For some employers, when they have negotiated their latest Enterprise Agreement (“EA”), they think they can rely on the rates set out within it for the life of the EA and just apply those rates until the EA expires.

Sadly, that is not always the case, especially where the agreed annual rates in the EA are calculated at rates less than the annual 1 July CPI adjustments that apply to the Modern Award(s) that underpin the EA.

Section 206(1) of the Fair Work Act (“FW Act”) relevantly provides that:

the base rate of pay payable to the employee under the agreement (the agreement rate) must not be less than the base rate of pay that would be payable to the employee under the modern award (the award rate) if the modern award applied to the employee.

If this situation arises, then s.206(2) of the FW Act provides that:

If the agreement rate is less than the award rate, the agreement has effect in relation to the employee as if the agreement rate were equal to the award rate.

In other words, there is a positive obligation on the employer to check that their EA always complies with the underpinning Award(s) rate of pay.

This can be especially difficult when the EA creates a new remuneration / classification structure or there are blended rates of pay that apply in the EA (ie: including in the rates of pay such matters as allowances and annual leave loadings).

If employers are not vigilant, then they are exposed to, reputational damage, loss of morale, civil fines and also potentially significant back pay claims.

Message for Employers

Check your current EA rates against the Awards underpinning the EA and then do this exercise again when the 1 July 2016 Award rates are increased.