Last week, the Federal Government introduced into the House of Representatives, the Fair Work (Transitional Provisions and Consequential Amendments) Bill 2009 (Bill). The Bill is one of two Bills that the Federal Government will introduce as part of its transition to life under the Fair Work Act 2008 (FW Act). A second Bill will deal with consequential amendments to a number of Commonwealth statutes and to deal with referrals of power, if any, by the States.
The first Bill comprises 22 schedules of transitional provisions which run to nearly 300 pages. This guide is a general summary of those provisions.
What are the key changes?
This Bill will require employers to adapt quickly to significant changes, a number of which impose obligations not previously anticipated prior to the introduction of the Fair Work Bill (first tabled in November 2008). Key changes include:
- Terms of an existing workplace agreement will be of no effect if under the new 'no-detriment rule', they provide less than the National Employment Standards (NES). Two areas that are likely to involve increased costs from 1 January 2010 are long service leave and redundancy.
- Take-home pay orders made as part of the modernisation of awards will ensure that employees receive no less under a modern award than under an existing award.
- The potential for demarcation disputes between unions is evidenced by a new power to make representation orders.
The NES and the 'no-detriment rule'
All existing agreements and those that will be made prior to 31 December 2009 will need to satisfy a new no-detriment rule which compares the terms of an agreement with the NES.
Under the Bill, existing industrial instruments such as workplace agreements, pre-reform certified agreements and awards will continue to operate but as 'transitional instruments' beyond their nominal expiry dates.
The Bill introduces the no-detriment rule to provide that no term of a transitional instrument has effect if it is detrimental to an employee in any respect when compared to an entitlement of that employee under the NES.
The no-detriment rule will not apply until 1 January 2010, when the NES commence.
The no-detriment rule may result in an increase in entitlements to make up for any shortfall (for example, if an employee is only entitled to eight days paid sick leave under a transitional instrument, compared to the NES entitlement of 10 days paid personal/carer's leave).
The no-detriment rule is to be applied on a line-by-line basis. The effect of this is that an employee's entitlement would be jointly covered by the NES and the transitional instrument (for example, the NES rules about accrual and taking annual leave would apply, while the more favourable payment rule in the transitional instrument would apply).
Parties covered by a transitional instrument can apply to Fair Work Australia (FWA), the new body replacing the Australian Industrial Relations Commission (AIRC), to resolve any difficulties about the interaction between the transitional instrument and the NES. The FWA may then order a variation to the transitional instrument.
Prior service and the NES
As a general rule, an employee's service prior to the commencement of the NES will count as 'service' when calculating entitlements under the NES.
The Bill aims to spare employers the sudden occurrence of a liability for redundancy pay. It attempts to do this by providing that service prior to the start of the NES will not apply to the calculation of redundancy pay under the NES, if an employee's terms and conditions do not provide for any entitlement to redundancy pay immediately prior to 1 January 2010.
Other factors include:
- Notice of termination provisions under the NES (for example, written notification) will not apply where an employee is given notice of termination of their employment prior to the commencement of the NES. This will apply even if the termination actually occurs after the commencement of the NES.
- If an employee is notified that his or her position will be terminated on account of redundancy prior to 1 January 2010, the employer will be liable to pay redundancy pay under the NES. This will apply even if the termination occurs after the commencement of the NES.
Effect of existing agreements on modern awards
A modern award may cover an employee but whether or not the award is to be applied to an employee depends on the type of 'transitional instrument' used.
For example, the Bill provides:
- That a modern award will not apply where a workplace agreement, including an Australian Workplace Agreement (AWA) or pre-reform AWA, applies to an employee (but see the next dot-point).
- The base rate of pay under such an agreement must not be less than the relevant modern award rate. (This will obviously be important because employers will need to ensure that rates of pay under such agreements meet or are greater than the rates contained in any relevant modern award.)
- A modern award will apply to a pre-reform certified agreement that applies to an employee. However, the agreement will prevail to the extent of any inconsistency (except that a higher base rate of pay in the modern award will apply).
Modern awards and take-home pay
Modern awards cannot result in reductions in take-home pay with 'take-home pay orders' possible to ensure employees are not worse off.
If there is an actual reduction in the take home pay of an employee because of award modernisation, FWA may make a take-home pay order to address the difference. In practice, this will mean an increase in pay.
In making modern awards, the AIRC may 'phase-in' award increases in pay resulting from the modernisation process.
High income employees and existing awards
Existing awards (as with modern awards under the FW Act) will not apply from 1 July 2009 to 'high income employees'. High income employees are defined in the FW Act to be employees earning more than a guaranteed amount of $100,000 (indexed) over a guaranteed period of 12 months or more and who have accepted an undertaking from their employers to this effect.
Workplace agreements made under the Workplace Relations Act 1996
Workplace agreements made before 1 July 2009 are assessed according to the 'no-disadvantage test' which was put in place by the Workplace Relations Act 1996 (WR Act). Collective agreements which have been made, but not lodged with the Workplace Authority prior to 1 July 2009, must be lodged within 14 days after it is approved or, in the case of a greenfields agreement, made.
No penalties will apply for late lodgement if the parties do not lodge the agreement within the time allowed. However, the parties will need to make a new enterprise agreement under the FW Act.
Enterprise agreements made under the FW Act
Enterprise agreements made during the period 1 July 2009 to 1 January 2010 must pass the no-disadvantage test rather than the 'better off overall test'. The better off overall test applies from 1 January 2010, when both the NES and modern awards commence operation.
Bargaining and industrial action
When the WR Act is repealed on 1 July 2009, parties who are at that time bargaining for a collective agreement will generally be required to restart their bargaining and industrial action processes under the FW Act.
New power to make demarcation orders
A rise in demarcation disputes between unions is anticipated largely as a result of the removal of the nexus between rights of entry and award respondency (or being a party to an agreement). In an attempt to address this, the Bill provides FWA with the power to make 'representation orders' to resolve such disputes. The new power is also intended to address potential disputes arising as a result of the changed bargaining framework under the FW Act.
Conditional termination agreements
Another important provision allows an individual who is on an AWA or individual transitional employment agreement (ITEA), to be represented and participate in collective bargaining if:
- The nominal expiry date of the employee's individual agreement has passed; or
- He or she has made a conditional termination agreement with their employer in respect of that AWA or ITEA.
The Workplace Ombudsman and the general advisory function of the Workplace Authority will be taken over by the Fair Work Ombudsman from 1 July 2009. The Australian Fair Pay Commission will cease to exist on 31 July 2009 (after completing its final wage review), while the Workplace Authority will cease to exist on 31 January 2010.
The AIRC will cease to exist on 31 December 2009.
Unfair dismissal and like matters
The Bill also provides for a general rule that conduct which occurs before the WR Act repeal day (1 July 2009) remains subject to the WR Act. For example, if an unfair dismissal occurs before 1 July 2009, the application if made prior to 1 July 2009 will be made to the AIRC so it can be dealt with under its powers and rules of procedure. This applies to any application made before 1 July 2009. If, however, an unfair dismissal application is instituted after 1 July 2009, the Bill provides that the WR Act provisions are to be administered by FWA and not the AIRC.
Phillips Fox has changed its name to DLA Phillips Fox because the firm entered into an exclusive alliance with DLA Piper, one of the largest legal services organisations in the world. We will retain our offices in every major commercial centre in Australia and New Zealand, with no operational change to your relationship with the firm. DLA Phillips Fox can now take your business one step further − by connecting you to a global network of legal experience, talent and knowledge.
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.