HR&IR Update | Fair Work Act - emerging trends and key issues

As we approach the first anniversary of the implementation of the Fair Work Act, and nearly six months since modern awards and the National Employment Standards started operating, some key issues and trends are clearly emerging.

In this Update, we identify and comment on some key issues that we expect to present ongoing challenges in the year ahead.

Complying with modern awards: an ongoing issue

The new modern awards remain one of the top issues for employers – despite the fact they came into operation on 1 January 2010.

As part of award modernisation, the Australian Industrial Relations Commission consolidated several thousand federal and former state awards into just 124 new modern awards.

As you would expect, the process has been extremely complicated. But the upshot is:

• minimum award conditions for many employees have changed - to a lesser or greater degree. This is the inevitable result of a consolidation of different employment conditions
• the transitional provisions that allow for the phasing in of changes to monetary entitlements are extremely complex. As these take effect from 1 July 2010, employers must get to grips with them as soon as possible, and
• in particular industries, many employees are now covered by awards for the first time – providing them with minimum award entitlements.

There are no quick fixes to ensure award compliance. Once award coverage has been determined, employers must review their employment conditions in detail to ensure that they are complying with the new modern awards. Once the issues are identified, there are a variety of strategies which can be adopted to ensure compliance – including:

• changing conditions
• use of high income guarantees (the terms of an award will not apply to a high income earner who accepts a guarantee)
• use of individual flexibility arrangements under modern awards (which may enable changes to the operation of award terms)
• use of 'minimum entitlements' provisions
• relying on the absorption provisions in modern awards
• relying on transitional provisions in modern awards, and
• making a collective agreement.

Each of these strategies has its pros, cons, uncertainties and risks. The very complexity of the process is daunting for many employers.

The Fair Work Ombudsman has also released a draft guide to compliance with modern awards. This contains some interesting comments about the use of 'minimum entitlements' provisions. The guide can be found here: 

Draft Guidance Note on transitional arrangements in modern award released by Fair Work Ombudsman

Furthermore, the Deputy Prime Minister has released regulations dealing with applications for take home pay orders – part of the transitional arrangements. The regulations can be found here:

Fair Work (Transitional Provisions and Consequential Amendments) Amendment Regulations 2010 (No. 1)

The National Employment Standards: some things to look out for

The ten National Employment Standards (NES) commenced on 1 January 2010. Most of the conditions embodied in the NES are not new and are relatively straightforward. However, some emerging issues include: 

• the right for parents and others to request flexible work arrangements, and
• redundancy pay – the new universal entitlement. There are two things which are not widely appreciated:
  • employees within the coverage of an old state NAPSA (e.g the Clerical and Administrative Employees (State) Award) may be entitled to a higher scale of redundancy pay contained in the old NAPSA, and 
  • for employees who did not previously have an entitlement to redundancy pay, their service is counted from 1 January 2010 (not their earlier employment start date).

Enterprise Agreements: failing the BOOT

Enterprise agreements are now subject to a ‘better off overall test’ (BOOT), against the underpinning awards, which is administered by Fair Work Australia (FWA).

The scrutiny of enterprise agreements is far more rigorous than was once the case – resulting in a significant number of agreements failing the BOOT (or, for agreements made before 1 January 2010, the no disadvantage test), even where agreements in similar terms have been approved for years.

McDonalds has been the most high profile casualty – with Commissioner McKenna refusing to approve the national McDonald’s Australia Enterprise Agreement 2009, despite the fact that the Shop Distributive and Allied Employees Union supported the agreement. McDonalds is appealing her decision – and the appeal will be watched with great interest.

And it's not only the BOOT which is being applied strictly. Much closer attention is being applied to other requirements for approval of enterprise agreements – including requirements for explaining the agreement to employees. Again, McDonalds is a case in point.

There were also early suggestions that dispute resolution procedures had to allow FWA to arbitrate on disputes – but a Full Bench ultimately ruled that this was wrong (see Woolworths Ltd trading as Produce and Recycling Distribution Centre [2010] FWAFB 1464). But see the section below on the Fair Bargaining Principles.

