Employers will need to be prepared for close scrutiny of enterprise agreements that use a “small group” or “seed group” approach, following a number of recent developments in enterprise bargaining. The recent Federal Court decision in CFMEU v One Key sounds a cautionary note for the “seed group” strategy that some employers have been using in recent years.

In recent blogs, we have been looking at recent trends in enterprise bargaining including issues about how the group of employees covered by an agreement is selected. The trends include:

• unions seeking to undermine enterprise agreements made without union involvement
• the Federal Opposition’s proposal to prohibit enterprise agreements where the voting population is not “representative” of the agreement’s potential coverage.

The One Key case highlights the intersection of these developments and provides an example of how some enterprise agreements can be “undone” even years down the track.

What is the “seed group” strategy?

At a high level, the strategy involves an employer engaging with a small group of employees to make an enterprise agreement that will potentially cover a much larger group of workers in the future. The goal is this: establish an enterprise agreement on suitable terms which creates stability for up to four years, and can be rolled out to a larger workforce as recruitment “ramps up”.

How has the strategy been attacked by unions?

The strategy has seen some success, but has been the subject of attack from unions. Indeed, the CFMEU has said that it will “relentlessly” target deals to which it objects, and has attacked agreements made with “seed groups”.

Previously, one avenue of attack was to argue that such an agreement failed to meet the requirement that the group of employees covered be “fairly chosen”. That avenue was effectively closed in a case concerning John Holland, where the Federal Court said that there was nothing inherently wrong with a small group of employees voting on an agreement which might subsequently cover many more employees. The Court also said that the “fairly chosen” requirement does not mean that the group of employees had to be chosen in a “manner which would not undermine collective bargaining”.

A different line of attack was used in One Key, where it was argued that the relevant enterprise agreement had not been “genuinely agreed to” by the relevant employees. The Federal Court accepted that argument and determined that the enterprise agreement must be set aside (even though it had been in force for 2 years) because:

• the agreement had been voted on by three employees with very “confined” employment experience; and
• the three employees represented only a small sub-set of the group of employees who would be covered by the agreement – the three voting employees were covered by mining and construction awards, whereas the coverage of the agreement extended to future employees who would be covered by 11 different awards including those in the hospitality, road transport and manufacturing industries.

What does this mean for bargaining with seed groups?

Importantly, the Federal Court has not said that an enterprise agreement can never be made with a small group of employees that ultimately might cover a much larger cohort. However, the One Key decision does suggest that an employer may encounter difficulty if the employees who vote are not broadly representative of the range of different employees to whom the agreement will apply in the future.

In this way, the One Key decision emphasises that, unlike Jack trading the family cow for beans, there is no “magic seed” which will give employers quick and easy access to untold riches. While seed group agreements are legitimate, employers will still need to carefully consider the scope of an agreement and understand that a close examination will be made of whether the group of employees who vote is “representative” of the potential coverage of the agreement. This will be particularly important for agreements that cover multiple occupations and industries.

At a broader level, the debate remains whether enterprise bargaining is actually delivering a system of regulation of terms and conditions which are meeting the needs of employers and employees. That employers are seeking to adopt these strategies, and that debate has to be had about whether such a strategy is “legitimate” or not, does tend to suggest that the entire system needs to be revisited, rather than tinkered with.