Productivity Commission releases final report on workplace relations (Part 1) - 11 January 2016

Topic

Recommendations of the Productivity Commission

• Sunday penalty rates.  Sunday penalty rates in the hospitality, entertainment and retail industries (currently fixed between 150% to 200% in the relevant awards) should be set at the higher of 125%, and the Saturday award rate (which is generally fixed between 125% to 150%). This is with the exception of penalty rates that are part of overtime or shift work which will remain unchanged.  The Report states this is to reduce the costs penalty rates impose on employers who are under increasing pressure to provide services on Sundays.
  
  The Federal Minister for Employment, Senator Michaelia Cash, has since indicated that any changes to penalty rate arrangements would be left to the Fair Work Commission (FWC) through changes to the relevant awards.  It is, however, difficult to see how the FWC could or would make those changes without some legislative imperative to do so.
• Penalty rates for existing public holidays. Penalty rates for existing public holidays should not be reduced.  Employers have argued that penalty rates for public holidays are too high, but the Report identifies there are strong grounds for limiting the expectation that employees should work on public holidays.
• Shopping hour restrictions. South Australia, Western Australia and Queensland should remove anti-competitive remnant shopping hour restrictions. The Report identifies that such restrictions are outdated.  Removal of shopping hour restrictions will require legislative change by the States concerned – perhaps an unlikely prospect over the short term in the Labor states of South Australia and Queensland.

• Swapping public holidays. All awards should include terms permitting an employer and employee to agree to substitute a public holiday for an alternative day. Some awards already contain terms to this effect, but the Report recommends that such a term be introduced into all awards.
• State declared public holidays. Employees should not receive public holiday penalty rates, or paid leave, on newly designated State or Territory public holidays. The Report identifies that as the NES currently provide that public holiday entitlements are to be invoked on any public holiday declared by State and Territory governments, this enables the States and Territories to unilaterally create obligations under the NES for further paid leave entitlements.
• Annual leave review. The Australian, State and Territory governments should jointly examine whether there are grounds for increasing the current entitlement to 20 days of paid annual leave in the NES with a cash out option where that suits the employee and the employer.  The Report recommends that any increase, if implemented, should involve a trade off between wage increases and extra paid leave.

• Lodgement fees. Lodgement fees for unfair dismissal applications should be non-refundable, and applicants should be required to pay an additional fee if their claim proceeds to arbitration.  Currently, lodgement fees are refundable if the matter is discontinued prior to any conference or hearing before the FWC. The Report identifies that these changes aim to reduce speculative unfair dismissal claims.
• Advice to applicants. The FWC should advise all parties that, based on recent decisions, a majority of arbitrated cases do not lead to compensation.  According to the most recent FWC Annual Report, in the financial year 2014-2015 only 12.3% of unfair dismissal claims were successful at arbitration and only 9.2% overall resulted in compensation.
• Dealing with applications 'on the papers'.  The FWC should be given some clearer powers to deal with applications 'on the papers' – that is, by administrative review without hearing from the parties – before conducting any kind of conference or hearing, in an effort to weed out  unmeritorious claims. This may involve the use of better designed application forms.
• The balance between a "valid reason" and procedural matters. The Report identifies an imbalance whereby the FWC currently considers procedural matters in dismissals to be as important as the reason for the dismissal.  The Report suggests, however, that the validity of the reason for dismissal should be the primary consideration. This was addressed in the recommendations in two ways. 
  
  Firstly, by the implementation of a two-stage test. The first stage of the test would be whether there was a valid reason for the dismissal as the more fundamental consideration.  If yes, the second stage would consider whether due process was followed. 
  
  Secondly, reinstatement and/or compensation should only be awarded to an employee where they have been dismissed without a valid reason (ie, not for serious misconduct or underperformance).  Reinstatement and/or compensation should not be ordered if an employee's application is upheld due to faults in the employer's termination process (and where there is otherwise a valid reason for dismissal).  In the latter case, the FWC may order the employer to undergo training, or may apply to the court for penalties to be imposed in serious or repeated cases.
  
  It is hoped that these changes would reduce or eliminate the number of cases which are successful simply due to procedural defects.
• Reinstatement.  Reinstatement should not be emphasised as the primary remedy for unfair dismissal.  The Report identifies that compensation is often the chosen remedy.
• Small Business Fair Dismissal Code.  The Small Business Fair Dismissal Code should be abolished. The Report identifies that the Code was unclear and was not a sufficient safeguard for small businesses against liability in unfair dismissal claims.  

