Recent changes to the Fair Work Act through the Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024 have introduced new requirements for Enterprise Agreements (EAs). These changes, which take effect from 26 February 2025, will directly impact how small businesses manage workplace arrangements, communicate changes, and resolve disputes in their own business. The changes are relevant if small businesses have an enterprise agreement or are thinking of negotiating an enterprise agreement with your employees.

This is because each enterprise agreement must contain a clause about flexibility, consultation and dispute resolution equivalent to, or better than, what is stipulated in the new model terms.

What’s Changing and How It Affects Small Business

1. Flexibility Terms and the use of Individual Flexibility Arrangements (IFAs)

An individual flexibility agreement (IFA) is a written agreement made between an employer and an individual employee to change the effect of certain terms in the employee’s award or registered agreement. It is used to make alternative arrangements to meet the needs of both the employer and the employee.

Previous Model Term Requirements:

• Small Businesses could establish IFAs with minimal documentation requirements
• No explicit obligation to explain the arrangements to employees
• No formal meeting requirements to discuss proposed arrangements
• Limited specifications about termination procedures

New Model Term Requirements on Flexibility:

• Small businesses must provide written IFA proposals to employees
• Small businesses are required to take reasonable steps to ensure employees understand the proposal
• Small businesses must meet with employees who request a discussion about an IFA proposal
• IFAs must explicitly describe termination procedures of the IFA
• Small businesses must demonstrate that arrangements for an IFA provide genuine benefits to employees, not just business convenience.

2. Workplace Change Consultation

Consultation about major changes in the workplace has changed for employees employed pursuant to an enterprise agreement.

Previous Model Term Requirements:

• Consultation could begin after decisions were already finalised
• Limited prescribed requirements to justify the rationale behind changes
• No explicit obligation to document consultation outcomes
• Narrower definition of what constitutes a “significant impact” on employees

New Model Term Requirements on Consultation:

• Small businesses must engage employees earlier in the decision-making process
• After making a definite decision, Small businesses must provide detailed justifications for changes
• Small businesses must take reasonable steps to communicate consultation outcomes
• The definition of “significant impact” now explicitly includes changes that result in reduced job security

3. Dispute Resolution

Previous Model Term Requirements:

• Unions needed to be formally covered by an enterprise agreement to represent employees
• The Fair Work Commission typically only intervened after internal processes were exhausted
• Less structured framework for dispute handling

New Requirements on Dispute Resolution:

• Employee unions can now represent workers’ interests even without formal EA coverage
• The Fair Work Commission may intervene even if small businesses internal processes haven’t been completed
• Small businesses need a more comprehensive and structured framework for handling workplace disagreements

Actions Small Businesses Need to Take Now If You Have an Enterprise Agreement

1. Review and Update Documentation

• If you have one, compare your existing EA terms against the new model terms
• Update any IFA templates to include all required elements
• Create clear documentation for your consultation processes

2. Revise your Processes

• Develop protocols for proposing and implementing flexibility arrangements
• Establish a structured consultation process for significant workplace changes
• Create a formal dispute resolution framework that complies with the new requirements

3. Train your Management Team

• Ensure anyone who manages staff understands the new requirements
• Develop guidelines for documenting consultations and decisions
• Establish clear procedures for responding to union involvement in disputes

4. Communicate with your Employees

• Inform your team about the changes to workplace processes
• Explain the new opportunities for consultation and input
• Clarify the updated dispute resolution pathways

Taking these steps will help protect small businesses from potential non-compliance penalties.