This article was co-authored by Jonathan McMillan and Terry Stavrianos.
In our previous article, we explored the introduction of sunsetting provisions for what are commonly referred to as ‘zombie agreements’. Broadly, zombie agreements are workplace agreements made before the commencement of the Fair Work Act 2009 (Cth) (FW Act) and during the transitional period immediately prior to its full implementation.
As part of the amendments introduced by the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 (Cth) (Secure Jobs Amendments), all zombie agreements are set to automatically terminate on 7 December 2023 unless the Fair Work Commission (FWC) approves their extension.
As the sun sets on zombie agreements, a series of recent decisions delivered by the Full Bench of the FWC provide some guidance on what is required to ensure the successful extension of a zombie agreement.
In this article, we will examine the Full Bench’s recent decision in Application by Peter Michael Frick  FWCFB 137 (Frick), which helpfully reinforces the approach taken by the FWC to date, and clarifies a number of key considerations.
Based on the recent decisions of the FWC Full Bench, it is becoming increasingly clear that these extension applications are not to be used as a vehicle of convenience. Rather, the purpose for an extension is to facilitate the transition to a contemporary arrangement under the FW Act.
The Full Bench considered a union-led application for the extension of three zombie agreements (together, the Agreements), which covered 540 IT workers employed by DXC Enterprise. The application was brought to extend the default period by four years, which is the maximum extension period available under Secure Jobs Amendments. The Australian Services Union and Professionals Australia applied to have the Agreements extended for the maximum period on the basis that the Agreements provided for superior conditions in comparison to the relevant awards.
DXC Enterprise was not the original employer party to any of the Agreements, and became bound by them as a result of multiple transmissions of business.
After notifying employees about the sun-setting of the Agreements, DXC Enterprise provided them with common law contracts for their consideration. Following this, DXC Enterprise held employee ballots to determine whether employees approved of the termination of the Agreements. These ballots were rejected by the majority of affected employees.
Whether it was ‘otherwise appropriate in the circumstances’ to extend the default period
The FWC was satisfied that:
- the applications related to ‘collective agreement-based transitional instruments’; and
- after considering the comparative analyses undertaken by the parties, at the time the applications were made, the award covered employees, viewed as a group, would be better off overall if the Agreements applied as opposed to the relevant modern awards.
In these circumstances, the FWC must (upon application) extend the default period if it is satisfied that it was ‘otherwise appropriate in the circumstances to do so’ or ‘it is reasonable in the circumstances to do so’.
In line with the earlier decision in Application by Suncoast Scaffold Pty Ltd as trustee for The Warren Family Trust  FWCFB 105, the Full Bench reiterated that this consideration required them to make a broad evaluative judgment as to whether it was suitable or fitting to grant the extension with reference to the relevant matters and conditions which accompanied the application.
The Full Bench confirmed in Frick that it was otherwise appropriate in the circumstances to grant the extension, for the following four reasons:
- DXC Enterprise’s conduct in offering the employees common law contracts on less favourable conditions indicated that they might not maintain conditions provided by the Agreements beyond the default period if an extension was not granted, and might seek to reduce these conditions. In the absence of an express commitment by DXC Enterprise to maintain these conditions, the Full Bench reasoned that the employees would likely be worse off with regard to a number of key and longstanding entitlements, if the Agreements were terminated.
- The employees wanted the Agreements extended to ensure the preservation of their current conditions (as evidenced by the ballots conducted).
- Bargaining was not proposed or commenced for a replacement enterprise agreement which would preserve conditions provided by the Agreements. As such, the Full Bench reasoned that it was highly unlikely that a replacement agreement would be in place before 7 December 2023.
- There was no evidence that extending the default period would cause DXC Enterprise any financial difficulty or affect the viability of DXC Enterprise’s business.
Factors considered when determining the length of the extension period
Having determined that it was ‘otherwise appropriate in the circumstances’ to grant the extension, the Full Bench turned to consider the length of the extension.
The Full Bench highlighted that they were not bound to grant the period of extension sought in the applications. In exercising this discretion, the Full Bench will be guided by what they described as a ‘policy preference’ in the legislative scheme for the transition of employees currently covered by zombie agreements to coverage by instruments made under the FW Act.
The Full Bench decided to extend the Agreements by approximately three years from the date of the decision. The Full Bench concluded that this was an appropriate amount of time for the parties to take the steps necessary to negotiate and enter into a new enterprise agreement.
In determining the appropriate length of the extension, the Full Bench was compelled by the followingfactors:
- The applicants had not demonstrated an intention (let alone a plan) to transition to an enterprise agreement made under the FW Act. The Full Bench were concerned that a 4 year extension might dissuade employees and their representatives from actively taking steps during the extension period to bargain for a new agreement.
- The Full Bench considered that it would not be fair to bind DXC Enterprise to the Agreements for longer than was reasonable to allow for the transition to a new FW Act instrument, particularly in circumstances where the company had no hand in negotiating the Agreements originally, and where the Agreements were of some ‘antiquity’.
- A reasonable amount of time needed to be provided for the parties to take the necessary steps to negotiate and enter into a replacement enterprise agreement. The Full Bench noted that, as DXC Enterprise was not proposing to commence bargaining, it might be necessary for the employees and their representatives to take the requisite initial steps, such as applying for a majority support determination under section 236 of the FW Act.
This decision demonstrates that caution will be applied when considering the appropriate length of an extension period. Zombie agreements will not be extended by the maximum period of four years without cause.
When determining the length of an extension period, the FWC will attempt to balance the following considerations:
- the time necessary to negotiate and enter into a contemporary FW Act instrument; and
- the need to dissuade parties from the inaction and procrastination which might result from the granting of an excessively long extension period.
Parties considering applying for the extension of a zombie agreement should not view it as a means by which to delay or otherwise circumvent the negotiation of a new arrangement. Rather, such applications should be considered a single step in a broader process towards a new arrangement.
Where there was no evidence of an intention to move to a contemporary industrial instrument, or no plan to facilitate such a transition, the Full Bench has found on multiple occasions that the requested extension was not reasonable in the circumstances.