonuses in return for meeting key performance indicators (KPIs) related to delivery times.
4. Industry-Specific Needs
Some industries have specific needs that go beyond the provisions of modern awards. Enterprise agreements allow businesses to address these needs in a legally binding and transparent manner.
Example: In the education sector, schools may need to include provisions in an enterprise agreement that address holiday pay or teacher training schedules that are not covered in the standard award.
Stay up to date with recent legislative updates by reading our employer guide to Fair Work changes from 1 July 2025
Frequently Asked Questions
Who can negotiate an enterprise agreement?
An enterprise agreement is negotiated between an employer and employees or their representatives, including unions. The process must comply with bargaining rules set out in the Fair Work Act.
How long does an enterprise agreement last?
Enterprise agreements typically last for up to four years, after which they must be renegotiated or renewed. However, the agreement remains in force until a new agreement is approved by the FWC.
Can small businesses create enterprise agreements?
Yes, small businesses can establish enterprise agreements, especially if they require flexibility beyond what is provided in modern awards. However, the process is often more common in larger businesses or those with complex needs.
What happens if the enterprise agreement doesn’t pass the BOOT?
If the enterprise agreement doesn’t pass the BOOT, the FWC will reject it, and the employer will need to renegotiate with employees to ensure they are better off overall compared to the modern award.
Can an enterprise agreement be terminated?
Yes, enterprise agreements can be terminated after their nominal expiry date. The FWC may terminate an agreement if it no longer serves the interests of employees or if it is posing a significant threat to the viability of the business.
