Employee Relations Review June 2009

Fair Work Act – Ready, set, go!

On the eve of the commencement of the Fair Work Act 2009 (Cth) (Fair Work Act) on 1 July 2009, we reflect on the Rudd Government’s much anticipated workplace relations reforms in this special edition of our Employee Relations Review.

In this newsletter, we tell you what you need to know about the recently released Fair Work Regulations 2009, including how you can provide employees with a notice of employee representational rights, what the new unfair dismissal remuneration cap is, and how to access the new forms and rules operating under the Fair Work Act.

Interestingly, the method of calculating an employee’s annual earnings for the purpose of the unfair dismissal jurisdiction represents a change from the current method, as statutory superannuation contributions will not form part of an employee’s earnings. Therefore, although the remuneration cap has been increased, more employees will be able to challenge a termination in the unfair dismissal jurisdiction.

The Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 (Cth) (Transitional Act) received Royal Assent last week, but not before a number of late amendments to the Bill were made by both the House of Representatives and the Senate. The most significant amendment will affect businesses which are currently engaged in bargaining and where unions already have a protected action ballot authorisation in relation to the bargaining. In this newsletter, we provide an overview of what the amendments mean for your business.

Chris Gardner, a Partner in our Melbourne office, shares with us his thoughts on good faith bargaining in the United States, where the concept of negotiating in good faith is well entrenched. Chris provides us with some practical tips on collective bargaining under the new regime in Australia.

In the meantime, the Australian Industrial Relations Commission’s award modernisation process continues. We provide a brief update on the latest developments.

Fair Work Regulations released

The Fair Work Regulations 2009 were released on 18 June 2009. The regulations provide answers to many important questions, such as:

• What is the new remuneration threshold for the unfair dismissal jurisdiction?
• What is the maximum award of compensation that can be ordered where an employee is found to have been unfairly dismissed?
• What does the notice of employee representational rights look like, and how can I provide this to my employees?
• How do I calculate payments relating to industrial action where there are partial work bans in place?
• What do the model flexibility and consultation terms look like?

High income threshold defined

Under the Fair Work Act, an employee has the protection of the unfair dismissal jurisdiction if:

• a modern award covers the person, or
• an enterprise agreement applies to the person, or
• the employee is not a ‘high income employee’ (that is, their ‘annual earnings’ is less than $108,300).

An employee’s ‘earnings’ includes:

• wages
• the agreed value of non-monetary benefits
• amounts applied or dealt with in any way on the employee’s behalf or as the employee directs, and
• amounts contributed to an employee’s superannuation fund beyond the legislated minimum.

It does not include:

• payments which cannot be determined in advance
• reimbursements, and
• the minimum legislative amount the employer is required to contribute to the employee’s superannuation or defined benefit fund.

Interestingly, this represents a change from the current method of calculating remuneration for the purposes of exclusion from the unfair dismissal jurisdiction. Under the current method of calculating remuneration, a non-award employee earning $100,000 base salary plus nine per cent superannuation ($109,000 total employment cost) could not bring an unfair dismissal claim. The same employee could now bring an unfair dismissal claim, as the $9,000 paid by the employer to the employee’s superannuation fund is not considered to be the employee’s ‘earnings’. Therefore, although the remuneration cap has been increased, more employees will be able to challenge a termination in the unfair dismissal jurisdiction.

It is not clear from the regulations whether non-monetary benefits are considered to form part of an employee’s earnings where the value of the non-monetary benefit is not agreed. It seems that allowances and payments in respect of overtime will be included as ‘earnings’ where these are guaranteed and can be determined in advance. Nevertheless, there remains some uncertainty regarding the calculation of earnings, and we can expect early case law to shed some more light on these issues.

From 1 January 2010, an employer and a high income employee can agree to exclude the operation of a modern award by making a guarantee of annual earnings.

