By Alex Millman and Lindsay Carroll, NRA Legal

January was not a good month for Merivale.

The hospitality group, helmed by Justin Hemmes, saw its WorkChoices-era collective agreement terminated in a decision of the Fair Work Commission on 21 January 2019. After operating under this agreement since 2007, the business now has less than two months to get its systems and processes in order before the termination takes effect on 4 March 2019.

To rub salt into the wound, class action law firm Adero confirmed that it had been investigating alleged underpayments by the Merivale group, and was looking into the prospects of launching a class action against the business for what it believes will be a “substantial claim”.

Both of these serve as timely reminders of the terminable nature of pre-Fair Work agreements, and their status under the Fair Work Act 2009 and its related laws.

Taking control of the ‘zombie’ apocalypse

‘Zombie agreement’ is a term used by the ACTU to describe collective bargaining agreements past their nominal expiry date, particularly agreements made before the Fair Work Act 2009 came into effect.

In recent times, agreements of this kind have been under increasing scrutiny, with Labor promising an unspecified ‘effective mechanism’ for the termination of these agreements if elected to government.

Not surprisingly, this has resulted in an ever-increasing trend of these agreements being terminated, with the Fair Work Commission handing down 121 decisions to terminate these agreements in the 2017-18 financial year – the highest number since the Fair Work Act was introduced.

In the majority of cases, applications to terminate these agreements are made by the business. If the business has its affairs in order to accommodate the termination of the agreement, this process can be easily managed.

What throws businesses into a spin is when employees, or their union, are the ones to make the termination application, as in Merivale’s case.

With control over the process out of its hands, Merivale now has only six weeks to scramble – likely at significant cost and disruption – to drastically alter its payroll processes to comply with the modern awards.

With ‘zombie agreements’ on the chopping block in the near future, now is the time for businesses operating under these agreements to take control of the process and determine how they will operate once the axe falls – whether it be under a new agreement, or under the modern awards – rather than wait for another party to take that decision away from them.

Old deals gone dry

The proposed Adero class action alleges that Merivale employees were underpaid on the base rate of pay.

Some media outlets, and indeed some industrial relations commentators, have asserted that this is ‘because of’ Merivale’s old agreement.

These assertions are fundamentally incorrect and betray a lack of understanding about the relevant legislation.

Whilst Merivale’s old agreement could have allowed Merivale to lawfully avoid certain penalty rates, the base hourly rate of pay to which those penalty rates are applied must be as good as, or better than, the modern award.

Consequently, no matter how old or out-dated a collective agreement is, the base hourly rate of pay must never be lower than the modern award. In this way, the modern awards continue to act as a ‘safety net’ for employees even if they are covered by a collective agreement.

This provides something of a catch-22 for payroll officers, as it is an unfortunate fact that they are often instructed to ‘ignore’ the modern award and apply only the agreement.

This instruction may work in the short term, but over time the base rates of pay in the modern awards tend to catch up with, and overtake, those in agreements, rendering this instruction a dangerous proposition.

Even where agreements specify an annual percentage increase to wages, this is generally around the 2% – 2.5% mark – lower than the unprecedented 3% – 3.5% increases to the modern awards we have seen over the last few years.

If Adero’s assertions are correct, then any underpayments to staff by Merivale will have nothing to do with the old agreement, and everything to do with payroll officers ignoring, or being ignorant of, the relevance of the modern awards.

How can the NRA help?

If your business operates under a pre-Fair Work agreement, or even an enterprise agreement which is past its nominal expiry date, get in touch with Alexander Millman, Senior Workplace Relations Advisor on 1800 RETAIL (738 245) to have a no-obligation discussion around the future of collective agreements under a future Labor government and your agreement termination contingency plan.