There is considerable uncertainty about the Rudd Government's new "better off overall" test (BOOT) that will apply to enterprise agreements under the Fair Work Act. This may explain why some employers are taking steps to have agreements approved before the new test will take effect.
The better off overall test applies from 1 January 2010 (with the relevant comparator being a new modern award). Until then, the current no disadvantage test (NDT) will continue to apply.
The relevant testing authority and which test will apply over the next 12 month period are set out in this table.
|Relevant Time Period||Testing Authority||Test Applied||Relevant Comparator|
|Until 30 June 2009||Workplace Authority||NDT||"Relevant General Instrument" eg award, common rule or "NAPSA"|
|1 July 2009 – 31 December 2009||FWA||NDT||An "award based transitional instrument" (eg awards and NAPSAs) or a designated award.|
|1 January 2010 - ongoing||FWA||Better off overall Test||Modern Award|
We raise some practical issues about the application of the BOOT. It suggests that Fair Work Australia (FWA) may adopt a different interpretation from the NDT when it considers this new test.
Nature of the better off overall test
The BOOT is the principal approval requirement for a single enterprise agreement (that is, not a greenfields agreement). FWA must be satisfied that each award-covered employee is better off overall if the agreement applies to them rather than the relevant modern award. The new test commences operation on 1 January 2010 (at the same time modern awards are scheduled to commence).
The "better off overall" requirement must be satisfied "at the test time" (when the application for approval is made).
It is possible for FWA to approve an agreement that does not meet the BOOT, but only in strictly limited cases where the tribunal considers that approval of the agreement is not contrary to the public interest. According to the legislation an example may be when approval of the agreement is "part of a reasonable strategy to deal with a short term crisis in, and to assist in the revival of, the enterprise of an employer covered by the agreement".
What is different from the NDT?
The language of the BOOT is somewhat different from the NDT that is currently used to test collective agreements and will continue to apply until 31 December 2009. (This was the test implemented by the Rudd Government under its Transitional legislation that commenced operation on 28 March 2008.) Under the NDT, a collective agreement passes if the Workplace Authority Director is satisfied that the agreement does not result, on balance, in a reduction in the overall terms and conditions of the employees whose employment is subject to the agreement under any reference instrument relating to one or more of the employees. In the case of a collective agreement, a reference instrument can be an award or a Notional Agreement Preserving a State Award.
The current NDT requirements appear more complex on their face than the BOOT – but there may be practical difficulties in the way the BOOT is expressed and will operate in practice. It is possible that the different language of the BOOT will mean that it is interpreted quite differently from the NDT. The words "better off overall" may raise the bar higher than a test which refers to whether there is a reduction in the overall terms and conditions of employment for employees.
Another change is that the language of s. 193(1) of the Fair Work Act requires that the BOOT is met in the case of each award covered employee – while the NDT sought to determine whether there was, on balance, a reduction in the overall terms and conditions of the employees whose employment was subject to the agreement. Under the current provisions it is easier for employers to argue that the NDT is to be measured by reference to "classes of employees".
This may be merely a matter of language, however. The Explanatory Memorandum accompanying the Fair Work Bill indicated that FWA would generally be able to apply the BOOT to classes of employees, and stated that the test did not require an inquiry into each employee's individual circumstances". In this context the Explanatory Memorandum provides an example:
In spite of this statement of intent in the Explanatory Memorandum, the reference to "classes" of employees is not clear on the face of the legislation. The actual language of the BOOT appears to suggest that the requirement must be satisfied in the case of "each" employee.
How will FWA apply the better off overall test?
FWA undertakes its assessment regarding whether the BOOT is satisfied at the time the application for approval is made. Having said this, s. 206 of the Fair Work Act states that, if minimum wage rates specified in awards or national minimum wage orders ever exceed the relevant pay rates in an enterprise agreement, then the employer must pay the higher rate. According to the Department of Education, Employment and Workplace Relations submission to the Senate Inquiry into the Fair Work Bill this will mean that the BOOT and s. 206 will operate together during the life of an enterprise agreement as a "true safety net".
In its evidence to the Inquiry the Department indicated that it expected that Fair Work Australia would take a "broadly similar approach" to that taken by the Australian Industrial Relations Commission in its administration of the NDT under the pre-reform WR Act between 1996 and 2006. This was the original legislation introduced by the Howard Government, which pre-dated Work Choices.
By way of comparison to the current provisions dealing with the BOOT, s. 170XA of the pre-reform WR Act indicated that an agreement would disadvantage employees in relation to their terms and conditions of employment only if its approval or certification would result, on balance, in a reduction in the overall terms and conditions of employment of those employees under:
- relevant awards or designated awards; and
- any law of the Commonwealth, or of a State or Territory, that the Employment Advocate or Commission (as the case may be) considers relevant.
It is arguable that the NDT that applied under the pre-reform WR Act (between 1996 and 2006) was more limited than the BOOT (and also the NDT as "reintroduced" by the Rudd Government into the WR Act in 2008). For example:
- there was no requirement that the test under the pre-reform WR Act was satisfied in the case of each award covered employee as appears to be the case under the Fair Work Act;
- the words "only if" that appeared in the pre-reform WR Act NDT could conceivably be regarded as a restraint upon the Employment Advocate or Commission about when the test was to apply;
- a pre-reform WR Act agreement was tested against a narrower class of instruments (relevant awards or designated awards) than is currently the case with the NDT provisions in the Rudd Government's Transitional legislation;
- when introducing the pre-reform WR Act in 1996 the Howard Government was keen to emphasise that the NDT was global in nature (requiring a reduction in the overall terms and conditions of the employees to be covered). Such an approach cannot strictly apply (or would be much more limited) under the Fair Work Act when it is impermissible for an agreement to undercut or modify the requirements of the National Employment Standards – that include entitlements like hours of work and various forms of leave.
Due to these matters it is possible that FWA will adopt a quite different – and more broad - approach when it applies the BOOT than was previously the case with the NDT (as applied between 1996 and 2006).
Would you like to know more?
Deacons will be holding seminars nationally in June on the Fair Work Act, where we will present a detailed analysis of the new Fair Work Act and provide a written summary of the new laws, allowing quick navigation through the changes.
The following table outlines the dates and times of these sessions around the country. Please keep an eye out for a copy of your invitation in the coming days.
|Fair Work Act
(paid - $195 plus GST)
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