Unfair dismissal compensation cap

The limit of compensation that may be awarded by Fair Work Australia in lieu of reinstatement for an unfair dismissal application is the lesser of six months’ compensation and:

• $54,150 for applications made under the Fair Work Act, and
• $55,700 for applications made under the Workplace Relations Act 1996 (Cth) (Workplace Relations Act) (that is, for applications made after 1 July 2009 in respect of terminations effected before this date).

Notice of employee representational rights

The Fair Work Act imposes an obligation on an employer to take reasonable steps to provide employees with a prescribed ‘notice of employee representational rights’ as soon as practicable after bargaining commences. Employees who are currently bargaining must provide this notice to employees no later than 14 July 2009 (even though negotiations commenced before the Fair Work Act came into effect).

The notice must be in the prescribed form in the regulations. Some parts of the notice require further information to be completed by the employer (such as the name of the proposed agreements and its intended coverage). At the time of publication of this newsletter, the notice is not electronically available.¹

The regulations set out a number of non-exhaustive ways that the notice can be provided to employees. These include:

• giving the notice to the employee personally
• sending the notice by pre-paid post to the employee’s residential address, or to a postal address nominated by the employee
• emailing the notice (or an electronic link to the notice) to the employee’s work email address, or to another email address nominated by the employee
• faxing the notice to the employee’s fax number at work or home, or to another fax number nominated by the employee, or
• displaying the notice in a ‘conspicuous location at the workplace that is known by and readily accessible to the employee’.

The Explanatory Statement to the regulations notes that in some circumstances, ‘reasonable steps’ may necessitate an employer providing the notice to employees using more than one method. Therefore, although the regulations contemplate the giving of notice by posting it on a noticeboard, this may not in itself satisfy the requirements of the Fair Work Act.

Partial work bans

The strike-pay provisions in the Fair Work Act prohibit an employer from paying an employee for the period in which the employees engaged in protected industrial action, apart from partial work bans (that is, where the employee attends work, but does not perform their entire role or duties as required). Payment can only be withheld in respect of protected partial work bans if the employer gives notice of the reduction in payments. The proportion of the reduction is calculated as follows:

• Step 1: Identify the work that the employee is failing or refusing to perform.
• Step 2: Estimate the usual time that the employee would spend performing the work during a day.
• Step 3: Work out the time estimated in Step 2 as a percentage of an employee’s usual hours of work for a day.

Obviously, it is difficult to calculate with any precision the amount that should be withheld in respect of protected partial work bans.

Model terms

In order to be approved by Fair Work Australia, enterprise agreements must include a flexibility term and a consultation term. If an enterprise agreement does not include these terms, the model flexibility and/or consultation clause is taken to be a term of the agreement.

Flexibility term

The flexibility term must specify the terms of the enterprise agreement that can be varied by agreement with an individual employee. The individual flexibility arrangements must result in the employee being better off overall than the employee would have been if no individual flexibility arrangement were agreed to. The explanatory memorandum to the Act gives the example of ‘Josh’, whose 37 ½ ordinary hours of work each week are required to be worked between the span of 8am and 6pm each day. Josh’s employer would normally require people employed in Josh’s role to work between 9.00am to 5.30pm. However Josh coaches an under-12s footy team, and would prefer to start work at 7.30am on those days. Josh and his employer can agree for him to not be paid a penalty on those days, as Josh is genuinely happy to agree to this arrangement because it enables him to balance his work and personal commitments.

The model flexibility term in the regulations is limited to providing for individual arrangements to be made in respect of:

• when work is performed
• overtime rates 
• penalty rates
• allowances, and
• leave loading.

Although the matters in the model flexibility clause are broad, they are exhaustive. Therefore, clients that intend to provide for individual arrangements in respect of other matters should attempt to negotiate these when bargaining.

Consultation term

The consultation term must provide for consultation between an employer and employees about major workplace changes that are likely to have a significant effect on employees. The term must allow for representation of those employees for the purpose of that consultation.

Clients who do not want to be bound by the terms of the model consultation term must negotiate a term in their enterprise agreement which provides for consultation about major workplace changes (which can be defined in the agreement), and which allows for employee representation.

