Inside the new Fair Work bill

It was always expected that Labor would change the IR landscape, and aspects of its workplace changes have been previewed – but there are still some surprises, and every employer will need to know them. By PETER VITALE

By Peter Vitale

Fair Work Act details

It was always expected that Labor would change the IR landscape, and aspects of its workplace changes have been previewed – but there are still some surprises, and every employer will need to know them.

One doubts that there was any irony at all in the decision to table the Fair Work bill in Parliament exactly 12 months after the election of the Rudd Government.

After much anticipation, the details of Labor’s replacement for WorkChoices have now been revealed. Many aspects of the bill have been floated for months and come as no shock. There are a few little surprises, though.

Employers need to understand how the new regime will differ from the old. Is it a case, as Pete Townshend of The Who wrote, of “Meet the new boss, same as the old boss”?

Some questions remain to be answered as the inevitable complexity of transitioning from the old system to the new has been left to separate legislation, to be released in 2009. For SmartCompany’s purposes however, there seems no need to cover procedural or structural changes to the jurisdiction of Fair Work Australia, the Workplace Ombudsman (to be known as the Fair Work Ombudsman) or the establishment of Fair Work divisions in the Federal Court and the Federal Magistrates’ Court.

National employment standards

A new Fair Work act would prescribe the 10 national employment standards (NESs) that were originally released for discussion earlier this year. There has not been any substantial change to the NES outlined in the exposure draft.

To recap, the NES are:

  • A maximum 38 hour working week, plus reasonable additional hours.
  • A right for employees to request flexible work arrangements.
  • Parental leave.
  • Annual leave.
  • Personal/carers leave.
  • Community service leave.
  • Long service leave (federal award entitlements only – the Government has dodged the thorny question of a single national standard).
  • Public holidays.
  • Notice of termination and redundancy pay.
  • Provision to employees of a “Fair Work information statement”.

Award free employees, that is employees who earn more than a guaranteed $100,000 a year (and that figure will be indexed), will be able to negotiate individual agreements that contract them out of the NES. Those agreements will be subject to limitations the full extent of which will only be known once regulations have been drafted, but one can expect that they will be largely directed to ensuring that employees are not worse off than the basket of NES conditions.

Modern awards

The act will pick up from the transitional legislation enacted by Parliament earlier this year. Under that legislation, the Australian Industrial Relations Commission has been working on a streamlined award system, more closely based on industries than the current system.

Modern awards will regulate:

  • Minimum wages (replacing the fair pay and conditions standard).
  • The arrangement of work hours including shift work and part time work.
  • Overtime and penalty rates (which could be excluded under WorkChoices mark 1, and were later subject to the fairness test).
  • Allowances.
  • Leave and leave loadings.
  • Superannuation.

There are a few new features of modern awards. As noted earlier, employees earning more than $100,000 a year will be excluded from the coverage of modern awards. There will be an explicit capacity for employers and employees to agree on an “annualised” salary arrangement, provided employees are not disadvantaged.

It seems that this approval will not be required for such arrangements, and that will be welcomed by business, which often has to tussle with the cumbersome formal enterprise agreement making process. Second, all awards will contain procedures requiring employers to consult with employees about major changes in the workplace.

The legislation identifies that modern awards are subject to the NES. It also identifies the objective of modern awards to include providing a safety net, which needs to “encourage collective bargaining” and to take into account impacts on business.

At the same time the successor to the AIRC, Fair Work Australia (FWA), will be permitted to include additional benefits (other than annual wage increases) in modern awards, which is a power that the AIRC basically hasn’t exercised for an individual award since 1993. This is potentially a retrograde step by the Government. FWA will need to exercise this power judiciously.

FWA will also be empowered to review minimum wages, and vary modern awards accordingly, on an annual basis, with more comprehensive reviews of modern awards to take place every four years.

Modern awards will also contain “individual flexibility provisions” that will enable employers and individual employees to reach agreements to vary the effects of the award to meet the genuine needs of the parties.

Like the similar measures applicable to the NES, flexibility provisions do give scope to employers and employees to individualise their arrangements, but it is absolutely guaranteed that you won’t hear anything about statutory individual agreements from the Government.

Enterprise bargaining

This is the part of the new legislation where perhaps the most significant change will come about. Reaction by union officials, while a little cool, certainly indicate that they firmly believe they have been dealt back into the game after John Howard attempted to gut them.

Unions will be the default representative of its members, unless employees appoint a different representative. It will be compulsory for employers to “bargain” with employee representatives, though the legislation says that “bargaining” does not amount to reaching agreement.

Prohibited content has been a maze for employers and unions to negotiate when making Workplace Agreements under WorkChoices, but the Fair Work act will contain a very interesting, some would say alarming, provision.

Not only will agreements be able to contain pretty much any matters relevant to the relationship between employees and employers, but they will also be able to contain matters relevant to the relationship between unions and employers.

This provision overturns the cumulative effect of 80 or 90 years of High Court authority about what can and cannot be in an award or an agreement. Ironically, the Howard government’s successful use of the constitutional corporations power, which was given the High Court’s imprimatur, has smashed this door open.

