Award modernisation - what is it?
Award modernisation as the title suggests is a process involving updating and rationalising the award based system in Australia. The Australian Industrial Relations Commission (AIRC) has in accordance with the request from the Minister for Employment & Workplace Relations, been undertaking a complete rationalisation of awards in Australia with a view to having a comprehensive set of modern awards by 31 December 2009.
The procedure adopted by the AIRC involves the lodgment of proposals, submissions and other material by interested parties, pre-drafting consultations, publication of exposure drafts by the AIRC, lodgment of proposal submissions and other material in relation to drafts by the parties and further consultations. Finally publication of the modern awards by the AIRC.
Modern awards are not to contain State or Territory based differences although there is provision for such differences for a transitional period of 5 years.
When do modern awards apply?
Modern awards are intended to have a commencement date of 1 January 2010. Together with the "National Employment Standards," modern awards will provide a new safety net for workers from 1 January 2010 onwards.
Who will be covered by modern awards?
Modern awards will cover all employers in the Federal system. This will include "constitutional corporations" (such as trading corporations) and in NSW for example, other categories of employer if NSW decides to refer its powers to the Commonwealth.
Modern awards are intended to cover all industries.
Additionally, it is proposed that there will be a miscellaneous modern award which will be created to cover certain employees who are not otherwise covered by any other modern award.
What will happen to existing awards?
It is intended that by 1 January 2010 the award modernisation process will be completed and that all current awards including NAPSAs will be replaced by modern awards.
What will happen if the award modernisation process results in a reduction in take home pay of employees or out workers?
Under the transitional Fair Work Act provisions, if an employee suffers a "modernisation-related reduction in take-home pay" and certain criteria are satisfied, the employee or group of employees who suffered a reduction in take-home pay can seek an order requiring the payment of money to remedy the situation.
The transitional fair work legislation sets out criteria to be satisfied before Fair Work Australia (FWA) can make such an order including:
- The modern award must apply to the employee;
- The employee is employed in the same or a comparable position to that which they were employed in, prior to the introduction of the modern award;
- The amount received by the employee has reduced despite the fact the hours have not materially changed;
- The reduction is due to the award modernisation process.
Can employers and employees contract out of modern awards?
Modern awards will not apply in circumstances where employees earning over the "high income threshold" (being $100,000 per annum as indexed)) have agreed in writing with their employer to accept a "guarantee of annual earnings". Such employees are then known as "high income employees".
The agreement can be made either before or during the employment and must generally be for a period of 12 months or more, however it can be for a shorter period in some circumstances.
The Fair Work Act contains detailed provisions setting out what earnings should be taken into account in determining whether or not the income of an employee exceeds the high income threshold. Earnings which will not be taken into account, include: payments the amount of which cannot be determined in advance, reimbursements or employers' compulsory superannuation contributions.
The employer is before or at the time of giving a guarantee of annual earnings to the employee covered by a modern award, required to notify the employee in writing that the modern award will not apply during any period during which the annual rate of the guarantee of annual earnings exceeds the high income threshold.
Can an employer and an employee vary the effect of a modern award in order to meet their genuine needs?
"Yes". Under the Fair Work Act, an employer and employee can agree to an "individual flexibility arrangement" pursuant to a "flexibility term" in a modern award. The flexibility term must, amongst other things:
- Identify the terms of the modern award, the effect of which may be varied by an individual flexibility arrangement;
- Require that the employee and employer genuinely agree to any individual flexibility arrangement;
- Require the employer to ensure that any individual flexibility arrangement must result in the employee being better off overall than the employee would have been if no individual flexibility arrangement had been agreed to.
It should be appreciated that if an employer has agreed to such an arrangement the modern award has effect in relation to the employee and the employer as if it were varied by the flexibility arrangement and such arrangement is for the purposes of the Act taken to be a term of the modern award. Such arrangement does not change the effect of the modern award in relation to any other employee.
How do modern awards interact with pre-existing industrial instruments?
Pre-reform certified agreements, collective agreements and State enterprise bargaining agreements will continue to operate from 1 January 2010 as "transitional instruments". AWAs and ITEAs will continue to operate as transitional instruments. There will be no new statutory individual agreements.
It should be noted that from 1 January 2010 employees must receive the minimum rate of pay in an applicable modern award even if they are covered by a transitional instrument.
What things should an organization be considering with respect to modern awards?
- Review the modern awards applicable to your industry and assess their impact on your business;
- Consider which employees may be made subject to a guarantee of annual earnings (employees who earn over $100,000 as indexed) to avoid the application of an applicable modern award;
- Consider whether it may be appropriate to enter into an individual flexibility arrangements with your employees.
- For employers who have employees on individual industrial agreements (eg AWAs and ITEAs) consider how you will engage new employees from 1 January 2010 onwards.
Swaab was recently named a 2009 Winner in the ALB Employer of Choice awards, and was winner 'Best Law Firm in Australia (Revenue < $20m)' and 'Attribute Award for Exceptional Service (Australia Wide)' in the 2008 BRW- Client Choice Awards.
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.