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What are zombie agreements and why should employers take action now?

Published on May 15, 2023 by Wing Ho | 何宛穎律師 and Janine Smith

Introduction

On 7 December 2022, the Federal Government passed legislation that makes a range of significant amendments to Australia’s workplace laws.[1] One of those changes is the sunsetting (termination) of “zombie agreements” on 7 December 2023 if they are not extended or replaced by new enterprise agreements.[2]

What are zombie agreements?

Zombie agreements are agreements made prior to the commencement of the Fair Work Act 2009 (Cth), which have been allowed to operate up to the present.  These agreements are made between an employer and a group of employees (such as collective agreements) or between an employer and an individual employee (such as Australian Workplace Agreements).  Even though collective agreements have nominal expiry dates, they continue to have legal effect until they are terminated.  Absent this sunsetting legislation, collective agreements can only be terminated when one of the parties to the agreement makes an application to the Fair Work Commission (“FWC”).[3]

The FWC has published a list of zombie agreements, which can be found here. However, this list is not exhaustive. The FWC does not have records of individual agreements and does not have records of all collective agreements made between 2006 and 2009.  

What are employers required to do?

Employers covered by a zombie agreement are required to notify each affected employee in writing by 6 June 2023 as to certain matters relating to that agreement. The law requires that the notice contain the following information:

• the employee is covered by a zombie agreement; and
• that the zombie agreement will terminate on 7 December 2023 unless a request is made to extend the zombie agreement; and
• this sunsetting process commenced on 7 December 2022.[4]

Failing to issue a notice informing employees about the termination of their zombie agreement attracts a penalty of 60 penalty units (equivalent to about $16,500 as at the date of this article).

To extend a zombie agreement, an employer must apply to the FWC by 7 December 2023. The FWC may approve an extension in limited circumstances and the maximum period of extension is 4 years.[5]  While there have been no decisions by the FWC on any zombie agreement as yet, it is likely, having regard to the policy basis of the SJBP Act on this subject, that obtaining an extension of a zombie agreement will not be straightforward.

Alternatively, an employer and its employees may enter into bargaining for a new enterprise agreement.  Presently, there are several requirements that need to be satisfied.  One current requirement is that the new enterprise agreement must offer pay and conditions that would leave employees “better off overall” than if they were to be covered by the relevant Modern Award(s).[6]  The FWC will need to approve the new enterprise agreement for it to have legal effect.[7]

If a zombie agreement is not extended by the FWC or replaced by a new agreement, then employees will be covered by the relevant Modern Award.  Employers should be aware that their employees may be covered by different Awards, depending on the duties performed by each employee.

The takeaway

Employers will need to take action promptly if their employees are covered by a zombie agreement. Additionally, the requirements for bargaining and seeking approval for a new enterprise agreement can be challenging to navigate.

Please contact Janine Smith, Partner on JSmith@codea.com.au or Wing Ho, Associate on WHo@codea.com.au for any further enquiries.