Employment Update - Proposed Amendments To The Workplace Relations Act 1996

A new Fairness Test for workplace agreements

The Minister for Employment and Workplace Relations, Joe Hockey, has introduced into the House of Representatives the Workplace Relations Amendment (A Stronger Safety Net) Bill 2007. This Bill, likely to be enacted before the end of June 2007, introduces a new fairness test to be applied to certain workplace agreements.

The Bill also replaces the Employment Advocate and his office with the Workplace Authority Director and the Workplace Authority and the Office of Workplace Services with the Workplace Ombudsman and the Office of the Workplace Ombudsman.

What is the new fairness test?

The new fairness test requires the Workplace Authority Director (WAD) to decide whether certain AWAs and collective agreements fairly compensate employees when protected award conditions are excluded or modified. The protected award conditions are those set out in the Act, although outworker conditions are excluded from the new test because they already attract special protection.

The fairness test applies in the following circumstances.

1. To all AWAs (including variations to existing AWAs) lodged with the Workplace Authority on or after 7 May 2007.
2. Where the employee concerned earns or will earn a basic rate of salary which is less than $75,000 per year or, if he or she is a part-time employee, earning less than the full-time equivalent of $75,000.
3. Where the AWA operates when an employee works in an industry or occupation usually regulated by an award.
4. Where the proposed AWA excludes or modifies protected award conditions that apply to the employee under a relevant award or a designated award (which the Workplace Authority determines should be used to assess the proposed AWA).

These four conditions must be met if the test is to apply.

1. To all workplace agreements (including variations to existing workplace agreements) lodged with the Workplace Authority on or after 7 May 2007.
2. Where, on the date of lodgement, one or more employees whose terms and conditions will be governed by the collective agreement is employed in an industry or occupation usually regulated by an award or which would, but for the collective agreement, usually be regulated by an award.
3. The collective agreement excludes or modifies protected award conditions applying to those employees under either a relevant award or a designated award.

Importantly there is no monetary threshold for collective agreements.

The fairness test brings back a type of no disadvantage test for workplace agreements. Many employers will be familiar with this system. However, having adjusted to an agreement making process that removed that layer of regulation employers will again need to pay careful attention to the nature of their agreements which will be measured against an expanded safety net. Employers will also need to be mindful of the new role for awards and designated awards under the expanded safety net

How will the Workplace Authority assess agreements?

Workplace agreements will satisfy the fairness test if:

• In the case of an AWA, the Workplace Authority is satisfied that the agreement fairly compensates the employee in lieu of the exclusion or modification of protected award conditions.
• In the case of a collective agreement, the Workplace Authority is satisfied that, on balance, the collective agreement provides fair compensation, in its overall effect on the employees, in lieu of the exclusion or modification of protected award conditions.

In determining whether an employer is fairly compensating employees, the Workplace Authority must first consider the following:

• The monetary and non-monetary compensation an employee or employees will receive in lieu of the protected award conditions.
• The work obligations of the employee or employees under the agreement.

Fair compensation may also be considered in light of the personal circumstances of employees, including their family responsibilities.

In exceptional circumstances, and where the Workplace Authority does not consider it contrary to the public interest to do so, it may consider the industry, location or economic circumstances of the employee and the employment circumstances of the employee or employees (excluding any period of the employee's unemployment). These considerations can include any reasonable strategy to deal with a short term crisis and to assist in the revival of an employer’s business.

The Workplace Authority may contact employers and employees to obtain further information for the purposes of deciding whether an agreement passes the fairness test. This may arise to ensure nonmonetary benefits are genuinely of value to the employee. An example may be flexible rostering.

Importantly, non-monetary compensation means compensation for which a monetary value can reasonably be assigned and which confers a benefit or advantage on the employee which is significant to that employee. The Explanatory Memorandum to the Bill suggests that non-monetary compensation could include car-parking spaces, child care places or shares in the employer’s company while excluding meals such as a pizza at the end of a shift.

Employers will be looking for clear guidance and consistency in the application of the test. The manner in which the Workplace Authority undertakes its task will be of great interest as there is room for uncertainty in the assessment of non-monetary compensation and the application of the fairness test.

What happens if an agreement fails the fairness test?

The Workplace Authority must notify the parties of its decision about whether the agreement passes the fairness test. If the Workplace Authority decides that an agreement fails the fairness test in addition to notifying the parties of that fact, it must also tell the parties how the agreement can be varied to pass the fairness test (including by way of an undertaking by the employer) and state that compensation may be payable by the employer to the employee or employees. The employer will have 14 days, unless the Workplace Authority stipulates another period, to address the failure, either by variation (with appropriate agreement) or a written undertaking. During this 14 day period the agreement will continue to operate. If the employer fails to address the failure within that period, the agreement will cease to operate.

Even if the employer rectifies the failure, the employee or employees affected may be entitled to compensation in respect of any period (defined as the fairness test period) during which the agreement operated.

If the agreement ceases to operate because the employer has failed to rectify any failure, the employer and the employee or employees will, from the date on which the agreement ceased to operate, be bound by the relevant workplace agreement or award that applied or would have, but for the agreement. Importantly, it appears that this may include a designated award to the extent to which that designated award contains protected award conditions. As noted, a designated award will not have bound the parties prior to the agreement being lodged.

How is compensation determined?

If an agreement fails to pass the fairness test (even if it is later varied or the employer gives an appropriate undertaking in writing) employees may be entitled to compensation.

The amount of compensation will, in general terms, be the shortfall between the total value of the entitlements the employee was entitled to receive under the agreement and the total value of the entitlements which the employee would have been entitled to receive under a relevant award (including a designated award) or workplace agreement that would otherwise have applied.

If the employer fails to pay the shortfall, it may be subject to enforcement action by the Office of the Workplace Ombudsman. It may also face civil action from the affected employee or employees. In most cases, the time period within which employers must pay any shortfall will be 14 days of the date upon which an agreement ceases to operate because it has failed the fairness test.

There are also consequences for employers who:

• Dismiss or threaten to dismiss employees because a workplace agreement does not or may not pass the fairness test.
• Coerce employees to agree to the modification or exclusion of protected award conditions.

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