After much pressure from Unions and other interest groups, the Federal Government has announced that it will legislate to introduce a Fairness Test in relation to Australian Workplace Agreements (“AWA’s”). What does this mean for your business?
For those companies who have already taken advantage of the WorkChoices legislation to introduce Australian Workplace Agreements to its workforce, unless the Agreement was lodged on or after 7 May 2007, it will not be affected by the changes. This means that the 300,000 AWA’s entered into prior to 7 May 2007 will continue unaffected for a period of up to five years, depending on the term specified in the Agreement.
The Draft Bill is not yet available for public comment. Those companies currently in the process of negotiating Agreements are best advised to hold off finalising the terms of any proposed AWA’s pending publication of the Bill, and preferably until the Bill has been passed into legislation. Such a process is likely to take place in a matter of weeks, given the electoral advantage the government is hoping to gain out of the amendments.
Based on media releases by the Federal Government, the main features of the legislation are likely to be:
1. The Fairness Test will only apply with respect to employees earning less than $75,000 per annum.
2. Certain Award conditions are identified as “protected award conditions” for the purposes of the test. Those conditions are penalty rates, shift and overtime loadings, monetary allowances, annual leave loadings, public holidays, rest breaks and incentive based payments and bonuses. If an Australian Workplace Agreement removes or modifies any of these conditions, the employer will be required to provide to the employee “fair compensation” in lieu of the same.
3. The Workplace Authority will replace the Office of Employment Advocate in the role of assessing whether individual AWAs pass the fairness test. In making such an assessment, the Workplace Authority will be entitled to consider a range of factors, not just monetary compensation. For example, the legislation will entitle the Workplace Authority to consider factors such as the industry type, location and economic circumstances of the business, and the specific employment circumstances or opportunities of the particular employee.
4. AWA’s will still be lodged on the basis that they come into effect immediately. However, subsequent to lodging, if the Workplace Authority determines that the agreement fails the fairness test, 14 days is provided for the parties to make the agreement fair, and the employer will be expected to provide back pay to remedy any unfairness that has arisen from the date of commencement of the AWA.
5. To avoid uncertainty as to whether an agreement is fair or not, the Workplace Authority will provide a non compulsory service in which it will tell the parties proposing to enter into an AWA whether the terms of that AWA pass the Fairness Test, and if not, guide the parties as to what needs to be changed in the Australian Workplace Agreement in order to pass the test.
6. A body called the Workplace Ombudsman will be created to ensure that fair AWA’s are followed. For example, the Workplace Ombudsman will be able to seek to recover any shortfall in payments on behalf of adversely affected employees.
Kevin Rudd, the opposition leader, has described the new Fairness Test as “a fake safety net with holes big enough to drive a Mack truck through.” What are the shades of grey in the proposed amendments?
Some interesting aspects to take into account are the following:
1. The proposed Fairness Test may well allow non-financial benefits to constitute adequate compensation to allow the removal of penalty rates and shift and overtime loadings. For example, in the hospitability and retail industry, discounted prices for consumer goods or more flexible working hours may be used as a form of “compensation”.
2. The Fairness Test does not require the inclusion of pay rises in Australian Workplace Agreements. As AWA’s can have a life of up to 5 years, this means that increases in Award wages are not required to be reflected in AWA’s. The Fair Pay Standard is the only minimum with regard to rates of pay.
3. Employers in competitive industries can seek exemption from providing compensation with respect to protected award conditions. What constitutes a “competitive industry” for the purposes of this provision remains to be seen.
4. An employer that is in “difficult economic circumstances” may not be required to provide compensation for taking away protected award conditions. The issue again arises as to what situation a company would need to find itself in for it to be found to be suffering “difficult economic circumstances”.
5. It appears that employers in regional and remote areas may be able to obtain exemptions from the Fairness Test.
- If your company has introduced Australian Workplace Agreements prior to 7 May 2007, you can confidently continue with the use of those Australian Workplace Agreements for the full life of the Australian Workplace Agreement concerned.
- If Australian Workplace Agreements have been drafted or proposed to your work force, but are not yet signed, they may have to be redrafted to satisfy the Fairness Test.
- If your company wants to avoid disputation about the fairness of a proposed AWA, a conservative way to achieve this is by making use of the proposed Workplace Authority pre-approval process, which should become available prior to the next federal election.
- Employers who want to move quickly to introduce Australian Workplace Agreements and are prepared to deal with any issues regarding breaches of the Fairness Test after the event may proceed to enter into Australian Workplace Agreements with their employees and have them lodged. However, they must be prepared for a finding in the coming months by the Workplace Authority that the agreements do not pass the Fairness Test, and that compensation may need to be paid to the workers. The concern in adopting this approach is that it may erode employee confidence in the bona fides of the employer by casting the employer as “unfair” in its dealings.
- An employer, in attempting to satisfy the Fairness Test, should give consideration to non monetary entitlements that it might be able to give to its staff in order to avoid paying financial compensation. For example, the provision of flexible working hours may well be seen by the Workplace Authority as having real value to certain employees, particularly those with parental responsibilities.
