Enterprise Agreement (Australia)
A legally binding agreement between an Australian employer and a group of employees (or their union) that sets wages and working conditions for the covered workforce, approved by the Fair Work Commission and replacing the applicable Modern Award for most terms.
- What Is an Enterprise Agreement in Australia?
- Types of Enterprise Agreements
- How Enterprise Agreements Are Made
- The Better Off Overall Test (BOOT)
- Enterprise Agreement vs Modern Award
- What Happens After an EA Expires
- Enterprise Agreement Statistics [2026]
- Frequently Asked Questions About Enterprise Agreements in Australia
What Is an Enterprise Agreement in Australia?
Key Takeaways
- ✓An enterprise agreement (EA) is a legally enforceable agreement between one or more employers and their employees that sets wages and conditions of employment, negotiated at the enterprise level.
- ✓EAs must pass the Better Off Overall Test (BOOT) to be approved by the Fair Work Commission, meaning employees must be better off overall compared to the relevant Modern Award.
- ✓There are three types: single-enterprise agreements, multi-enterprise agreements, and greenfields agreements (for new businesses or projects that don't yet have employees).
- ✓An EA overrides the Modern Award for its duration, but the National Employment Standards (NES) always apply as a minimum floor that can't be undercut.
- ✓Enterprise agreements have a maximum nominal expiry of four years, after which they continue to apply until replaced, terminated, or a new agreement is approved.
An enterprise agreement is Australia's version of a workplace deal. Instead of relying on the industry-wide conditions set by a Modern Award, an employer and its employees negotiate their own arrangement. The employer might offer higher base pay in exchange for more flexible scheduling. Or the employees might trade off some penalty rates for a higher hourly rate. The deal gets put to a vote, and if a majority of employees say yes, it goes to the Fair Work Commission for approval. The FWC checks that the agreement meets all legal requirements, most importantly the BOOT. If every employee covered by the agreement is better off overall than they'd be under the Modern Award, the FWC approves it. Once approved, the EA replaces the Modern Award as the governing instrument for those employees. The National Employment Standards still apply as an absolute floor. No EA can provide less than the NES minimums for things like annual leave (4 weeks), personal leave (10 days), maximum weekly hours (38), notice of termination, and redundancy pay. An EA sits in the middle of Australia's workplace relations hierarchy: above Modern Awards but below the NES and the Fair Work Act itself.
Types of Enterprise Agreements
The Fair Work Act 2009 recognizes three distinct types of enterprise agreements, each suited to different circumstances.
| Type | Parties Involved | When It's Used | Key Requirements |
|---|---|---|---|
| Single-enterprise agreement | One employer (or related entities) and employees | Most common type; employer negotiates directly with its own workforce | Majority vote of affected employees, BOOT, FWC approval |
| Multi-enterprise agreement | Two or more unrelated employers and their employees | Used when multiple employers in the same industry want a shared agreement | Majority vote at each employer, BOOT, FWC approval; unions can initiate |
| Greenfields agreement | One or more employers and one or more unions (no existing employees) | New businesses or construction projects that haven't yet hired staff | Must be agreed with a relevant union; employer can apply for FWC approval if negotiations exceed 6 months |
How Enterprise Agreements Are Made
Creating an enterprise agreement follows a legally mandated process. Skipping or rushing any step can result in the FWC refusing to approve the agreement.
Initiating bargaining
Bargaining can be initiated by the employer, the employees, or a union that represents the employees. A formal notification to bargain (using the prescribed form) starts the process. Once bargaining begins, the employer must give employees a Notice of Employee Representational Rights within 14 days, informing them of their right to appoint a bargaining representative (usually a union, but it can be any person).
Good faith bargaining requirements
All parties must bargain in good faith. The Fair Work Act spells this out: attend and participate in meetings at reasonable times, disclose relevant information (except genuinely confidential commercial data), respond to proposals in a timely way, give genuine consideration to the other side's proposals, and don't engage in capricious or unfair conduct. The FWC can issue bargaining orders if a party isn't meeting these requirements.
