HR&IR Update | Government Releases Fair Work Act Review

3 August 2012

On 2 August 2012, the Government released the Report of the Fair Work Act Review – the review of the Act after its first two years of operation.

The review was conducted by Dr John Edwards (a member of the Reserve Bank Board), the Honourable Michael Moore (former Federal Court judge and former member of the Australian Industrial Relations Commission) and Professor Emeritus Ron McCallum (renowned industrial relations academic). 

It was commissioned in December 2011,with the terms of the review centring on whether the Act was operating as intended and achieving its objectives.  More than 250 submissions from interested parties were received – including from state governments, employer groups, the ACTU and various unions. 

The Report was provided to the Government in mid-June 2012.

What does this mean?

The Report contains 53 recommendations, none of which is particularly far reaching – although some will have significance for particular employers in particular circumstances.

Amongst the most important recommendations are:

  • Unfair Dismissals:   Giving Fair Work Australia (FWA) the power to determine unfair dismissals by an informal ‘inquisitorial’ process – ie, a process where FWA is actively involved in investigating the facts and deciding, not merely ‘umpiring’, on arguments presented by the employer and employee.  There are also some recommendations designed to discourage and deal with unmeritorious claims.  Finally, the Report recommends that an employee be able to bring an unfair dismissal claim over a non-renewal of a fixed term contract – which is particularly important in industries such as the public sector and tertiary education.
  • Adverse Action Provisions:  Amending the adverse action provisions so that a Court has to consider the employer's honest and reasonable belief as to the reason it took the adverse action – not anything else, such as an unconscious reason.  The effect of this recommendation would be to overrule the Barclay decision, assuming it is upheld by the High Court.
  • National Employment Standards:  Miscellaneous changes to the National Employment Standards.  Some of these will be more important to some employers than others.  Of particular interest to most employers are the extension of the right to request flexible work arrangements and that annual leave loading not be payable on termination of employment (absent a provision in an award or enterprise agreement requiring it to be paid).
  • Greenfields Enterprise Agreements:  Important changes to greenfields enterprise agreements, aimed at preventing unions from holding projects to ‘ransom’ by withholding their agreement.  Notably, this includes a power for FWA to arbitrate to resolve impasses in bargaining, including ‘last offer’ arbitration (where FWA chooses between the last offers of employer and union).
  • Enterprise Agreements:  Prohibition on opt out clauses – the validity of such clauses has resulted in conflicting FWA decisions and is currently the subject of a review by a full (five member) bench of FWA.
  • Protected Industrial Action:  Allowing protected industrial action only where negotiations are on foot.   A union should not be able to take protected action to compel an employer to start negotiations.  The union must instead apply for a majority support determination.  The effect of this is to overrule the JJ Richards decision.
  • Transfer of Business:  Modifying the transfer of business provisions where the employee transfers to a related company at their own initiative.  In this case, they will be subject to the awards and enterprise agreements applying at the related entity.  They will not take their awards and enterprise agreements with them.

Finally, the Report recommends changing the name of Fair Work Australia.

But, it is not only the recommendations that are important.  The Review has rejected calls for change in a number of areas – most notably to modern awards, the enterprise bargaining system (and the associated capacity to take protected industrial action) and to the adverse action provisions.

Why is this important?

Pardon the pun, but the Fair Work Act has attracted more than its fair share of controversy – especially the enterprise bargaining system in the wake of a series of major industrial disputes over the past 12 months, including Qantas, the Victorian Nurses, Patricks and most recently Toll.

Critics say that the Act is at fault.  Others have observed that protected industrial action has been part of the system since 1994 (when introduced by the Keating Government) and was continued by the Howard Government throughout its office, including the controversial Work Choices.  

Regardless of where the fault lies, is the system too adversarial?  This is the question being asked, including by members of FWA.  And is enterprise bargaining still an effective way of delivering productivity improvements?  Or have the gains now been realised?  Is it simply too hard to obtain real change when employees can veto change by withholding their agreement and where protected industrial action is a readily available weapon?

Another area of significant concern for employers is the increasing use of the adverse action provisions by employees, especially by employees trying to link their dismissal to complaints they claim to have made.

In these respects, the Review has been a disappointment for employers, although it is probably fair to say that many employer concerns are matters of high policy that the Review was never likely to grapple with, especially given its focus on assessing whether the Act was operating as intended.

The Government has indicated that it will provide its response in due course.  Following this, the Government will (presumably) introduce amendments into Parliament.  The question will then be: What will Parliament do?  What position will the Independents in the Lower House adopt?  And what about the Greens?

