Article by Stuart Kollmorgen, David Cross, Richard Naughton, Jenny Thrum and Andre Didenkowski
After scheduling a rare Friday sitting of Parliament on 20 March 2009, the Federal Parliament has now passed the Fair Work Bill.
After a series of deals with the cross-bench Senators, the Minister for Workplace Relations declared that WorkChoices was "finally buried".
The Senate made around 200 amendments to the Bill during its debates on the Bill. The most notable was a change to the definition of small business making the cut-off 20 full-time equivalent employees rather than Labor's promised 15 headcount employees.
Last Friday morning saw the House of Representatives accept almost all the amendments, and the Government made a deal with Senator Fielding of Family First so that an 18 month transition phase would apply where a small business would be defined as:
- fewer than 15 full time equivalent employees until 31 December 2010; and
- fewer than 15 headcount employees from 1 January 2011.
The deal has been reported as changing the definition of small business only for the purpose of the unfair dismissal regime. However, the application of the changed definition to other parts of the Bill is not clear. The transitional details of the phase-in arrangements will be dealt with under the Fair Work (Transitional Provisions and Consequential Amendments) Bill 2009 which is to be considered by Parliament in the coming months.
The Bill is now set to be implemented on schedule on 1 July 2009 (with the National Employment Standards and Modern Awards coming into effect on 1 January 2010).
Noteworthy of the changes made to the Bill during its passage through Parliament are:
Phase-in of Unfair Dismissal Regime for Small Business
As noted above, the Bill will provide for a phase-in of unfair dismissal rules to small businesses. From 1 July 2009, small business employers will be able to defend an unfair dismissal claim on jurisdictional grounds if they have complied with the Small Business Fair Dismissal Code. Until 31 December 2010, employers with fewer than 15 full time equivalent employees will be considered small business employers. The number of full time equivalent employees is to be determined by calculating the number of hours worked by all employees in the enterprise and then dividing that number of 38 (to give the number of equivalent full time employees). After 1 January 2011, the fewer than 15-employee exemption will be applied by a straight head count of all employees.
Greenfields Agreements
The Bill has been amended to remove the requirement on employers to notify all unions with scope of coverage over an employee in the relevant group of employees of their intention to make a Greenfields agreement. The Bill has also been amended to remove the provisions that would enable bargaining representatives to be appointed in relation to a proposed Greenfields agreement. The Government's amendments also clarify the operation of the Better Off Overall Test (BOOT) in relation to Greenfields agreements and ensure that Greenfields agreements are made with a union or unions who represent a majority of employees whose employment will be bound by the agreement.
The BOOT Test
The Bill has also been amended to make it clear that when assessing proposed enterprise agreements under the BOOT test FWA will be able to group employees into classes to determine whether the agreement passes the test rather than applying the test against each employee. This will mean that for the purposes of determining whether or not each employee to be covered by the proposed agreement will be better off, FWA can group employees of a similar class, for example employees at the same classification level, and determine whether or not the class of employees will be better off. The amendment is designed to provide for an efficient agreement approval process.
Right of Entry
The Bill makes it clear that in the exercise of their powers, union officials investigating alleged breaches may only inspect records relating to non members where the employee has provided written consent or where FWA has determined that the union should be permitted access. The Bill has also been amended to make it clear that information collected is subject to the Privacy Act.
The Government has also confirmed that it would support amendments to clarify the ability of FWA to revoke or suspend an entry permit where it has been used vexatiously.
Transition
The Rudd Government has now introduced transitional legislation into Federal Parliament, the Fair Work (Transitional Provisions and Consequential Amendments) Bill 2009) (Transitional Bill). The Transitional Bill operates to repeal the existing Workplace Relations Act 1996 (Cth) (the WR Act), and set in place arrangements for transition into the new system under the Fair Work legislation.
As has previously been announced significant parts of the Fair Work legislation will commence operation on 1 July 2009, for example the new unfair dismissal provisions, the new bargaining arrangements (including the obligation to bargain in good faith), and the transfer of business provisions. In contrast, however, the provisions dealing with modern awards and the new National Employment Standards (NES) will commence on 1 January 2010.
The provisions in the Transitional Bill are complex as they seek to recognise and acknowledge the rights and entitlements of both employers and employees under what will be an entirely new workplace relations system. Some key points in the Transitional Bill:
- It will ensure the ongoing operation of existing industrial instruments and explain how they interact with the new system including the NES and modern awards;
- It provides that the NES and minimum wages in modern awards apply to all national system employees from 1 January 2010, including those covered by instruments that have been in existence prior to the advent of the Fair Work legislation, except employees covered by enterprise awards;
- The NES will not override benefits currently provided by existing workplace agreements that are at least as beneficial as the NES, with regulations to determine whether a benefit is "detrimental";
- It allows for employees on statutory individual contracts (ITEAs and AWAs) to participate in collective bargaining negotiations (and for the individual agreement to terminate in such a situation).
Application of Modern Awards and NES
It is important for all employers to understand that modern awards and the NES will immediately apply to all "national system employers" (ie a constitutional corporation that employs, or usually employs an individual) as from 1 January 2010, except for those employers that remain subject to an "enterprise award". The transitional arrangements indicate that the NES will apply as a statement of 10 minimum employment standards for all employees, even if the employer is covered by an existing industrial instrument – which might be a pre-reform certified agreement (an agreement entered before 25 March 2006), a workplace agreement made under the WR Act, or a preserved collective State agreement.
