Australia: Tendering Tempo - Likely Labour Costs For Employers Over The Coming Months

The impacts of the Fair Work Act 2009 (Cth) on the civil construction industry can be split into three categories:

  • compliance costs from 1 July 2009,
  • increased employment expenses from 1 January 2010, and
  • potential industrial costs from 1 July 2010.

In respect of the first two types of costs, these costs arise largely as a result of the procedural changes effected by the new legislation. The third type of cost is still far too uncertain to fully quantify, but recent announcements have made it clear that the Construction Code and associated Implementation Guidelines are likely to be significantly rewritten with effect from 1 July 2010.

Potential industrial costs from 1 July 2009

From 1 July 2009, the Fair Work Act 2009 (Cth) puts in place new processes and procedures for most operative parts of the workplace. Most significantly for the construction industry, this includes changes to:

  • agreement making,
  • right of entry, and
  • the protection of workplace rights.

Although the actual expense of complying with the new requirements may not be excessive in dollar terms, these changes will cause fairly significant strategic changes, which may have cost consequences for employers.

Agreement making

In terms of agreement making, the new legislation completely rearranges the process for agreement negotiation and agreement approval by the relevant authority. Under the Fair Work Act 2009 (Cth), bargaining commences when an employer agrees to bargain, or a majority support determination or scope order is made in respect of the employer and its employees. Once this is done, the employer has 14 days to give a notice of representational rights to its employees. Failure to do so will not have civil penalties, but it will result in the employer being unable to seek approval by its employees of any agreement that results.

Insofar as representation is concerned, the default bargaining representative for an employee is the union of which the employee is a member, or which has a right to represent the employee by virtue of the union's rules of coverage in respect of the work the employee will perform pursuant to the agreement. Where more than one union has representational rights in respect of the workforce and the work under the proposed agreement, both unions will have a right of representation. This may result in circumstances where agreements need to be negotiated with the AWU and CFMEU, and the ability to select between unions is effectively removed. If dual negotiation is not feasible, it will be necessary to narrow the scope of the agreement to exclude those employees from the proposed agreement and potentially negotiate separate agreements with each respective union in relation to operationally distinct parts of the work. If an order is required of Fair Work Australia in order to facilitate this, then this is likely to involve further costs.

The current awards and pay scales will apply for the purposes of assessing the agreement as being approved under the new legislation prior to 1 January 2010. However, the test has changed from being a No Disadvantage Test (NDT), under which you could trade off entitlements to achieve the same end result, to a Better Off Overall Test (BOOT). Under BOOT, you can still trade off entitlements, but the net result must be better for the employees rather than achieving a neutral result which would have satisfied the NDT. Given the unionisation of the construction industry, however, the change from NDT to BOOT is unlikely to have significant consequence for many employers as it is rare to see an agreement in the construction industry under which the employees are not significantly better off than the underlying awards. However, employers who are paying close to the minimum may face increased costs to meet the BOOT.

Finally, the ability of an employer to resist union bargaining has been largely done away with as a result of the introduction of workplace determinations. Under the Fair Work Act 2009 (Cth), the parties to a proposed agreement must follow the good faith bargaining requirements. If they do not, then the aggrieved party may seek a bargaining order forcing the other party to follow the good faith bargaining requirements. Breach of a bargaining order may result in civil penalties. Repeated breaches of a bargaining order may result in a significant breach determination, which is the first step to an arbitrated outcome under which Fair Work Australia will impose collective terms and conditions of employment on the parties.

This means that where a union has a right of representation, if they can get a majority support determination from the workforce or a scope order, it will only be a matter of time before some enforceable outcome in respect of collective terms and conditions of employment is made.

Right of Entry

As far as right of entry is concerned, it will no longer be possible to make an agreement excluding all or some unions from the workplace. Under the Fair Work Act 2009 (Cth), the right to enter premises is not based on being party to an industrial instrument, but rather on the right to represent as determined by the union's rules.

While limits on entry are still enforced by the legislation, this means that efforts by employers to deal directly with employees without the involvement of a third party is largely subverted by the Fair Work Act 2009 (Cth). It will then become a question of choice by the employees as to how much involvement they want to have with the union.

Workplace Rights

In respect of workplace rights, this is largely a replication of the freedom of association provisions in the Work Choices legislation, with one important inclusion – there is now an obligation not to subject an employee to adverse action on a discriminatory basis.

