Australia: Work Choices Then And Now: A Review To August 2007 - Part 2

Article by Andrew Tobin, Special Counsel

The original legislative scheme introduced the Standard comprising a basic federal safety net of 5 terms and conditions of employment. These were, and are:

1. Guaranteed Minimum Wages, whether fixed by the Federal Minimum Wage (FMW) or a relevant Australian Pay & Classification Scale (Pay Scale);
2. A guaranteed maximum of 38 working hours per week, plus reasonable additional hours;
3. 4 weeks paid annual leave per year;
4. 10 days paid personal leave per year (for sick and carer’s leave) and paid and unpaid compassionate leave; and
5. 52 weeks unpaid parental leave for certain employees.

In addition to the Standard, federal awards in the current system can deal with an additional 15 ‘allowable matters’.

1. The Labor party, under its ‘Forward with Fairness’ policy, proposes to augment these 5 basic conditions with another 5, including:

1. additional rights to parental leave, even more generous than those currently offered in the Queensland system, as mentioned earlier. For example, both parents will be able to take separate periods of leave of up to 1 year;⁴⁹
2. additional leave will be available for prescribed community activities. Examples include paid leave for jury service and unpaid leave for emergency services duties;⁵⁰
3. protection of public holidays;⁵¹
4. default redundancy benefits similar to those currently offered in federal awards. That is, up to 16 weeks pay after 9 year’s service;⁵² and
5. nationally consistent long service leave benefits.⁵³ The current position under Work Choices appears to be that while, in the absence of agreement or award regulation, State long service leave entitlements apply, those entitlements can be bargained away by a collective agreement or AWA. Under Labor policy, by adding long service leave to the national safety-net, the scope for long service leave entitlements to be bargained away will be removed.

Under Labor these basic conditions will be augmented by a further 10 matters for inclusion in awards.

Upon the commencement of Work Choices minimum wage levels for corporate employers became those fixed by the FMW or, if there was one, an applicable Pay Scale. Where State Awards had previously applied, notional Pay Scales derived from these Awards came into effect in the federal system. These were, and are, unaffected by subsequent State Wage Case determinations after 27 March 2006. Instead, both the FMW and Pay Scales were, and currently are, subject to annual review and adjustment by the Australian Fair Pay Commission (AFPC). The AFPC delivered its’ first wage determination in October last year, effective from 1 December 2006. Among other things, the Commission increased the FMW from $12.75 per hour to $13.47 per hour ($511.76 per week) and increased the Pay Scale rates by between $22.04 (for those rates over $700 per week) and $27.36 (for those rates less than $700 per week).

A second determination was released on 5 July 2007, to take effect from 1 October 2007. Using the same two-tiered adjustment from the 2006 decision, the most recent decision increases Pay Scale rates by between $10.26 and $5.30 per hour, and the FMW to $13.74 ($522.12 per week).

The Labor party is critical of the AFPC and the wage fixing system under Work Choices generally. One of their proposals will see the abolition of the AFPC, along with the Workplace Authority, the Workplace Ombudsman and the AIRC – replacing them all with a new ‘one-stop-shop’ to be called Fair Work Australia (FWA). FWA will, like the AFPC, review minimum wages once each year, in what they propose will be a ‘fair and transparent’ process having regard to a range of economic and social factors. Wage determinations will align with the standard financial year.

Some of the more significant legislative changes to the Standard effected since 27 March 2006 relate to leave entitlements.

Subject to some limitations, workplace agreements can now permit cashing-out of personal leave entitlements in excess of 15 days. As employees must always retain 15 days leave, employees with less than 15 days personal leave accrual will have no cash-out entitlement.