The model consultation term requires the employer to notify and consult with employees who will be significantly affected by an employer’s decision to introduce a major change to production, program, organisation, structure, or technology in relation to its enterprise. The employer is required to recognise a representative appointed by the employees for the purpose of discussion.

The regulations designate the following things as ‘likely to have a significant effect on employees’:

• the termination of the employment of employees
• major change to the composition, operation or size of the employer’s workforce or to the skills required of employees
• the elimination or diminution of job opportunities (including opportunities for promotion or tenure)
• the alteration of hours of work
• the need to retrain employees
• the need to relocate employees to another workplace, or
• the restructuring of jobs.

The model clause also requires the employer to provide the following things in writing to relevant employees:

• all relevant information about the change including the nature of the change proposed
• information about the expected effects of the change on the employees, and
• any other matters likely to affect the employees.

Although an employer is not required to disclose confidential or commercially sensitive information, the model term imposes rather onerous obligations on an employer to provide information in writing to all affected employees in a number of broad-ranging circumstances.

This article was written by Tony Wood, Partner and Natalie Spark, Solicitor, Melbourne.

Fair Work Australia

Fair Work Australia is ready to assume the reigns from 1 July 2009. Its new website² contains links to the new forms³ which should be used.

President Giudice has released the rules of Fair Work Australia.⁴  The rules provide information and detail relating to the service and lodgement of documents and applications, and on the conduct of proceedings.

Interestingly, the rules allow for:

• unfair dismissal applications to be made by phone, and
• applications to Fair Work Australia for directions regarding the correct procedure to be followed where either the procedure is not prescribed by the legislation, or where the person is in doubt as to the correct procedure.

Transitional and consequential legislation given Royal Assent – with a few late amendments

The Fair Work (Transitional Provisions and Consequential Amendments) Bill 2009 was given Royal Assent on 25 June 2009. However, a number of amendments were made by both Houses of Parliament late in the parliamentary process. This article summarises the amendments that were made to the Bill.

The Transitional Act, which comes into effect on 1 July 2009, amongst other things:

• repeals the Workplace Relations Act (other than Schedules relating to registered organisations and transitionally registered associations) and renames it as the Fair Work (Registered Organisations) Act 2009 (Cth)
• provides for the application of the National Employment Standards and minimum wages to all national system employees from 1 January 2010
• establishes rules in relation to the treatment of existing instruments
• introduces transitional bargaining and agreement-making rules
• provides for the limited, continued operation of the Australian Fair Pay Commission, Workplace Ombudsman and the Australian Industrial Relations Commission (AIRC)
• establishes rules to enable state-registered organisations to participate in the new federal workplace relations system, and
• creates Fair Work Divisions within the Federal Court and Federal Magistrates’ Court.

For a full analysis of the implications of the Transitional Act on your business, see our previous Employee Relations Express.⁵

Clean break model diluted

Initially, the Bill adopted a ‘clean break’ model for parties who are bargaining as at 30 June 2009. If the parties have not made a workplace agreement by 30 June 2009, they will need to start bargaining again in the new Fair Work system. This meant that a union or employees wishing to take protected industrial action needed to go through a new secret ballot process authorising the action again.

Late amendments to the Bill made by the Senate allow a union or employees to apply to Fair Work Australia for an order that their existing protected action ballot conducted under the Workplace Relations Act authorises industrial action taken after 1 July 2009. Such applications can only be made until 28 July 2009 – after this date, industrial action must be authorised by Fair Work Australia after a secret ballot is conducted in accordance with the Fair Work Act.

Fair Work Australia has the power to make an order that recognises a previous authorisation if it is ‘reasonable in all the circumstances’ and it is satisfied that the parties are genuinely trying to reach agreement in relation to the proposed enterprise agreement. It is unclear what involvement (if any) an employer will have in such applications.

