Forward with Fairness transitional Bill: Labor’s changes emphasise collective bargaining

Summary

• The Federal Government has introduced the first stage of its Forward with Fairness reform legislation in the Federal Parliament. This is the first step in the legislative shift to the primacy of enterprise level collective bargaining.
• Key features include:

The Bill replaces the fairness test with a new no disadvantage test.

It abolishes AWAs, introduces new Individual Transitional Employment Agreements (ITEAs) and makes some other small but significant changes to the agreement-making rules.

It empowers the Australian Industrial Relations Commission (Commission) to commence award modernisation and removes the requirements for employers to provide new employees with a Fact Sheet.

• It remains unclear whether the Opposition will support the Bill – they have the ability to block the Bill, at least until the Senate changes in July this year. In any event, the foreshadowed Senate Enquiry means that the Bill is unlikely to pass before May 2008 at the earliest.
• The Deputy Prime Minister, the Hon Julia Gillard MP, has foreshadowed the separate release on 14 February 2008 of an exposure draft of the government’s proposed National Employment Standards which will replace the Australian Fair Pay and Conditions Standard from 1 January 2010.

Implications for employers

The Bill is consistent with Labor’s election policy and its statement on the transition to the new system issued just before Christmas 2007. It is also significant in what it does not contain; contrary to some expectations, it does not abolish employer greenfields agreements, or make any changes to the unfair dismissal system. The existing prohibited content rules have not been altered – although this could yet come as the changes required can be made by regulation.

As promised, it winds back a number of the WorkChoices reforms. Perhaps most significantly, it re-establishes a safety net based on awards/NAPSAs and the Fair Pay and Conditions Standard and begins the move towards a bargaining system focused on collective agreement-making at the enterprise level.

Although the Bill abolishes AWAs, the new ITEAs are likely to be a workable alternative over the next two years for many employers who use individual statutory agreements. Employers who do not wish to collectively bargain with a union will also continue to be able to offer employee collective agreements with a potential nominal life of up to five years.

Many employers, particularly those who made certified agreements immediately prior to WorkChoices coming into force, will face bargaining in the next 18 months. They are likely to face pressure to extend or vary their current agreement, rather than make a new agreement. The new rules permitting this effectively enable the parties to contract out of the entire WorkChoices agreement-making regime, including its restrictions on agreement content.

The Bill, if passed, has real implications for employees on current collective agreements and/or AWAs.

Government takes first step towards new ‘Forward with Fairness’ industrial relations system

The Federal Government today introduced into the Parliament the Workplace Relations Amendment (Transition to Forward with Fairness) Bill 2008.

The Bill is the first step in the Rudd government’s transition to its proposed new industrial relations system.

 The new system, which provides impetus for collective enterprise bargaining and does not provide for statutory individual employment arrangements, is intended to operate from 1 January 2010.

Legislation implementing the majority of changes – such as the introduction of good faith bargaining – is not expected until later this year.

The Bill introduced today does, however, set the foundation for the new industrial relations system in anticipation of the 2010 reforms. In summary, the Bill proposes to:

• abolish the Fairness Test and replace it with a new No Disadvantage Test that all workplace agreements must pass
• prevent new Australian Workplace Agreements from being made, and introduce new ITEAs, which can operate until the end of 2009
• start the Award Modernisation process, to be carried out by the Commission
• amend the rules on when workplace agreements come into operation, so that most workplace agreements will only start operating after they receive approval from the Workplace Authority Director (as opposed to from lodgement)
• remove the current restrictions on incorporating or referring to other industrial instruments in workplace agreements – so that, for example, agreements can again be ‘read in conjunction with’ applicable awards
• remove the ability unilaterally to terminate a workplace agreement, replacing it with a power for the Commission to terminate an agreement on application if this is not contrary to the public interest and allow employees to ‘fall back’ to another industrial instrument when a workplace agreement is terminated
• allow parties, in certain circumstances, to extend and vary pre-reform certified agreements on application to the Commission
• extend the operation of NAPSAs to at least 31 December 2009
• enable old IR agreements (agreements made prior to 1996) to continue in operation (they previously had a sunset of 27 March 2009), and
• remove the requirement for employers to provide new employees with a Workplace Relations Fact Sheet.

