Australia: Forward With Fairness Transitional Bill introduced

Last Updated: 14 February 2008
Article by Andrew Cunningham

Yesterday morning, shortly after the apology given by Prime Minister Rudd, the Deputy Prime Minister, Julia Gillard, introduced the Workplace Relations Amendment (Transition to Forward with Fairness) Bill 2008.

It is expected at some stage today, Ms Gillard will release an exposure draft of the ten new National Employment Standards. We will be issuing a further HR & IR Update when this comes to hand.

The Bill has, somewhat inaccurately, been described as the ALP Government's Bill to 'scrap Work Choices'. In fact, the Bill is mainly directed at only one aspect of Work Choices – the abolition of AWAs – although it also deals with the award modernisation process and seeks to replace the Howard Government's Fairness Test with a No Disadvantage Test.

There has been some speculation that the Bill might include other things, such as the abolition of the genuine operational reasons exemption for unfair dismissal, prohibited content or employer greenfields agreements. However, this speculation has proved incorrect. It's now over to the Senate. The Coalition has flagged blocking the abolition of AWAs in the Senate – saying that they pre-dated Work Choices. The ALP relies on its electoral mandate – citing that the abolition of AWAs was a key part of their election campaign.

It seems questionable that there is any room to compromise.

Putting that to one side, the new Senators take office on 1 July this year – at which point the Coalition will lose control of the Senate. If the Coalition does block the abolition of AWAs, then it appears the fate of AWAs will depend on Senator Steven Fielding (Family First) and Senator Nick Xenophon (the South Australian Independent) – it being safe to assume that the Greens will vote against AWAs.

The Bill is, of course, only step one in the ALP Government's changes – with consultation over the main changes beginning later in the year, with a view to the new ALP workplace relations system fully commencing by 1 January 2010.

Implications for Employers

  • There is a real question whether the Bill – or at least the parts abolishing AWAs - will be passed before 1 July 2008.
  • The main implications are for employers using AWAs. Employers using AWAs will need to decide what strategy to adopt moving forward – at least for new employees and possibly also existing employees on AWAs. Will they use ITEAs? Or move to collective agreements? Or possibly even common law contracts?
  • For its part, the Government has indicated that Commonwealth public sector employers are no longer permitted to offer AWAs to any employees.
  • An employer re-negotiating an old certified agreement may want to simply vary and extend their existing agreement for up to three years. The advantage to the unions is that the varied agreement will be free from the remaining strictures of Work Choices (such as prohibited content). The advantage to an employer is this option will be closed off to the union if they even threaten industrial action - let alone make an application for a protected action ballot.
  • The wildcard is what effect award modernisation will have – will the flexibility introduced remove the need to switch from AWAs to a collective agreement?
  • The award modernisation process will also be very significant. While it is not clear to what extent awards will be rationalised (i.e. reduced in number), it seems clear that the process will include making federal awards to replace NAPSAs. Whenever conditions are consolidated across different awards or states, there is also the risk of a 'highest common denominator'.


Most importantly, new AWAs will not be able to be made from the commencement date of the legislation. The Bill is not retrospective.

Once yesterday's transition Bill comes into effect, there will also be 14 days to file AWAs which are made before the commencement of the legislation.

Existing AWAs will continue to apply – including pre-Work Choices AWAs and AWAs which have passed their nominal expiry date. However, at least in the case of a Work Choices AWA, either party can unilaterally terminate an AWA on 90 days' notice after its nominal expiry date. Unlike under Work Choices, if an AWA is terminated, the employer's collective agreement or other industrial instruments will apply, in full, to the employee.

An employee on an AWA is also eligible to vote in a collective agreement – at least after the nominal expiry of their AWAs.

There are various other miscellaneous changes to the way which AWAs operate – including on transmission of business.

Individual Transitional Employment Agreements

In broad terms, employers who have been using AWAs can instead use Individual Transitional Employment Agreement ('ITEA') until 1 January 2010.

In order to make an ITEA, the employer must have employed at least one person on 1 December 2007 under an AWA or other form of statutory individual agreement (i.e. a preserved individual state agreement or Victorian statutory employment agreement). For ease of reference, we will refer to this as an 'AWA (etc)'.