• Definition of a 'workplace right'. The definition of a workplace right should be more precise for example, by making it clear that the exercise of a workplace right to make a complaint or inquiry to one's employer must bear a direct and tangible connection to an employee's employment. 
  
  Currently, the extent to which an employee's complaint or inquiry will constitute a workplace right is unclear. For example, the courts have taken both a narrow and broad view as to what constitutes a complaint or inquiry "in relation to" an employee's employment.  A narrow view was taken in Rowland v Alfred Health [2014] FCA 2, where the Federal Court found that an employee's complaint about the competency of his supervisor was not in relation to his employment, and therefore not a workplace right.  However, a broader view has been taken in decisions such as Henry v Leighton Admin Services Pty Ltd & Anor [2015] FCCA 1923, where the Federal Circuit Court accepted that an employee's internal complaint about alleged issues with his employer's financial reporting was capable of constituting a workplace right because it was about a subject that may prejudice the employee in his employment (even though the complaint was not about the employee's own employment).   
• Awarding costs against unsuccessful applicant.  The Fair Work Act 2009 (Cth) (FW Act) should be amended to allow costs to be awarded against an unsuccessful applicant who pursued a claim contrary to a recommendation by the FWC not to proceed because the claim has limited prospects of success.  The current situation in regards to costs is that a court may award costs against a party only in circumstances where the proceedings were instituted vexatiously or where a party's unreasonable act or omission caused another party to incur costs.
  
  This recommendation, if implemented, is likely to have little practical effect as the FWC rarely makes such a recommendation.

• Termination.  Flexibility terms in modern awards and enterprise agreements should permit individual flexibility arrangements to be terminated by giving 13 weeks' notice (or up to 1 years' notice if agreed by the parties). Currently, parties can terminate individual flexibility arrangements with 28 days' notice which, whether from the employer's or employee's perspective, substantially curtails their practical utility.
• New 'no disadvantage test'.  The 'better off overall' test invoked when assessing an individual flexibility arrangement should be replaced by a 'no-disadvantage' test. The Report states that a 'no-disadvantage' test is less ambiguous.

• Enterprise Contract (EC).  There should be a new type of employment instrument – the 'enterprise contract' – which allows businesses (by agreement with affected workers) to vary an award for a class of employees, to suit their business operations and to simplify complex award language.  Currently, if employers wish to modify the entitlements prescribed by awards they can, either, seek to negotiate an enterprise agreement, or, an individual flexibility agreement, both of which can create an excessive administrative burden on smaller businesses.  The Report suggests that the EC would help bridge the gap in the options available to employers.
  
  ECs would allow employers to instigate a collective arrangement for a class of employees nominated by the employer, with the employer choosing whether to seek approval of the EC from the FWC (although all must be lodged for publication).
  
  While the details of how ECs would work are not entirely clear, the Report identifies that they would be subject to the following safeguards:
  • a 'no-disadvantage test' compared to the relevant award;
  • existing employees could not be compelled to join;
  • employees who joined an EC could withdraw after 12 months, with the purpose of providing the employer with an incentive to ensure the EC was more attractive than the relevant award;
  • ECs would be published on the FWC website for transparency; and
  • an EC would only vary the relevant award to the extent of the stated variation (and would not displace the award).

• Misrepresentation of employment arrangements.  The FW Act should make it unlawful for an employer to misrepresent an employment relationship as an independent contractor arrangement where the employer 'could be reasonably expected to know otherwise'. Currently, an employer will be liable for a breach of the FW Act sham contracting provisions if they are 'reckless' in misrepresenting a work arrangement as one for services provided by a contractor rather than as one of employment.  The Report suggests that the current test of 'recklessness' is too open to employer abuse and that an alternative test of 'reasonableness' would make a more appropriate – and tougher – benchmark for employers to observe.  
• Unlawful terms.  Enterprise agreement terms that restrict the engagement of independent contractors, labour hire workers, or casual workers, or that generally restrict an employer's prerogative to choose an employment mix suited to their business, should constitute unlawful terms under section 194 of the FW Act.  This is to provide employers with greater flexibility and allow them to lower costs and increase productivity.