Australia: IR Reform - Modernising Awards

Last Updated: 3 April 2008
Article by Brendan Charles and John Tuck

Much of the attention on the first phase of the new Government's IR reforms set out in the Workplace Relations Amendment (Transition to Forward with Fairness) Bill 2008 (Bill) has been on the abolition of Australian Workplace Agreements. But this is not the only significant development. The government's direction to the Australian Industrial Relations Commission to modernise awards is sure to become a matter of great interest to all employers.

Why? Because awards will regain their pivotal role in Australia's industrial relations system with the Australian Industrial Relations Commission (AIRC) given the task of creating new 'modern awards' that, in conjunction with the 10 National Employment Standards (NES), will become part of the safety net for employees from 1 January 2010. The Government's policy is that the further reforms will limit the application of modern awards to those earning less than $100,000.

To create modern awards, it is expected that the AIRC will simplify the 3,000+ awards that are currently in the system and reduce this to a number as low as 150. It is a monumental and ambitious task for the AIRC as was shown by the Award Review Taskforce's Report in 2005, and the impact on employers and their interest in the outcomes is high. By placing modern awards at the heart of the new safety net, the respondent unions, employers and other interested parties will once again have a direct role in shaping applicable and relevant minimum terms and conditions of employment for their industry.

The Government has made it plain that its expectation is more than a process of simplification of awards. It extends to a process of creating modern awards that reflect the 10 NES that have now been published in draft form.

We expect that this approach will lead to unions seeking to have the content of 'pre-modernised awards' placed either directly into collective agreements, or called up in a version as at a set date to be read in conjunction with the collective agreement.

The combined effect of previous reforms to the industrial relations system from the mid-1990s was to marginalise the role of awards. The Government's reforms will return modern awards to centre stage. The AIRC 'award making' power will be limited to the making of modern awards only. This mirrors the limitation in the Work Choices reforms (where the Commission was limited to only making awards as part of the award rationalisation process). Prior to the Work Choices reforms, the AIRC had the ability to make awards to settle industrial disputes. That power has not been restored.

What is the change?

Awards will be simplified and dramatically reduced in number during the transition period up to 1 January 2010.

What is the impact?

  • Modern awards will become part of the new national safety net that will underpin employment from 1 January 2010.
  • Employers will need to be aware of the changes taking place in their awards, what these instruments are likely to look like after award modernisation, and whether their current terms and conditions of employment will comply with the safety net.
  • The extremely tight timeframe for the process is likely to gather momentum in the short term and will be split into two separate 12 month stages. The first stage involves the AIRC identifying and simplifying a 'priority list' of awards. The AIRC could well ask for submissions in the first half of 2008 from interested parties and publish exposure drafts for the priority awards towards the end of the year.

What is the AIRC's Role?

The Explanatory Memorandum to the Bill contains the Government's draft award modernisation request to AIRC President Giudice, requesting the AIRC to create modern awards during the transition period.

Under the terms of the request, modern awards must:

  • Be simple to understand, easy to apply and reduce the regulatory burden on business.
  • Include 10 minimum award entitlements including minimum wages, penalty rates, allowances and overtime.
  • Where necessary, also include industry specific detail on the 10 NES.
  • Provide the basis for a safety net for Australian workers.
  • Not be overly prescriptive nor extend coverage to employees who are in areas that have been traditionally award free (such as managerial or high income employees). This will not preclude the extension of modern award coverage to new industries or occupations where the work performed is of a similar nature to work that has historically been regulated by awards.
  • Include a flexibility clause allowing for individual arrangements enabling an employer and an individual employee to agree on arrangements that meet their needs, but which cannot disadvantage the employee.

The process

The Government's request to the AIRC asks it to create awards primarily along industry lines. The request also requires the AIRC to have regard to the desirability of reducing the number of awards operating in the workplace relations system. The request does not set a target for the number of modern awards, but it is clear that the number is to be greatly reduced (exempting enterprise awards from the exercise).