These entitlements are additional to the entitlement to cash out up to 2 weeks annual leave in each year of employment, introduced originally with the Standard. Changes have also been made to prevent employers seeking to impose penalties in contracts of employment and workplace agreements upon employees for failing to give appropriate notice or produce satisfactory evidence of an entitlement to take sick or carer’s leave.⁵⁴ Prior to the amendments some employers had introduced agreements containing provisions which allowed deductions from wages or imposed fines in these situations. The amendments also clarified that the new regime did not apply to leave accumulations prior to the commencement of Work Choices.⁵⁵ One practical outcome of this is that the cash-out limitations imposed by Work Choices do not apply to leave accumulated prior to 27 March 2006. This means that, potentially and subject to an appropriate industrial instrument, such as an AWA, leave entitlements of any kind accumulated prior to 27 March 2006 can be cashed-out in full.

There has also been a raft of changes to clarify the operation of various aspects of the Standard. For example, leave accumulations (both annual and personal) have, from day one, been calculated by reference to ‘nominal hours’ worked from month to month. Under the original scheme there was room to argue that ordinary hours of work in excess of 38 in each week attracted additional leave entitlements over and above the standard 4 weeks for annual leave and 10 days for personal leave. The Standard now clarifies that leave accumulations are capped after 38 hours of work in each week.

One of the more aggressive features of the original Work Choices legislation in relation to the making of ‘workplace agreements’ was the abandonment of the No Disadvantage Test (NDT). Until very recently, workplace agreements could be validly made provided that they complied with the minimum requirements of the Standard. By default, unless they were expressly dealt with, agreements would incorporate ‘protected award conditions’, but the fine print had, until the introduction of the Fairness Test, allowed protected award conditions to be expressly excluded. Protected award conditions are those award conditions that would otherwise apply relating to:

1. penalty rates;
2. shift and overtime loadings;
3. monetary allowances;
4. annual leave loadings;
5. public holidays;
6. rest breaks; and
7. incentive based payments and loadings.

Provided they complied with the requirements of the Standard, parties could by agreement abandon any award safety net, doing away with protected award conditions and other award staples like provision for redundancy benefits.

Whilst the union movement was extremely critical of this, employers took to the abandonment of protected conditions and other award entitlements like ducks to water. At one point the OEA was releasing statistics indicating that a significant percentage of AWAs were reducing or eliminating one or more protected conditions, although that practice ceased in the face of strong negative reaction from the union movement, the ALP and the community generally.

Until very recently the Government was unapologetic for these outcomes, arguing that, in the interests of benefit to the economy and enterprise flexibility, employers and employees were now free to make agreements that suited them.

In its policy – ‘Forward with Fairness’ – the Labor party has, in effect, proposed to reintroduce a NDT in the bargaining sphere.

Within 1 week of the release of the ALP policy, the Howard Government announced, with no notice and no supporting legislation, the introduction of the Fairness Test. In accordance with the Test:

1. all collective agreements; and
2. all AWAs which provide for total annual salary of less than $75,000;

lodged after 7 May 2007 with the Workplace Authority must, to the extent that they seek to modify or eliminate any protected award conditions, provide ‘fair compensation’ offsetting the modification or removal.

The Workplace Authority website describes the Fairness Test as ‘simple’ but, with respect, it is anything but and a full discussion of it is beyond the scope of this paper. Ignoring the regulations, the legislation establishing the Test comprises 37 sections – from s346B to 346ZH, 21 pages and 13 new defined terms. In addition, the Workplace Authority has published a 42 page policy guide to assist us all to apply the Test. Pushing aside the detail, the main elements of the Test, where it applies, are that:

1. Protected award conditions cannot be bargained away via a collective agreement or AWA without provision of ‘fair compensation’;
2. In most cases, this will require payment of a higher hourly rate of pay, however, provision of both monetary and non-monetary compensation is relevant to the application of the Test and the Workplace Authority may also take into account an employee’s personal circumstances including, particularly, their family responsibilities. Non monetary compensation, to be relevant, will have to have significant value to the employee or employees concerned;
3. In exceptional circumstances, subject to a public interest test, the Workplace Authority may also have regard to the industry, location and economic circumstances of the employer, and, the employment circumstances of the affected employee or employees
4. Proposed agreements may be lodged with the Authority for pre-assessment against the Test;
5. Otherwise, where an agreement lodged with the Authority fails the Test – bearing in mind that under the WR Act agreements take effect from the date of lodgment ⁵⁶ – the parties will be required to take steps to rectify it. This might involve eg the giving and implementation of appropriate undertakings, the negotiation of appropriate variations to the agreement and, where required, the payment of compensation to employees remunerated under the agreement prior to its assessment against the Test;
6. If no steps are taken to rectify an agreement already in operation but which fails the Test, the agreement will cease to operate.⁵⁷ The default period for rectification is 14 days from the date the Workplace Authority notifies the relevant parties of the fact that the agreement does not pass the Test, although the Authority does have a discretion to extend that period in appropriate cases.⁵⁸

Other things Labor has foreshadowed in the bargaining sphere, in its election policy platform, include:

1. a return to the pre Work Choices primacy of collective bargaining. This would up-end the Work Choices regime in which individual contracts – AWAs – are the dominant form of industrial instruments in the hierarchy of bargaining options;
2. the abandonment of AWAs;
3. the abandonment of Employer Greenfield Agreements;
4. removal of many of the current ‘prohibited content’ restrictions upon workplace agreements, particularly those that currently marginalise the union movement;
5. without reintroducing a hearing process for the approval of workplace agreements – agreements will be approved by FWA – a formal process for the approval of agreements, in which they will be assessed for compliance with the proposed safety net requirements. Presumably, in operation, this will be not dissimilar to, although potentially more comprehensive than, the Fairness Test now in place;
6. reducing from 5 years to 4 years the maximum period for nominal operation of workplace agreements.

Work Choices introduced, among various other changes, three new exceptions or exclusions to the application of the federal unfair dismissal (or ‘termination’) jurisdiction. These are to the effect that an application for relief from allegedly unfair termination, being a termination alleged to have been ‘harsh, unjust or unreasonable’,⁵⁹ cannot be made by a former employee:

1. of an employer who employs fewer than 101 employees;⁶⁰
2. an employee who was serving a ‘qualifying period’ of employment, fixed by the legislation by default at 6 months.⁶¹ Service during a qualifying period of employment is additional to and distinct from the concept of service during a probationary period of employment, for which a similar exemption from the unfair dismissal provisions has applied for some time; or
3. whose employment was terminated as the result of ‘genuine operational reasons’.⁶²

To varying degrees each of these exceptions has, since 27 March 2006, been scrutinised in unfair termination claims litigated in the AIRC.

This exclusion is probably the most significant, in terms of the percentage of potential claims upon which it operates, and is largely responsible for the dramatic diminution of unfair termination litigation in the federal system. The exclusion is also the least difficult of the three mentioned to apply in practice. This is reflected by the trickle of reported cases in which it is has been considered and applied.

Despite the shortage of cases regarding the exemption, in practice is does raise and will continue to raise some issues. In many cases employees seeking to make a claim, and their advisers, will not know whether the employer is entitled to the benefit of the exemption or not. In those cases the only way in which it might be tested is to make a claim and wait for the exemption to be raised – or not – in response. So time, money and tempers can be wasted in the pursuit of claims where the exclusion is ultimately found to apply. The issue is compounded by the fact that the number of employees to whom the test applies includes employees of bodies corporate ‘related’ to the employer. Whether or not particular bodies corporate are related depends upon the application of particular provisions from the Corporations Act 2001 (Cth). The way in which these provisions operate in the case of any particular employer will, often, be beyond the knowledge or means of knowledge of an employee considering making a claim.

Again, the exemption is not theoretically difficult to apply, but has created some issues in practice. As mentioned above, a similar exemption applies where an employee is serving a period of probation.

To rely upon the probationary period exemption, an employer must be able to show that the probationary period was determined in advance (by agreement between the employer and the employee prior to commencement of the employment) and is no longer than 3 months, unless a longer period is reasonable, having regard to the nature and the circumstances of the employment.