Enterprise award modernisation

The Transitional Act provides a process for enterprise awards to be modernised. Any person covered by an enterprise award can apply to Fair Work Australia to have it modernised or terminated. Making an application does not require the consent of all parties to the award (so an employer or a union could apply). Such applications can now be made from 1 July 2009 until 31 December 2013 (previously under the bill, applications to modernise modern awards could only be made from 1 January 2010). As before, there is no obligation to modernise but if an enterprise award is not modernised by 31 December 2013 it ceases to apply. Employees would fall back to the relevant industry modern award.

Another amendment moved by Independent Senator Nick Xenophon requires the Australian Industrial Relations Commission, when modernising awards, to have regard to the likely effects on the relevant industry or industry sector of any modern award, including on productivity, labour costs and the regulatory burden on businesses. The Commission is also required to consider the state of the national economy, and the likely effects of making the award on the national economy (including employment levels and inflation).

Disputes about interaction between transitional instruments and the National Employment Standards

The National Employment Standards apply to all federal-system employees from 1 January 2010, including those on existing arrangements such as a Work Choices enterprise agreement or a pre-Work Choices certified agreement (‘transitional instrument’). The Transitional Act allows a person covered by a transitional instrument to apply to Fair Work Australia for a determination varying the transitional instrument to:

• resolve an uncertainty or difficulty relating to the interaction between the instrument and the National Employment standards, and
• to make the instrument operate effectively with the National Employment Standards.

Recent amendments to these provisions allow Fair Work Australia to compare the entitlements in dispute on a ‘line-by-line’ basis comparing individual terms, or on a global basis comparing entitlements according to particular subject areas.

This article was written by Natalie Spark, Solicitor, Melbourne.

Reflections on good faith bargaining in the United States

Chris Gardner, a Partner based in our Melbourne office, recently returned from a tour of the United States where he conducted research on good faith bargaining. The good faith bargaining requirement is a key plank of the Rudd Government's new collective bargaining laws.

Chris shares with us insights from the research for collective bargaining in Australia.

Bargaining is more sophisticated

The higher level of regulation dictates a higher level of sophistication from negotiators. As a general observation, employers in the United States tend to spend more time planning the negotiation strategy and tend to have more resources on hand than is often the case in Australia.

Australian employers will invariably increase the time and investment made in collective bargaining. Greater controls over the negotiation process (through the good faith bargaining requirements), together with the spectre of regulatory scrutiny (through Fair Work Australia) underscores this inevitability.

Positioning claims and defending claims is vital

Good faith bargaining demands that consideration be given to claims and responses provided.

Employers will need to explain and potentially justify why claims cannot be met. If the reason(s) provided are without proper foundation then concessions are probably inevitable.

In the United States, finance experts are often called upon to analyse claims by the respective parties to support or challenge them. If an employer 'cannot afford' to meet a wage claim – this will need to be supported.

Data is important here, as will be the production of appropriate documents.

Preparation is paramount

What happens in the negotiation room is open to scrutiny—and hence a challenge.

Negotiators need to work hard in advance on what will be said when, and how. Of course, any negotiation demands this. But the need is elevated in a good faith bargaining environment.

You must intend to agree

Under the Australian law there is no obligation to make concessions. That said, good faith bargaining is likely to dictate that you approach bargaining with an open mind with the aim of reaching agreement. In the United States, hard and fast positions can amount to bad faith bargaining.

This article was written by Chris Gardner, Partner, Melbourne.

Award modernisation update

The award modernisation process is well underway with 44 modern awards completed and corresponding decisions made on 19 December 2008 and 3 April 2009. The entire award modernisation process will complete by 31 December 2009, with the modern awards to come into effect in conjunction with the National Employment Standards on 1 January 2010.

Fair Work Australia

Despite the commencement of Fair Work Australia on 1 July 2009, the current award modernisation process will continue under the auspices of the Australian Industrial Relations Commission (AIRC). Interestingly this means that in the period between 1 July 2009 and 31 December 2009 members will in fact sit on two different statutory tribunals, the Australian Industrial Relations Commission when performing award modernisation duties and Fair Work Australia when performing other statutory duties.