No more AWAs

Employers and employees will no longer be able to make Australian Workplace Agreements (AWAs) from the commencement of the legislation. Employers will, however, be able to offer AWAs under the current legislation until the commencement date of the Bill – which is unlikely to be prior to May and may not be until August (see further below). There is no retrospective abolition.

Existing AWAs will only be able to be varied in very limited circumstances (for example, to remove prohibited content or objectionable provisions).

Employees on AWAs that have passed their nominal expiry dates will:

• be allowed to vote on a new collective agreement, or variation of an existing collective agreement to include them, without first having to terminate their AWA, and
• be allowed to take part in secret ballots for protected industrial action.

This will make it easier for employees to fall back to collective arrangements, although the new collective agreement would not apply until the AWA is terminated.

Individual Transitional Employment Agreements (ITEAs)

Employers and employees will be able, as a transitional measure, to make ITEAs. There will, however, be some restrictions on their availability:

• ITEAs will only be available to employers who had at least one employee engaged on an AWA as at 1 December 2007 (although it need not be in the same part of the business or an employee doing the same type of work).
• ITEAs can only be made with new employees (they must be made before employment starts or within 14 days) or employees on an existing AWA, pre-reform AWA or individual Preserved State Agreement.
• The latest nominal expiry date allowed will be 31 December 2009 (although ITEAs can continue to operate after their NED unless terminated or replaced).
• ITEAs must pass the new No Disadvantage Test against any collective agreement that would otherwise apply to the employee or, if there is no such agreement, against an applicable award (see further below).

Importantly, ITEAs will be able to be offered to new employees as a condition of employment.

New No Disadvantage Test for all agreements

The Bill introduces a new No Disadvantage Test (NDT) that all workplace agreements (including ITEAs) must pass.

An agreement will pass the NDT if:

• in the case of a collective agreement, if it does not result, on balance, in a reduction in employees’ overall terms and conditions under any applicable ‘reference instruments’
• in the case of an ITEA, if it does not result, on balance, in a reduction in the employee’s overall terms and conditions under a ‘reference instrument’.

The ‘reference instrument(s)’ are as follows:

The designation of awards works in a similar manner to the designation process under the Fairness Test. Importantly for some employers, enterprise awards cannot be designated awards. Similarly, there may not be a designated award in industries which are traditionally not regulated under federal awards. Where there is no reference instrument, the agreement will be deemed to have passed the test.

All agreements must continue to meet the Australian Fair Pay and Conditions Standard.

An employee or union collective agreement may still be judged to have passed the test in exceptional circumstances (for example, where the agreement is part of a reasonable strategy to deal with a short-term business crisis). However, such an agreement will have a maximum nominal life of two years.

Workplace Authority administers new test

The existing lodgement system stays, but with new rules about when agreements operate.

The Workplace Authority will administer the new NDT once an agreement is lodged. However, the majority of agreements will only operate once the NDT assessment has occurred (as opposed to from lodgement as is currently the case).

However, an employer will not be able to lodge an undertaking where ITEAs fail the NDT (they will only be available for employer greenfields agreements). This is significant, because an employer will have to secure an employee’s agreement to vary the ITEA – and the employee may prefer to refuse and fall back to any collective agreement that otherwise applies in the workplace.

Where an agreement fails the NDT, an employee will be bound by the industrial instruments that would have applied if the agreement had not come into operation. Compensation may also be payable, where the employee is engaged on an agreement that came into operation on lodgement.

New termination and content rules for workplace agreements

Termination of workplace agreements

The Bill would abolish the current rules that allow either party to a collective agreement to unilaterally terminate an agreement on 90 days’ written notice. Instead, a party to a collective agreement may apply to the Commission to terminate the agreement after its nominal expiry date. The Commission must terminate the agreement if it is not contrary to the public interest. However, the Commission must take into account additional factors – including the parties’ views on termination and the effect of termination on them. This is likely to raise the bar and make termination of agreements harder.

Existing rules for termination of AWAs will continue, including unilateral termination on 90 days’ notice after the nominal expiry date.

