‘Make Good’ not Necessarily Good Enough

A supermarket chain has had a setback with the federal court ruling one of its enterprise agreements was not up to scratch, especially in relation to the ‘make good’ clause the agreement included.

When the employer first applied for approval of its agreement, the Fair Work Commission was concerned about some of the major changes from the award that the agreement would bring in. To meet those concerns, the employer agreed to a ‘make good’ clause. This meant an employee could ask for a comparison between their wages under the enterprise agreement and what they would have earned under the award. Any shortfall between the two would be ‘made good’.

The union appealed against the approval decision to a full bench of the commission, which refused the appeal. The union then decided to challenge the making of the enterprise agreement on several grounds in the federal court. One of those grounds was that the ‘make good’ clause was not sufficient to ensure employees were better off overall than if the award applied.

The federal court full bench was split in its decision, with the majority agreeing with the union on this important point. The majority was concerned that by itself, there was no proper basis for the ‘make good’ clause to be considered capable of ensuring employees were better off, because all that clause did was ensure employees were the same as the award.

The majority said that the commission appeal hearing was an opportunity for a proper analysis of the various benefits offered by the enterprise agreement to ensure that overall, the employees were better off. The court made the point that if there had been such an analysis, then other conditions of employment taken together with the ‘made good’ wages, might have been sufficient to see the enterprise agreement pass the better off overall test. Even then though, the court had doubts about that, because the ‘make good’ exercise comes at some time after the work it done. It means employees may not be receiving their entitlements in a timely fashion, and hence arguably not better off under the enterprise agreement.

This was a complex case, which also looked at, but ultimately did not decide on, a question about a defective Notice of Representation Rights as well as the important question of whether or not the employees were “fairly chosen”. The workplace where the agreement was intended to apply had not been finished when the employees agreed to be covered by it, and this meant they were not employed in that particular facility the enterprise agreement was restricted to, at the time the enterprise agreement was made.

‘Make good’ clauses are not unusual and this decision underlines the need for employers to be alert to the need, if they have one of these or agree to one during the approval process, that any other benefit which puts the EA ahead of the award be stressed should the agreement come under further challenge. The test is overall, so if benefits other than wages exist which help prosecute that case, then the FWC, or the court, needs to hear that argument.

Shop, Distributive & Allied Employees Association v ALDI Foods Pty Ltd [2016] FCAFC 161 (29 November 2016)