In contrast, the qualifying period applies automatically to an employee’s employment. The default qualifying period is 6 months. It does not have to be agreed upon with the employee prior to their employment commencing. The parties can, however, modify the default period by agreement in writing before employment commences.

In two recent cases the AIRC has been asked to determine how the qualifying period operates in the context of an employee changing positions within the same organisation as well as an employee who has changed employers in a transmission of business situation.

In Denise Shepherd v. Janrule Pty Ltd⁶³ the employer argued that the employee, who was a relatively longstanding employee but only recently appointed to a new position with the employer, had not completed her qualifying period of employment in the new position and so was excluded from the unfair termination jurisdiction.

Ms Shepherd commenced began work with Janrule Pty Ltd (Janrule) on 13 November 2000 as an Internal Mail Driver. She remained in this role until late 2006, when she accepted her employer’s offer of a full time position as an Assistant Registration Clerk, commencing on 23 November 2006. The employment was terminated on 31 January 2007 ie, within 6 months from her appointment to the new position. Her employer argued that when she was offered, and accepted, the new position there was a new contract of employment with a 6 month qualifying period. The AIRC rejected this argument. It found that as Ms Shepherd been employed by the employer for more than 6 years, she had completed the qualifying period of employment required by the legislation. She was not required to complete a further qualifying period on changing jobs within the same organisation.

In William Rogers v. Reflections Group Pty Ltd,⁶⁴ Mr Rogers was employed as a security guard with the Oasis Shopping Centre which was owned by Thakral Pty Ltd (Thakral). Thakral signed a transmission of business agreement with Reflections Group Pty Ltd (Reflections Group) in which the provision of security guards was outsourced to Reflections Group. As part of this agreement, Reflections Group agreed that a number of security guards, including Mr Rogers, would continue to be employed as security guards at the Oasis Shopping Centre. Mr Rogers commenced employment with Reflections Group on 1 September 2006 and his employment was terminated on 20 October 2006.

Mr Rogers made an unfair termination claim. Reflections Group argued that he could not do so as he was dismissed within the qualifying period of his employment with Reflections Group. The AIRC determined that the definition of ‘qualifying period’ in s 643(7) WR Act focused on the period of employment ‘with the employer’⁶⁵. Therefore, in the absence of agreement to the contrary, a 6 month qualifying period commenced at midnight on 1 September 2006. Having been terminated within that period, Mr Rogers was not entitled to make an unfair termination claim. This was despite the fact that, prior to the outsourcing arrangement, he had been employed with Thakral for "a substantial period of time" and that, as a term of the outsourcing arrangement, Reflections Group had agreed to maintain his previous conditions, including accrued leave entitlements. This did not mean the prior contract of employment was "handed over unbroken to the new employer, such that the employee is taken to have been an employee of the new employer retrospectively from the date of employment with the prior employee."⁶⁶

This has been the most controversial exclusion of the three mentioned. The actual test is that no unfair termination claim can be made if the employment was terminated ‘for genuine operational reasons or for reasons that include genuine operational reasons’.⁶⁷ ‘Operational reasons’ are defined to mean ‘reasons of an economic, technological, structural or similar nature relating to the employer’s undertaking, establishment, service or business, or to a part of the employer’s undertaking, establishment, service or business’.⁶⁸ Pre-Work Choices, the law was that while an employer’s operational requirements could be a valid reason for termination decision, any termination based on such a reason still had to be fair, ie, not ‘harsh, unjust or unreasonable’.⁶⁹ The new exclusion operates to remove that requirement.⁷⁰

In some cases it can be very difficult to determine whether the employer is entitled to the benefit of this exemption. In Jane Owens v. Whyalla Aged Care Incorporated⁷¹ an aged care facility terminated the employment of a manager for alleged bullying. It argued that this was a genuine operational reason as the manager’s conduct caused the resignation of an employee and it was not possible to redeploy the manager to another position due to ‘structural’ reasons.