Good Faith Bargaining: a burgeoning area

The Fair Work Act introduced the requirement that parties negotiating an enterprise agreement must bargain in 'good faith'. It is this requirement which has led to a wave of union applications to FWA.

Some of the key issues have included:

• direct communications with employees (which is probably permissible – providing there is no misrepresentation or coercion or attempt to circumvent the bargaining representatives)
• putting an enterprise agreement to a vote of employees – notwithstanding agreement has not been reached with the union(s) (which appears to be ok if an impasse has been reached and there is nothing new in the terms of the agreement – but otherwise the position is uncertain)
• making unilateral changes while negotiations are continuing (e.g restructures) (which is a complex area), and
• provision of information to unions (unions are entitled to relevant information, providing it is not confidential or commercially sensitive) which has led to sweeping requests for information including salary budgets, increases paid to other employees and future plans for restructures, outsourcings.

Restructures: consultation, redeployment, unfair dismissals

Under Work Choices, an employee could not claim unfair dismissal over a genuine redundancy. This has changed under the Fair Work Act – with a redundant employee being able to claim unfair dismissal if:

• their employer did not comply with consultation obligations under an award or enterprise agreement, or 
• their employer failed to take reasonable steps to redeploy the employee (including with related companies).

Furthermore, a union or employee can seek compensation and (in many cases) an injunction over a failure to comply with an award or agreement (particularly, the consultation requirements in modern awards).

As a result of Work Choices, all this had been easily forgotten – with many employers having become accustomed to only limited challenges being available to a redundancy program.

The Fair Bargaining Principles: if you are a Federal Government supplier, this means you

The Federal Government has adopted Fair Work Principles, which suppliers to the Government must comply with. They include:

• the adoption of fair and reasonable work practices 
• compliance with the Fair Work Act, and
• the principles of freedom of association and the right to representation.

Amongst other things, suppliers are required to provide undertakings that they have not been subject to any adverse judgments for a breach of industrial laws, occupational health and safety laws or workers' compensation laws during the past two years and are not subject to any outstanding claims.

Importantly, the supplier must have 'minimum genuine dispute resolution mechanisms' – which means that the supplier must give FWA (or another independent third party) the power to arbitrate on any employment disputes.

Prosecutions

Over the last few years, there has been a significant increase in employers (and unions) being prosecuted for a breach of industrial legislation or industrial instruments (particularly in relation to award underpayments).

This is an important trend for employers to be aware of – particularly with the increased reach of modern awards. Employers cannot afford to be complacent.

Employee transfers, outsourcings and insourcings

Where an employee is transferred from one employer to another in a 'transfer of business', the new employer is bound by the old employer's industrial instruments in relation to the transferring employees.

This may sound unexceptional, but 'transfer of business' is now widely defined and includes:

• transfers of employees within a corporate group. This can create significant complications where there are a number of subsidiaries with different conditions – typically the case with a corporate group built up through acquisitions or with different brands servicing different markets, and
• outsourcings and insourcings.

While Fair Work Australia can modify the default position, the process is potentially cumbersome and the outcome uncertain.

Individual employee claims

We are continuing to see the rise of court proceedings by individual employees, and not just over dismissals. The Fair Work Act offers some new and expanded rights, including compensation for breach of industrial instruments and adverse action claims. These can be combined with more traditional claims (e.g breach of contract) and brought in the Federal Magistrates Court – so called 'cocktail' claims.

As part of this, employees are becoming increasingly inventive with adverse action claims. One example is Jones v Queensland Tertiary Admissions Centre Ltd (No 2) [2010] FCA 399 – where a CEO argued that disciplinary action over bullying allegations was motivated by the fact she represented the employer in enterprise bargaining negotiations. The CEO's claim was ultimately unsuccessful as the Court decided that the employer was motivated by a genuine concern over allegations of bullying.

Nevertheless, we expect this to be the start of a trend in adverse action claims.