Timetabling

The Commission identified four distinct stages to carry out the award modernisation process. Industry groupings were identified to be dealt with in each of the stages. The 44 awards already made represent those industry sectors that were part of the priority stage (the first stage) and stage two.

As part of Stage 3, the AIRC Full Bench has recently handed down 50 exposure draft awards across 39 industries and occupations and is currently sitting for consultations in relation to each of the exposure drafts. The revised Stage 3 modern awards will be finalised and published by 25 September 2009.

The closing date for lodging written submissions in relation to Stage 4 industry groups is 24 July 2009. Exposure drafts of those awards will be released on 25 September 2009 and the final date for the making of those awards is 4 December 2009.

Transitional arrangements

The 44 awards which have already been made together with the exposure drafts that have been released for the Stage 3 industries indicate widespread and substantial change to award regulation across the whole of the economy.

One of the major drivers of this change is the requirement that modern awards not apply on a state by state basis or on a geographically distinct basis. They must all apply across the nation. This inevitably means that there will be significant changes for those employers who have been reliant upon state awards (now NAPSAs). The legislation recognises this and allows the Commission to put provisions in the modern awards that cushion this impact over a period of up to five years. To that end, the Commission has programmed a timetable to receive submissions from persons affected by awards made in the priority and Stage 2 industries.

Invitations for additional or reply submissions in relation to the transitional provisions for priority and Stage 2 modern awards were also recently closed. The Full Bench sits for supplementary oral submissions in relation to those transitional provisions between 13 to 17 July 2009.

The closing date for lodging written submissions, drafts or other proposals concerning the scope, content and transitional arrangements for Stage 4 awards is 10 July 2009. Clients who are considering lodging written submissions are invited to contact us.

Extensive submissions have been made in this process and a snapshot of key issues raised in those submissions includes:

• There is a widespread desire for transitional clauses to be formulated which permit ‘off setting’ arrangements. That is, employers that are currently making over award payments be allowed to absorb those over award payments into higher obligations in modern awards.
• Many submissions address how increased costs should be ‘phased in’; a popular submission made by employers is that where a modern award involves an increase (for example a casual loading moving from 17 per cent to 25 per cent) the employer should be able to phase in that increase over a five-year period by applying 20 per cent of the increase each year.
• Many union submissions urge that specific transitional clauses should record that no employee can be worse off as a result of the implementation of a modern award. Whilst some employers agree with this proposition, others point to the ability for employees and unions to make applications to Fair Work Australia for ‘take home pay guarantee’ orders under the Transitional Amendment Act.
• In sectors such as fast food and horticulture, employers are asking for many of the major cost increases imposed by modern awards to be wholly delayed until such time as the two-year review of the awards takes place and the employers can bring more detailed and significant evidence about the nature of those cost increases in the hope that the modern award will be varied before the increases are imposed.

Changes to the award modernisation request

In late May 2009 the Minister's request was amended so that specific directions were given to the AIRC in relation to creating a separate, stand alone modern award for the restaurants and catering sector. The AIRC has programmed a series of steps to achieve that result.

At the current time it is understood that a number of other industries sectors have been in meetings with the Minister seeking similar amendments to the request in order to deal with their particular circumstances.

Enterprise awards

Clients with enterprise awards have the opportunity to apply to the AIRC for modernisation from 1 July 2009, rather than 1 January 2010 as originally designated. Any party to a modern award can apply for modernisation. Enterprise awards which have not been modernised ‘die’ on 31 December 2013.

This article was written by Anthony Longland, Partner, Sydney and Rhiannon Lenegan, Solicitor, Melbourne.

Endnotes

1. In the meantime, clients can access the notice of employee representational rights by downloading the Word version of the Fair Work Regulations 2009. The notice of employee representational rights is on pages 92 and 93.
2. Fair Work Australia website
3. Fair Work Australia – Forms
4. Fair Work Australia Rules 2009
5. Transitional Bill introduced: important detail on bargaining and safety net laws after July 2009

More information

For information regarding possible implications for your business, contact one of the Employee Relations partners.