Clients will no doubt be aware of the passage through parliament
of the Labor Government's new industrial relations laws. On
Friday evening, the Senate passed the Bill. The Fair Work
Act 2009 will commence on 1 July 2009.
This article focuses briefly on the enhanced role for common law
contracts provided for under the new legislation. In so doing, we
discuss the new modern awards and the phasing out of individual
Modern awards form the basis of the Government's new
regulatory framework. They are intended to operate in addition to,
and provide the substance of, minimum standards otherwise provided
for in the new NES, or National Employment Standards.
The creation of these new awards is now a major focus of the
Australian Industrial Relations Commission.
Traditionally, awards do not impose obligations on employers
(and the employer cannot be held to have contravened a provision of
an award) unless the award applies to the employee. Equally, an
employee not bound by an award has no right to any entitlement
provided by it.
Under the new legislation, modern awards are stated not to apply
"to employees ... at a time when an employee is a high income
employee". "High income employee" is defined to mean
an employee who is guaranteed to earn an annual rate of earnings in
excess of the high income threshold. According to the explanatory
memorandum for the Bill, the high income threshold will be $100,000
per annum for full time employees, indexed from 27 August 2007 and
then annually from 1 July each year.
This means that employees with an annual income of $100,000 or
more will effectively contract out of award protection, provided
they are not covered by individual statutory agreements. In those
circumstances, the legislation also requires employers to give
notice in writing to employees.
Phasing out of individual statutory agreements
The centrepiece of the new system is a return to a focus on
collectivised agreement making. Critically, individual statutory
agreements (such as AWAs – Australian Workplace
Agreements) are no more (although transitional arrangements prolong
the life of AWAs in certain circumstances, and make provision for
another type of transitional individual statutory agreement
– the "Individual Transitional Employment
Agreement", or ITEA).
Ultimately, this means that for the "high income
employee", absent a individual statutory agreement, a common
law employment contract will necessarily regulate the employment
Common law employment contracts
Until now, the only form of individual agreement under the
federal system able to exclude award regulation has been an
individual statutory agreement, such as an AWA.
Existing award employees earning over $100,000 will now be able
to contract out of the award system. It appears that high income
employees who negotiate any variation to their terms and conditions
will not be award protected from that point, and in reality
employees whose incomes fluctuate may drop in and out of award
Common law employment contracts have traditionally been the
source of terms and conditions which have added to the
framework of minimum entitlements provided for under legislation or
in statutory agreements. They are also the source of obligations
implied into contract. Under the new system, common law contracts
have emerged for some employees as the predominant source
of rights and obligations (rather than the sole source, because the
National Employment Standards will still apply to all
This increased role for common law contracts means that it is
more important than ever to ensure that contracts are drafted so as
to protect your interests, particularly in those areas with an
enhanced litigation risk.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Employers should tread carefully when making any decisions around possible termination of ill or injured employees.
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