This is quite a different notion to the existing discrimination legislation for the following reasons:

  • it provides for a new cause of action separate from the existing State and Federal human rights and equal opportunity forums,
  • it applies to employees, prospective employees and contractors, and
  • it provides a very broad coverage of protection, in that adverse action includes more than just dismissal or failure to employ or engage, but also "injury" in the employment or engagement.

The statute of limitations on such actions is six years, which is in most cases longer than the statutory limits under the state and federal discrimination legislation. This adds an extra level of compliance that is likely to have cost consequences, particularly as such proceedings must be brought to the Federal Court or Federal Magistrates Court. Although there is a cap on the penalty that can be awarded in those jurisdictions, those courts can also make orders for compensation for loss suffered as a result of the breach of the provision.

Increased employment costs from 1 January 2010

From 1 January 2010, the National Employment Standards (NES) and the Building and Construction General On-site Award 2010 (the Award) will come into force. The NES contains minimum conditions of employment that all employers must abide by in respect of their employees. These are:

  • maximum weekly hours of work – being 38 hours per week plus reasonable additional hours,
  • the ability for parents of young children (less than school age) to request flexible working arrangements from employers. An employer may only decline such a request if there is a reasonable business basis for doing so,
  • parental leave now entitling one parent to request up to 24 months leave;
  • annual leave with the ability to cash out all annual leave in excess of four weeks regardless of when or how it accrued,
  • personal/carer's leave and compassionate leave with the ability to cash out personal all in excess of 15 days regardless of when or how it accrued,
  • paid community service leave,
  • long service leave at the Federal level,
  • public holidays,
  • notice of termination including redundancy pay for all employees of employers with more than 15 employees, and
  • provision of a fair work information statement to new employees.

The Award modifies the NES for the industry to provide the following modifications:

  • redundancy – providing a less generous redundancy schedule as against the NES that applies to all employers and employees, payable on termination for any reason other than misconduct, but also continuing to permit payment of contributions into an industry-specific redundancy scheme e.g. Incolink,
  • hours of work – to take into account industry RDOs, agreement on alternate or banking RDOs, early starts, underground work and shiftwork,
  • annual leave – to provide for 17.5% leave loading and allowances payable on leave, and directions to take leave on annual shut down,
  • personal/carer's leave – to provide sick leave balance continues if the employee is re-engaged by the same employer within six months of termination, and
  • public holidays – to provide for agreement to substitute days.

The Award also currently picks up wage rates from the current Pay Scale for the National Metal and Engineering On-Site Construction Industry Award 2002. This is slightly less than the Pay Scale for National Building and Construction Industry Award 2000, and slightly more than the Pay Scale for Australian Workers' Union Construction and Maintenance Award 2002.

The Award does not apply to employees earning above the high income threshold set by the regulation. Although this has not yet been published, public announcements indicate that this threshold level will be set at a level similar to the current unfair dismissal threshold – around $106,400. The Award also does not apply to tertiary qualified employees or management employees performing in professional roles.

Potential compliance costs beyond 1 July 2010

Beyond 1 July 2010, there are likely to be further potential costs. These are likely to result from a proposed overhaul of the Construction Code, with a new Code to be in place by 1 July 2010.

Depending on the amendments, it is possible that unions will seek revisions of current workplace agreements, particularly pre-Fair Work agreements that can be overridden by Fair Work agreements, or else the changes may require employers to amend their agreements to continue to tender for Federally funded work. However, until further details of the proposed amendments are made public, it will be difficult to gauge what cost consequences there will be for the construction industry.


The changes to the industrial landscape occasioned by the Fair Work Act 2009 (Cth) are likely to result in increased compliance costs and strategic shifts in the immediate short term.

From 1 January 2010, the introduction of the NES and the Modern Award for the construction industry is likely to also cause some increased costs for some employers in the industry and peripheral to it. Until we see the regulations dealing with the NES and Modern Awards, and the Modern Award for the professional engineers and scientists engaged in construction work, it is not possible to accurately gauge the actual monetary costs to employers in the industry.

The potential for Code revision effective 1 July 2010 also carries with it the possibility of further compliance costs, particularly if current agreements need to be changed, or it is desirable to change them, or radical changes for future agreements is necessary.

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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