As in the pre-WorkChoices system, employees will vote on an agreement and it will be approved by the industrial tribunal, in this case FWA. In order to gain approval, agreements must pass the “better off overall test” (already known as the BOOT test). This replaces the “no disadvantage test” and the language in the legislation suggests it may be a more onerous hurdle; but much depends on how it is applied by FWA in practice. Unions will also have the option to be covered by an agreement simply by giving notice to FWA.

As with modern awards, enterprise agreements must contain individual flexibility provisions and consultation provisions.

Much of the publicity surrounding the Fair Work bill has been on the good faith bargaining provisions. In summary, the scheme of the act will be:

  • Employers must recognise and bargain with employee representatives.
  • FWA will be able to make orders requiring parties to do things that will facilitate effective collective bargaining, such as attend meetings at specified times, disclose relevant information and giving timely responses to negotiating positions.
  • If a party is guilty of sustained and serious breaches of bargaining orders, FWA may issue a serious breach declaration.
  • In the case of a serious breach declaration, FWA will be required to arbitrate the outstanding matters that have not been agreed by the parties (this is really turning the clock back).

FWA may also force employers to bargain if it determines that the majority of employees wish to do so.

In what could only be described as a “BHP”, “Rio Tinto” or “Telstra” amendment, FWA will also have the power to declare that a group of employees that it is proposed will be covered by an agreement is not the geographically, operationally or organisationally “appropriate” group that was “fairly chosen”.

In other words, forget about the strategies used to deliver agreements covering small groups of employees. The Fair Work act means to put the “collective” back into collective bargaining.

Industrial action

The basic scheme of the legislation since 1993 has been retained. No industrial action may be taken before an agreement reaches its nominal expiry date. The WorkChoices requirement for a secret ballot of employees to approve industrial action has been retained. Protected industrial action is immune from civil actions for damages against unions or employees properly engaging in industrial action.

FWA will also have powers to order industrial action to stop.

Union rights of entry

This has been an area of controversy for both employers and unions. Unions do not like the proposition that features of WorkChoices will be retained. Employers are concerned that the rights of entry no longer have a necessary condition that work being performed by employees is award-covered work. The fear being that demarcation disputes will flare as unions will try and spread their influence into workplaces in which awards operated that did not have that union as a party.

Unfair dismissals

There are no surprises in the new unfair dismissal provisions. While the “operational reasons” exemption has been ditched, a termination that is for genuine reasons of redundancy will not be unfair.

This includes a requirement that the employer must have consulted employees and in most cases the union about the pending redundancies.

Businesses with less than 15 employees will be able to rely on a one year qualifying period, while larger employers will continue to have six months.

The act also flags more informal processes for resolving claims, whether by negotiation or contested hearing. The effectiveness of these measures will be in the hands of the members of FWA charged with carrying them out.

Transfer and transmission of business

Transmission of business has been one of the most heavily litigated areas of industrial regulation in the late 1990s and the early part of this century. The controversy centres on the application of awards and agreements to employers who have taken over a business from a party bound by those awards or agreements, when they were not previously bound by those instruments.

The transmission of business rules were originally enacted to prevent employers avoiding their legal obligations by establishing phoenix businesses in the place of entities that were bound by identity to observe the industrial regulation.

With the advent of modern commercial phenomena such as outsourcing and privatisation, the area has been a fertile one for the courts. WorkChoices limited the application of the old employer’s industrial instruments to the new employer; the Fair Work act will reverse this and contains provisions squarely aimed at some prominent decisions of the High Court.

The act will clarify that outsource providers will be bound to observe the terms of industrial instruments that apply to the outsourcer’s operations. In the case of related companies, only one employee need be transferred to perform the same work before the instruments binding on the old employer will apply. The commonly understood application of the provisions in sale of business transactions will continue.

The act will retain the WorkChoices requirement that employees must be transferred between the two employers.

Adverse actions

It has already been observed by some commentators that potentially the real sleeper in the new Fair Work act will be the comprehensive “general protections” provisions.

In this part of the new act will be gathered provisions in current legislation relating to freedom of association, involvement in lawful industrial activity, exercising rights in the workplace, unlawful termination and sham contractor arrangements. “Adverse actions”, such as termination of employment, or more generally disadvantaging an employee in connection with these aspects of the employment relationship will be prohibited.

The new provisions also contain more general prohibitions against discrimination in employment on the basis of a range of characteristics already comprehensively covered by state and federal anti-discrimination laws, such as race, colour, sex, age, disability and so on.

The critical difference being that, unlike the anti-discrimination statutes, the new act provisions have a reverse onus of proof. This means that an employer will be presumed to have discriminated against the employee, unless they can prove to the contrary. Employers will likely find this an entirely unnecessary and unwelcome addition to the law, which may render the current structure of anti-discrimination jurisdictions a bit of a lame side show, at least as far as they apply to employment relationships.

There would be little reason for employees not to seek the instant advantage of the assumption that their claim was justified, which is what the Fair Work act will provide in its current form.

Further more, in cases where the employee has been dismissed, FWA will have a role in trying to reconcile the dispute and, as the AIRC currently does in unfair dismissal claims, certify whether or not it considers the claim to have merit before it is pursued in the courts.

It’s a double whammy for employers who will be counting the cost of those changes.


Peter Vitale is the principal of CCI Victoria Legal



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