The Fair Work Act Review: At a Glance

Topic Key Recommendations and Conclusions
National Employment Standards
  • Provide annual leave does not accrue during absence on workers compensation
  • Provide annual leave loading not payable on termination of employment unless award/EBA requires it
  • Provide special maternity leave does not reduce entitlement to parental leave
  • Add requirement to meet and discuss refusal of request for extended parental leave/request for flexible working arrangements
  • Extend the right to request flexible working arrangements to a wider range of caring and other circumstances
  • Governments should expedite development of national long service leave entitlement, with view to introduction by 1 January 2015
  • Limit number of 11 public holidays where penalty rates payable.  Address issue of State Governments declaring additional public holidays
  • Rejected prohibiting prepayment of annual leave through loaded base rate (Hull Moody [2011] FWAFB 6709)
Individual Flexibility Arrangements (IFA)
  • 90 days notice of termination for IFAs (instead of 28 days).  Rejected employer arguments for longer period
  • IFA can only provide for non-monetary benefit in exchange for monetary benefit where monetary benefit is specified in writing; is relatively insignificant, and value of benefits is proportionate
  • Employer must notify Fair Work Ombudsman of making of IFA
  • Defence to underpayment claim if employer reasonably believed IFA satisfied statutory requirements
  • Rejected
    • employer argument that return to statutory individual agreements essential for flexibility
    • employer arguments that should be able to offer IFAs as a condition of employment.  Instead recommended that this be expressly prohibited
Modern Awards
  • Miscellaneous changes regarding variation of modern awards
  • Rejected
    • making changes to content of modern awards – outside terms of reference and should be dealt with as part of FWA modern award review process
    • union arguments for arbitration over disputes re modern awards
Enterprise Bargaining
  • Greenfields EBAs
    • good faith bargaining obligations apply to greenfields EBAs
    • employer must take reasonable steps to notify all relevant unions of negotiations for greenfields EBA
    • if impasse in negotiations for greenfields EBA, FWA may arbitrate – including ‘last offer’ arbitration
  • IFA clauses must be able to deal with all matters provided in model clause (preventing unions seeking to ‘neuter’ IFAs by limiting what they can deal with)
  • Prohibition on opt out clauses – which permit employees to opt out of enterprise agreements
  • Prohibition on EBA with one employee
  • Permit application for good faith bargaining orders more than 90 days before nominal expiry of EBA
  • Notice of representational rights must only address matters specified in Act and regulations
  • Individual union official cannot be bargaining representative for employees outside union coverage
  • Rejected
    • easier access to arbitration where long running dispute or employees lack industrial  strength
    • restrictions on what can be included in EBAs (eg, limits on use of contractors)
    • union arguments that dispute resolution provisions must permit arbitration
    • changes to good faith bargaining requirements (different changes sought by both employers and unions)
    • employer arguments for secret ballots for majority support determination (currently most major support determinations are based on a petition)
Industrial Action
  • Protected industrial action only where negotiations for EBA have commenced. (Effect is to overrule J.J. Richards & Sons Pty Ltd v Fair Work Australia [2012] FCAFC 53 – which permits protected industrial action even if the employer has refused to negotiate)
  • Minor changes to balloting for protected action
  • Prohibition on paying employees during industrial action does not require withdrawal of company provided accommodation
  • Remove Ministerial power to terminate protected industrial action
  • Rejected
    • introducing additional requirements for protected action ballot – such as union bargaining in good faith  (satisfied that current requirement of ‘genuinely trying to reach agreement’ is sufficient)
    • making it easier to suspend or terminate right to take protected industrial action (currently requires exceptional circumstances)
    • any extension of current pattern bargaining prohibition
    • any changes to lock out provisions (such as giving right to employers to preemptively lock out before industrial action or restricting employers to lockouts which are proportionate to the industrial action)
  • Agrees that some unions using ‘aborted strike technique’ as industrial weapon (ie, where union calls a strike, then call it off, to create disruption) – but rejected changes to Act.  Issue can be dealt with under existing good faith bargaining provisions
Right of Entry
  • Greater power to resolve disputes about the frequency of visits and the location for interviews and discussions
  • Right of entry to investigate suspected contraventions extend to former employees
  • Rejected
    • any additional restrictions on right of entry
    • any requirement for union official to provide additional information (eg, nature of suspected contravention)
Transfer of business
  • If employee transfers to related entity of their own initiative, they will be subject to the awards / EBAs applying at the related entity – ie, they will not take their awards/EBA with them
  • Rejected any changes giving more flexibility for FWA to order than industrial instruments not transfer
Unfair Dismissal
  • Unfair dismissal available where fixed term contract expires and not renewed
  • 21 day time limit (instead of 14 days)
  • FWA can determine application by informal ‘inquisitorial’ process – ie, a process where FWA is actively involved in investigating the facts and deciding, not merely ‘umpiring’, on arguments presented by the employer and employee
  • Power to FWA to dismiss application where settled or failure to attend or comply with directions
  • Power to FWA to dismiss unmeritorious applications without a formal hearing
  • Power to award costs where unreasonable rejection of settlement offer
  • Power to award costs against lawyer or paid agent even if they have not formally been granted leave to appear
  • Rejected other changes sought by employers and/or unions – including shorter qualifying periods; abolishing the high income threshold or changing or abolishing the Small Business Code
Adverse Action and Related Provisions
  • The relevant consideration should be the person’s honest and reasonable belief as to the reason they took the adverse action – not anything else, such as an unconscious reason.  (Effectively overrules the decision in Barclay v The Board of Bendigo Regional Institute of Technical and Further Education [2011] FCAFC 14, assuming it is upheld by the High Court)
  • Reduce time limit for application to 21 days in case of a dismissal (currently 60 days)
  • Rejected
    • power for FWA to strike out unmeritorious claim
    • cap on compensation to 26 weeks pay
    • removal of reverse onus of proof (employer must prove themselves innocent)
    • introducing a requirement that  prohibited reason be sole or dominant reason
    • any changes to provisions concerning discrimination
  • Change sham contracting provisions so employer only has a defence if they reasonably believed the person was an independent contractor (currently there is no reasonableness requirement)
  • Change name of Fair Work Australia – to remove reference ‘Fair Work’ and include word ‘Commission’


Click here for a copy of the Report (including a summary of all 53 recommendations).