Australia: Considering Amendments To Employment Contracts To Accommodate Work Choices Reforms

In addition to considering the impact of the reforms introduced by the Workplace Relations Amendment (Work Choices) Act 2005 (WC Act) employers should consider what changes, if any, they will seek to introduce to employment contracts to accommodate the reforms. This Update summarises the reforms introduced by the WC Act to help employers to consider the changes they wish to implement.

One reform is the increase of the qualifying period from three to six months. The effect of this is that during the first six months of employment, or a shorter or longer period (but only if it is ‘reasonable’) as may be agreed in writing between the employer and the employee before employment commences, an employee cannot make an unfair dismissal claim to the Australian Industrial Relations Commission.

In line with this, employers may decide to increase the probationary period to six months. Any decision to end the probationary period within the six months will still be free from the unfair dismissal jurisdiction if the qualifying period has not been reduced under the contract. However, the contract should provide that the probationary period can be ended at any time during its operation by the giving of a short period of notice (or payment in lieu).

Under section 91C of the WC Act, an employee must not be required or requested by his or her employer to work more than 38 hours per week but may require or request the employee to work reasonable additional hours.

Section 91C also sets out a non-exhaustive list of the factors to be taken into account in determining whether additional hours that an employee is required or requested to work are reasonable. These factors will need to be considered on a case by case basis. However, an appropriately worded clause in an employee’s employment contract will assist in this regard. The clause should set out the requirement, noting that remuneration has been set at a level to accommodate the fact the employee may be required or requested to work these additional hours and, if possible, reasons why they may be asked.

Further, an employer may wish to take advantage of the averaging of hours provisions under which an employee may be required to work an average of 38 hours per week over a period that is no longer than 12 months, or a shorter period that may be agreed between the employer and the employee.

Any averaging arrangement would need to be suitable for your workplace and the manner in which an employee is required to work. However, a properly implemented averaging arrangement can assist an employer to meet the ebbs and flows of workflow and demand, which may be of benefit to their business. Any averaging arrangements must take into account any provisions in relation to hours of work, overtime and penalties that may be found in an applicable award, certified agreement or AWA.

Under section 170AF of the WC Act, an employee is entitled to a day off on a public holiday and may refuse a request to work on a public holiday if they have reasonable grounds for doing so. There are a number of factors to consider to determine the reasonableness of the employee’s refusal. One of those is whether the employment contract contemplates that the employer might require the employee to work on public holidays, or particular public holidays.

The fact of an employment contract setting out such a requirement is not determinative (as there are a number of other matters set out in the applicable section), but providing for it in the contract will assist an employer if the reasonableness of an employee’s refusal becomes an issue in the future.

Section 93N of the WC Act enables an employer to require an employee to provide documentary evidence, as soon as reasonably practicable, to verify any absence on sick leave.

Employers may already have this requirement in place in a policy, employment contract, certified agreement or AWA, discussing the circumstances in which a medical certificate, or other documentary evidence, of the need to take sick leave must be provided.

Employers may decide that they are satisfied with their existing arrangements. However, this provision in the WC Act may prompt employers to alter their requirements to reflect the new provisions introduced by the WC Act.

A current misconception is that the cashing out of annual leave provisions in section 93E of the WC Act will enable employers and employees to generally agree (whether under their employment contract or otherwise), to the cashing out of annual leave. In reality, this section only enables an employee to agree to forego an entitlement to take an amount of annual leave if an appropriate provision is included in a workplace agreement that is binding on the employee and employer. A workplace agreement is defined in the WC Act to include an AWA and the various forms of collective agreements that may be entered into between employers, employees or unions under the WC Act. The definition does not include an employment contract.

Accordingly, provisions in a employment contract or other agreement between an employer and employee will not result in an employee forgoing his or her entitlement to take annual leave for the period of the accrual that is paid out by the employer.

What this means in practice is that the employee is still entitled to take the leave, albeit unpaid, unless there has been an increase in the employee’s pay since the date of the payout. If such an increase has occurred, the employee would be entitled to be paid the difference between the amount paid out and the increased amount the employee would have received for the period if it was taken as paid leave. This would also apply if the employee’s accrued entitlement is paid out on termination of employment.

The Act is now expected to commence in late March, at the time the all important regulations are released.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.