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Enterprise agreement-covered employees eligible for back pay even if not employed when the agreement commences

Under the Fair Work Act 2009 (Cth) (FW Act), an enterprise agreement does not impose obligations on an employer unless it covers the employer and employee, and is in operation.

When an agreement is approved by the employees, it covers the employer and the employees that come within its coverage provisions. However, the agreement does not apply to the employer and employees until it commences operation.

An agreement commences operation 7 days after the Fair Work Commission (FWC) approves it, or a later day specified in the agreement.

It often takes several months between the time an enterprise agreement is voted up by employees and the time it is approved by the FWC. In that time, any earlier enterprise agreement that applied to the employer and the employee continues to apply, even though it is past the nominal expiry date.

What if the new agreement provides for backdating of pay increases or other benefits provided by the agreement? It is well recognised that once the agreement begins to apply to the employer, the backdating obligation also applies, even if it results in the employees being put in a situation as if the agreement applied before it was approved by the FWC.

This issue was examined in the case of Murtagh v Corporation of the Roman Catholic Diocese of Toowoomba (2023). In this case, an agreement applied to an employee, but the employee was also covered by a new agreement that had been made but had not yet commenced operation. 

The new agreement provided for back payment of pay increases to the day after the nominal expiry date of the earlier enterprise agreement. The employee resigned before the new agreement commenced operation. Was that employee entitled to the back pay provided by the new agreement once it commenced operation?

The Full Federal Court ruled that when the new agreement commenced operation, the earlier agreement forever ceased to have application. But, even before then, the new agreement covered the employee until their resignation. As soon as the new agreement came into operation following FWC approval, the obligation to backdate pay increases was imposed on the employer for work performed by the employee in employment covered by the new agreement over the backdated period.

The Court did not interpret the new agreement as seeking to discriminate in terms of coverage between employees employed since the commencement of the backdated period but who ceased employment before the new agreement came into operation, and those who remained employed when the agreement came into operation.

It remains to be seen whether this decision is appealed to the High Court. It is not clear whether the same approach would apply to an employee who joins the employer after the commencement of the backdated period but before the new agreement commences operation. It is also clear that agreements can modify the outcome of the FW Act in this area, by making it clear that a condition for back pay is that the employee is in employment when the agreement commences operation.

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