  • can only be made with an existing employee on an AWA (etc) or ITEA or with a new employee;
  • can have a nominal expiry date of up to 31 December 2009;
  • is subject to the No Disadvantage Test – which we examine below. Importantly, though, the No Disadvantage Test is measured against the employer's collective agreement (if any). This means that the ITEA must meet a higher benchmark than AWAs (or, for that matter, collective agreements which are tested against an award);
  • in the case of an existing employee, only commences when the Workplace Authority Director decides it passes the No Disadvantage Test. At first blush, this might seem problematic – given the likely delays in assessing the test. However, given an existing employee will already be on an AWA (etc), this may not be as much of a problem as it first appears; and
  • can be unilaterally terminated (either by the employer or the employee) on 90 days' notice after the nominal expiry date.

No Disadvantage Test

All workplace agreements (that is, collective agreements and ITEAs) will have to pass a No Disadvantage Test, assessed by the Workplace Authority Director. Much of the new No Disadvantage Test will sound familiar. It is like the pre-WorkChoices No Disadvantage Test, except that it will be administered by the Workplace Authority (not the Australian Industrial Relations Commission) and individual agreements will be compared with collective agreements, not just an award.

This will replace the Fairness Test – which is unlikely to be mourned.

There are some changes to when agreements come into effect. Under the present system, agreements come into effect on date of lodgement with the Workplace Authority. Under the new Bill, agreements involving existing employees (i.e employee and union collective agreements and ITEAs with existing employees) will commence seven days after the agreement passes the No Disadvantage Test. Agreements for new employees (ITEA for new employees and greenfields agreements), commence on lodgement (which creates some complications if the agreement subsequently fails the No Disadvantage Test).

The No Disadvantage Test requires that the agreement would not reduce employees' overall terms and conditions of employment when compared with a 'reference instrument', if one exists. There is a limited exception for exceptional circumstances (e.g. a reasonable strategy to deal with a short-term crisis).

A reference instrument is:

  • in the case of an ITEA, a 'collective instrument' (such as a collective agreement or preserved state agreement);
  • a 'general instrument' that applies (such as a federal award, state award or NAPSA);
  • if no 'general instrument' applies (i.e. the employees are 'award free'), a 'designated award(s)' – but only if the employees are employed in an industry or occupation which is usually award regulated.

If no 'reference instrument' exists, the agreement is deemed to pass the No Disadvantage Test.

The Workplace Authority Director determines the designated award. The designated award must be appropriate and apply to the same kind of work as done by the employees. It cannot be an enterprise award. An employer can apply for determination of a designated award in advance (which could be very useful), in which case the Workplace Authority Director is bound by their earlier determination when they come to assess the agreement, unless they become aware of new and relevant information.

The Workplace Authority Director can inform themselves in any way they see appropriate -including contacting the employee, a bargaining agent or, in the case of a union agreement, the union. Interestingly, it does not appear that the union can be contacted in a non union agreement – unless they are a bargaining agent. This means, for example, a union would not be consulted over an employer greenfields agreement.

If the agreement fails the test:

  • the Workplace Authority Director must advise on how the agreement could be varied to pass;
  • the employer can lodge a variation of the agreement for a second attempt at passing the No Disadvantage Test;
  • in the case of ITEA for new employees and greenfields agreements (which will already have started operating):
  • the agreement ceases to operate on the seventh day after the issue of the notice;
  • the employer is bound by the instruments that would otherwise have applied or, if there is none, the designated award. This is important. It means that if an agreement is lodged for award free employees which fails the No Disadvantage Test, the employer may well become bound by the designated award. This is an extension of a concept which was introduced in the Fairness Test;
  • the employee will be entitled to compensation if there is a shortfall as compared to the 'total value' of their entitlements under the instruments which would have applied; and
  • the redundancy provisions from the agreement which failed the No Disadvantage Test nonetheless continues to apply for up to 24 months; and
  • an employer must not dismiss or prejudice the employee for the sole or dominant reason that the agreement failed the test.

With the re-introduction of the No Disadvantage Test, the concept of protected award conditions will be abolished.