The most significant new changes among the NES will be amendments to parental leave entitlements (allowing parents to request leave for up to 24 months); an entitlement for parents of young or disabled children to request flexible working arrangements; and an obligation upon employers with 15 or more employees to pay redundancy benefits in accordance with a statutory scale. Employers who increased the rate of pay in return for employees agreeing in a pre-reform workplace agreement to relinquish some entitlements that now are in the NES (e.g. some or all of 10 days' sick leave or 20 days' annual leave) will from 1 January 2010 have to provide both the NES benefit and, where applicable, the modern award higher pay, unless the agreement benefit is considered at least as beneficial as the NES entitlement.
The effect of the transitional provisions (and the Fair Work legislation) is that the modern award does not actually apply to an employee or employer that is covered by a "transitional instrument", for example a workplace agreement; workplace determination, preserved State agreement or AWA, but the base rate of pay under any such arrangement must not be less than the rate payable under the modern award. According to the Fair Work legislation, the "base rate of pay" is the rate of pay payable to the employee for his or her ordinary hours of work but does not include incentive-based payments; loadings; monetary allowances; and overtime and penalty rates.
Employers that are presently covered by an ongoing collective agreement must pay their employees at least the minimum rate of pay specified in a modern award as from 1 January 2010 for each hour worked. Where applicable, modern awards "cover" all corporate employers in an industry in all States and Territories – although they will not apply to a business where an "agreement-based transitional instrument" operates, except in the case of this mandatory requirement concerning base rates of pay. This reference to "base rates of pay" appears to have the result that employers (currently subject to an agreement) that have increased the standard rate of pay for ordinary hours worked in order to "cash out" penalty rates will NOT be obliged to pay award penalty and overtime rates. Some employers applied the base pay rates in Notional Agreements Preserving State Awards (NAPSAs) in their collective agreements, which may be lower than the modern award pay rates, in which case the modern award base rate will override the "instrument rate" to the extent of the shortfall for ordinary hours. There may be some limited opportunity for employers to seek an order from FWA that the minimum pay rate is "phased in". This would only be available in exceptional circumstances where the employer could demonstrate this was necessary to ensure the ongoing viability of the business.
Further, employers may wish to lodge collective agreements now and in the lead-up to 1 January 2010 in the knowledge that the rates of pay specified in the agreement will continue – save that they must at all times from 1 January 2010 be at least the modern award base rate for ordinary hours.
Another aspect of the transitional provisions is that they set in place a process to ensure that employees do not suffer a reduction in "take home pay" as a result of the award-modernisation process for a transition period. Such an employee would be entitled to make an application to FWA seeking to remedy the situation.
Application of Existing Instruments and Arrangements
The Transitional Bill confirms that existing agreements (whether they be pre-reform collective agreements; workplace agreements made under the Work Choices legislation; or pre-reform arrangements that have been varied or extended) will continue to operate past their nominal expiry date until terminated in accordance with current rules for termination, or replaced by a new enterprise agreement under the new Fair Work legislation. In the case of a statutory individual agreement (an AWA or ITEA), this will mean the arrangement continues until terminated by agreement between the parties, or where unilaterally terminated after the nominal expiry date (by the giving of 90 days notice by either party).
"Sunsetting" rules apply in the case of particular instruments: NAPSAs; Division 3 pre-reform certified agreements; Old IR Act agreements; and s. 170MX awards.
Under the terms of the transitional provisions, the Australian Fair Pay and Conditions Standard - which currently provides minimum statutory standards for wages, maximum hours of work, annual leave and personal leave - will remain in place until the NES and modern awards commence on 1 January 2010.
Rules relating to Agreement-Making
The transitional provisions indicate that the new bargaining framework under the Bill will operate from 1 July 2009 – and this will include the requirement that bargaining representatives comply with the good faith bargaining requirements (eg to attend and participate in meetings; to disclose relevant information in a timely manner; and to give genuine consideration to each other's proposals).
An enterprise agreement that is submitted to FWA within the transitional period (before 1 January 2010) will be the subject of a "no-disadvantage test" compared with the current applicable and "un-modernised" award. This approval process will apply until the NES and modern awards become effective on 1 January 2010.
Another notable new arrangement is that it will be possible for employees on ITEAs and AWAs to enter what is termed a "conditional termination agreement" with their employer. This will allow them to participate in collective bargaining processes, including voting on the new collective agreement. If these processes are utilised and the new enterprise agreement is approved, the existing individual statutory agreement will automatically terminate.
Modern Enterprise Awards
The timetable on modernising enterprise awards (ie awards that apply to a single business) has been clarified. Presently, these awards stand outside the award modernisation process.
The Transitional Bill includes a process whereby parties to an enterprise award may apply to FWA to have their enterprise award modernised and integrated within the modern award system. The Transitional Bill indicates that an application to modernise such an award must be made between the date the Fair Work Act 2009 commences (1 July 2009) and 31 December 2013. This raises a number of issues. There is no requirement for the enterprise award to be modernised before 31 December 2013, as the legislation merely refers to an application to FWA being made before that date. Further, the transitional legislation indicates that while the enterprise award will be "modernised" - it will still exist as a separate instrument that applies to the individual enterprise.
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