Commissioner Lewin rejected this argument, noting that the decision not to employ Ms Owens in another position within the organisation did not convert her misconduct into a genuine operational reason. The Commissioner found that the true reason for the dismissal was "exclusively misconduct comprised of alleged bullying behaviour"⁷² and the "jurisdictional objection must be dismissed because … misconduct is not a genuine operational reason within the meaning of the Act."⁷³ On the employer’s argument that the resignation of another employee subject to the alleged bullying moved the sacking into the "operational reasons" sphere, Commissioner Lewin was also unconvinced, stating "[T]he resignation of the employee allegedly subject to bullying behaviour cannot constitute a reason for the termination of Ms Owens’ employment. At its highest, that is a collateral consequence of the alleged bullying behaviour of Ms Owens rather than the reason for the termination of the employment."⁷⁴

In Cruikshank v Priceline Pty Ltd⁷⁵ the AIRC, at first instance, found that the employer was entitled to the exemption when it made an employee redundant then readvertised his job at a lower wage rate. After discovering a $17.2M discrepancy in its profit forecast, Priceline Pty Ltd (Priceline) conducted an organisational restructure in which 32 positions were made redundant. Before the restructure, Priceline employed 4 ‘space planners’, two of whom received higher salaries. In the restructure, the higher earning space planners (one of them being Mr Cruikshank) were terminated on the basis that their positions had become redundant. Mr Cruikshank then saw his former position readvertised at a lower rate and initiated an unfair termination claim.

Counsel for Mr Cruikshank submitted that the termination did not arise from general operational reasons. Commissioner Eames rejected this argument, stating "I am satisfied that the Applicant’s termination resulted from the Respondent’s financial difficulties and the subsequent decision to reorganise its structure, and on that basis at least part of its decision to terminate the Applicant was for a genuine operational reason. I am not satisfied there is any evidence to substantiate a ‘sham’, or that the Applicant was targeted inappropriately."⁷⁶

The Commissioner found that with regard to such claims, the WR Act post Work Choices represented a significant change from what prevailed prior to 27 March 2006.⁷⁷ According to the Commissioner, this concept of operational ‘reason’ was broader than that of operational ‘requirement’ in that the question of the validity of the reason need not be considered in determining whether a dismissal was for operational reasons. ⁷⁸

Priceline has since been overturned upon appeal, for reasons which neither disturb nor endorse the original reasoning. The full bench of the Commission has returned the matter to the Commission for rehearing.⁷⁹

In its policy document the Labor party indicates that each of the 3 exemptions discussed above will be discarded and that they will "establish a simpler unfair dismissal system which balances the rights of employees to be protected from unfair dismissal, with the need for employers to manage their workforce, and to ensure a faster, less costly and less complex process for all."⁸⁰

In part, they plan to achieve this by introducing their own range of qualifying criteria for access to the jurisdiction. Employees of businesses which have less than 15 employees will only qualify if they have been employed for at least one year by that employer. A qualifying period of 6 months employment will apply to claims against businesses with 15 or more employees.⁸¹

Labor also plans to introduce quite radical changes to the way in which unfair dismissal claims will be heard and determined.⁸² Claims will usually have to be brought within 7 days to ensure that the primary remedy – reinstatement – remains a viable option (down from 21 days in the current system). FWA will then review the application and call the parties together for a conference.⁸³ It will have offices located in regional and suburban sites and may convene conferences at a workplace or other agreed venue.⁸⁴ After asking parties for their views regarding the conduct of the conference, FWA will be required to determine whether the dismissal was unfair, "considering all the circumstances of the dismissal, including the conduct of the parties."⁸⁵ In reaching this conclusion it will not have the benefit of formal written submissions, cross examination or a hearing.⁸⁶ Whilst the parties may have a representative or support persons they must respond directly to questions from FWA.⁸⁷ Where an employee has been unfairly dismissed FWA must then provide an appropriate remedy that will ensure a ‘fair go all round’ to both parties.⁸⁸

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