The Award Modernisation Process

The Australian Industrial Relations Commission is to carry out an award modernisation process – with the new, 'modern awards' to commence from 1 January 2010 (but not earlier). The process is started by the Minister issuing an 'award modernisation request'. There is then a test case (or test cases) before a Full Bench of the Commission.

A modern award may include terms about the following matters:

  • minimum wages. Note that this means that wages will be transferred back from Australian Pay and Classification Scales into awards;
  • types of employment (e.g. full time, casual, regular part time and shift work) and the facilitation of flexible working arrangements especially for employees with family responsibilities;
  • arrangements for when work is performed including hours of work, rostering etc;
  • overtime and penalty rates;
  • annualised wage or salary arrangements with appropriate safeguards to ensure individuals are not disadvantaged;
  • allowances;
  • leave, leave loading and arrangement for taking of leave;
  • superannuation; and
  • procedures for consultation, representation and dispute settlement.

Interestingly, a modern award can also include terms about any other matter specified in the award modernisation request by the Minister. This means the Minister could also invite the Commission to include other terms.

The Minister can also mandate particular terms be included in awards which, from the ALP's election policy, are likely to include enterprise flexibility provisions. There are some prohibitions on terms in a modern award – including terms that breach freedom of association provisions and, interestingly, right of entry provisions. However, these prohibitions are much narrower than the broad ranging prohibitions in Work Choices.

A modern award must also, from the time five years after it was made, eliminate all differences between terms and conditions determined by reference to state or territory boundaries.

A modern award can be common rule – that is, binding employers described by class (e.g. all banks) as opposed to being specifically named.

Importantly, a modern award cannot bind an employer who has an enterprise award.

Other Changes

There are some other miscellaneous changes:

  • As noted above, the objective is to restore minimum wages to awards by 1 January 2010. The Australian Fair Pay Commission will be wound down – with its primary function being annual wage reviews in 2008 and 2009. It will be abolished on 1 January 2010 when the function of determining minimum wages will pass to the newly established Fair Work Australia.

    In anticipation of these changes, it is intended that during the transitional period leading up to 2010, the AFPC will be confined to those functions necessary to ensure the maintenance of minimum wages – including annual minimum wage reviews. There will be no power to make new APCSs although it can vary existing APCSs. The AFPC will no longer have the power to adjust the default casual loading percentage (set at 20%).

  • NAPSAs (which embody old state awards) are currently due to expire on 27 March 2009. This will be extended until 31 December 2009.
  • The Coalition's planned 'rationalisation' and 'simplification' of awards by the AIRC is to be scrapped. So too is the Australian Fair Pay Commission's 'rationalisation' of pay scales and removal of State-based differences which is required under WorkChoices by March 2009. These rationalisation and simplification projects are to be replaced by the AIRC's 'award modernisation'.
  • The requirement to give the Employment Fact Sheet to new employees will be abolished.
  • The Australian Industrial Relations Commission may terminate a collective agreement that has passed its nominal expiry on application if it is satisfied it would not be contrary to the public interest – the position before Work Choices. A collective agreement can no longer be unilaterally terminated on 90 days' notice after its nominal expiry date.
  • The restrictions on incorporating terms by reference, such as referring to past versions of awards or previous agreements, will be removed.
  • The Commission will also have the power to vary or extend a pre-reform certified agreement by agreement – subject to various requirements including the No Disadvantage Test and the absence of threats of industrial action or protected action ballot applications.

The variation or extension cannot be made for more than 3 years after the variation or extension.

This will enable employers and employees to – in effect – renegotiate a new enterprise agreement under the pre Work Choices system, without the remaining strictures of Work Choices (such as prohibited content). However, a union will have to be on their best behaviour to do so – and not make any threats of industrial action, let alone an application for a protected action ballot.


Tomorrow, we will be examining the exposure draft of the 10 National Employment Standards and commenting on some of the other changes – including proposed changes to HEWRRS requirements for Universities.

For a detailed analysis of the ALP Policy and main changes proposed by the ALP, see our HR & IR Update of 15 October 2007. It is important to note that, since that Update, the ALP has clarified that it will not be introducing an unfair contracts jurisdiction.

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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