How the AIRC undertakes its task will be left largely up to its members, although the directive has a strong emphasis on consultation rather than arbitration. As such, the simplification process of the mid to late 1990s with drawn out contested hearings is unlikely. Instead, it is expected that the AIRC will consult major employer organisations and the union movement before releasing a program for the process. It will then be expected to consult again during each major step of the process. The AIRC is also required to consult with the Fair Pay Commission and State industrial tribunals as appropriate.

By 30 June 2008, the AIRC is expected to have identified a priority list of industries or occupations for award modernisation, developed a timetable for completing the award modernisation process and developed a proposed model award flexibility clause. In developing the priority list, the AIRC will concentrate on those with a high incidence of Notional Agreements Preserving State Awards (NAPSAs) and Australian Workplace Agreements (AWAs).

In the initial phase, the AIRC will also address issues such as how to set minimum terms and conditions for the new allowable modern award matters, noting that the combination of these matters with the 10 NES adds up to 20 items for inclusion in modern awards, although there is the potential for more matters as some of the items cover more than one matter (allowances, for example). The AIRC will also identify industries where AWAs are used to override prescriptive and complex award terms to determine if particular attention to those awards is required to make them simpler. The AIRC will also need to decide how to deal with NAPSAs and preserved State agreements and how to incorporate 'family friendly' provisions.

Having undertaken consultation, the AIRC must prepare an exposure draft of each modernised award. Exposure drafts must be published for further consultation with all stakeholders and interested parties. The intent is that all interested parties will have an opportunity to make submissions on how the new modern awards should work. Once consultation is completed, a Full Bench of the AIRC will create the modern award.

By December 2008, the AIRC must endeavour to have created a modern award for each of the priority industries or occupations it has identified.

This process is to be completed by 31 December 2009, with modern awards operating from 1 January 2010.

What are the 10 National Employment Standards?

An exposure draft of the 10 NES was released on 14 February 2008. The 10 NES will consist of 10 legislated minimum conditions of employment for all employees in the federal system, replacing the existing Australian Fair Pay and Conditions Standard. For award-covered employees, the proposed 10 NES will operate in conjunction with the relevant modern award to provide the safety net of minimum entitlements.

The 10 NES are to be finalised by 30 June 2008 so that industry-specific detail can be inserted into modern awards being prepared by the AIRC. The 10 NES will not operate until 1 January 2010.

The proposed 10 NES are:

  • Maximum weekly hours of work.
  • Requests for flexible working arrangements.
  • Parental leave (and related entitlements).
  • Annual leave.
  • Personal/carer's leave and compassionate leave.
  • Community service leave.
  • Long service leave.
  • Public holidays.
  • Notice of termination and redundancy pay.
  • Fair Work Information Statement.

What can be in a modern award?

The Bill addresses the terms that may be included in modern awards. The terms may only provide a fair minimum safety net and will become the new 'allowable matters' and include:

  • Minimum wages including junior rates and training rates.
  • The type of employment such as full-time, part-time and casual employment and shift work and also allowing terms for flexible working arrangements, particularly for employees with family responsibilities.
  • Arrangements for when work is performed such as hours of work, rostering, rest periods, variations to working hours and notice periods relating to roster changes.
  • Overtime rates.
  • Penalty rates.
  • Annualised wage or salary arrangements.
  • Allowances.
  • Leave, leave loadings and arrangements for taking leave.
  • Superannuation.
  • Procedures for consultation, representation and dispute settling procedures.

Modern awards may also include industry specific terms about the 10 NES and incidental and machinery terms.

The Bill also identifies terms that must not be included in modern awards. Apart for the requirement not to include terms other than those specifically identified that can be included, a modern award must not include terms that:

  • Are about right of entry.
  • Breach freedom of association provisions.
  • Are discriminatory.
  • Contain State-based differences (for constitutional reasons).

Who will be bound?

Based on what is proposed in the Bill, an employer will be bound by a modern award in one of two ways, either:

  • By being specifically named as being bound (as was often the case in pre-Work Choices awards).
  • By inclusion in a specific class by reference to a particular industry or particular kinds of work performed by its employees (as was often the case with 'common rule' awards in most States).

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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.

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