Employee vote
Once the parties reach a proposed agreement, the employer must give employees access to the full document and a written explanation (the Notification of Employee Representational Rights) at least 7 days before the vote. The vote must be fair and genuinely democratic. A simple majority of employees who cast a valid vote is needed for approval. If the vote fails, the parties go back to bargaining or abandon the process.
FWC approval
After a successful vote, the employer lodges the agreement with the Fair Work Commission within 14 days. The FWC assesses whether the agreement meets all requirements: BOOT compliance, inclusion of mandatory terms (flexibility clause, consultation clause, dispute resolution clause), genuine agreement of employees, and compliance with the NES. If satisfied, the FWC approves the agreement and it takes effect 7 days later.
The Better Off Overall Test (BOOT)
The BOOT is the single most important hurdle for enterprise agreement approval. It determines whether employees are genuinely better off under the EA than the relevant Modern Award.
How the BOOT works
The FWC compares the terms of the enterprise agreement with the applicable Modern Award for each class of employee covered. The comparison isn't line-by-line. An EA can be worse than the award on one term and better on another, as long as the employee is better off overall. For example, an EA might reduce Sunday penalty rates from 200% to 175% but increase the base hourly rate by $3. If the overall package leaves the employee better off than the award, it passes the BOOT.
When the BOOT fails
If the FWC determines that one or more employees would be worse off overall under the EA compared to the award, it won't approve the agreement as-is. The FWC may ask the employer to provide undertakings (binding commitments to modify specific terms) to fix the problem. If the undertakings resolve the BOOT issue, the agreement can still be approved with the undertakings attached. If the employer refuses to give undertakings, the application is dismissed.
Enterprise Agreement vs Modern Award
Understanding the difference between these two instruments is essential for Australian HR teams.
| Dimension | Enterprise Agreement | Modern Award |
|---|---|---|
| Scope | Specific employer and its employees | Entire industry or occupation |
| Who sets the terms | Employer and employees negotiate | Fair Work Commission determines |
| Flexibility | High: parties can tailor terms to their workplace | Low: standardized conditions for the industry |
| Minimum standard | Must pass BOOT (better off overall than the award) | Sets the industry minimum (above NES) |
| Duration | Maximum 4-year nominal expiry | No fixed expiry; reviewed every 4 years by FWC |
| Modification | Requires renegotiation and new FWC approval | FWC varies the award through formal review |
| Pay rates | Usually higher than the award | Minimum rates for the industry |
| Coverage | Only the employer's workforce | All employers and employees in the industry/occupation |
What Happens After an EA Expires
Enterprise agreements have a nominal expiry date, but expiry doesn't mean the agreement stops working.
Continuing operation
After the nominal expiry date passes, the EA continues to operate on its existing terms until it's replaced by a new agreement or terminated by the FWC. Many Australian workplaces operate under expired enterprise agreements for years while negotiations for a replacement drag on. During this time, employees still receive the pay and conditions in the expired EA.
Termination of an expired EA
Either party can apply to the FWC to terminate an expired enterprise agreement. If terminated, employees revert to the applicable Modern Award. This can be a significant change, especially if the EA provided above-award conditions. The FWC considers whether termination is appropriate in all the circumstances, including the views of the employees and the likely impact on them.
The zombie agreement problem
Some enterprise agreements from 10 or more years ago are still technically in operation because nobody replaced or terminated them. These 'zombie agreements' sometimes contain pay rates that have fallen below the current Modern Award. The Secure Jobs, Better Pay amendments in 2022 introduced a process for the FWC to terminate these agreements, and a sunset clause automatically terminated many pre-2010 agreements. Employers should audit any old EAs to make sure they still meet current legal minimums.
Enterprise Agreement Statistics [2026]
Data on the current state of enterprise bargaining in Australia.
Frequently Asked Questions
Can an employer force employees to make an enterprise agreement?
Do all employees have to be covered by the enterprise agreement?
Can an enterprise agreement be worse than the Modern Award on some points?
What role do unions play in enterprise bargaining?
How is an enterprise agreement different from a common law contract?
Written by Adithyan RK