 An employer or an employee will be able to terminate an ITEA on 90 days’ written notice once its nominal expiry date has passed. This will allow employees to revert to underlying collective agreements after the end of the transitional period (ie 31 December 2009).

In summary:

Where an agreement is terminated, the employee will fall back to any underlying collective agreement or award/NAPSA that applies. This changes the current rule which has employees fall back to the Fair Pay and Conditions Standard and any applicable protected award conditions.

Content of workplace agreements

The Bill repeals the rule that restricts parties to a workplace agreement from incorporating or referring to other industrial instruments in it. This means that parties can make agreements which are to be ‘read in conjunction’ with an award or previous workplace agreements – as was common before WorkChoices. Significantly for some employers, it may revive the practice of (1) incorporating awards at a particular point in time and (2) having previous agreements read with the latest agreement.

Award modernisation

The Bill will require the Commission to start the process of modernising awards. The Explanatory Memorandum to the Bill contains the draft Award Modernisation Request that the Minister for Employment and Workplace Relations proposes to send to the Commission.

Some interesting points to note are:

• Awards are generally to be created along industry lines, and the number of awards operating in the system reduced (although there is no commitment to numbers).
• There is no intention to modify enterprise awards.
• There is no intention to extend award coverage to traditionally award free classes of employees, such as high income earners or managerial employees.
• Each award must include a model flexibility clause to enable an employer and an individual employee to agree on arrangements that meet their needs – but which cannot disadvantage the employee.

By 30 June 2008, the Commission is expected to have identified a priority list of industries or occupations for award modernisation, concentrating on those with a high incidence of NAPSAs or AWAs. The Commission must then prepare an exposure draft of each modernised award, and may hold conferences with employer and employee bodies to inform their preparation. Exposure drafts must then be published for further consultation with stakeholders and interested parties. This will provide an opportunity for all employers to make submissions on how the new modern awards should work.

Once consultation is completed, a Full Bench of the Commission must then finalise and make the award. The process is clearly intended to be consultative, and not arbitral. Long contested hearings, as may have occurred in past simplification processes, seem unlikely.

The modernisation process must be concluded by 31 December 2009. Modernised awards cannot come into effect before 1 January 2010.

Matters that will be permitted in a ‘modern award’ are similar to now, but will also include:

• minimum wages
• terms facilitating flexible working arrangements, particularly for those with family responsibilities
• annualised wage arrangements
• superannuation (this was ceased as an allowable award matter from 27 March 2009)
• consultation, representation and dispute settling procedures
• terms about the proposed National Employment Standards.

National Employment Standards

The Hon Julia Gillard MP indicated in the Second Reading Speech that an exposure draft of the new National Employment Standards will be released on 14 February 2008. We will provide a further update to clients once this is available.

New transitional rules for pre-reform agreements

Currently, pre-reform certified agreements cannot be varied, nor can their nominal expiry date be extended.

The Bill introduces new rules that allow for the Commission to vary these agreements, or extend the nominal expiry date to a date falling up to three years after the date the Commission’s order is made. All parties to the agreement must genuinely agree to variation or extension (a valid majority of employees must approve it). It can only be made if the parties have not taken industrial action or applied for a secret ballot since 13 February 2008. And, in the case of a variation, the Commission must be satisfied that the varied agreement passes the new NDT.

NAPSAs extended and old IR agreements no longer sunset

The Bill will allow notional agreements preserving state awards (NAPSAs) to continue until at least 31 December 2009. The intention appears to be that modernised awards will have been made to cover these employees by that time, and will start operating from 1 January 2010. There is, however, a power to extend the life of NAPSAs further by regulation.

The Bill also repeals the sunset provision that would have meant that old IR agreements (essentially, agreements made prior to 1996) sunset from 27 March 2009. These agreements will now continue in force indefinitely, although the parties can apply to the Commission to terminate them if they agree.

Requirement to provide Fact Sheets abolished

The Bill removes the requirement for employers to provide new employees with the Workplace Authority’s Fact Sheet on commencement of employment. The new National Employment Standards (see below) will contain a requirement to issue a Fair Work Information Statement, but this will not apply until 1 January 2010.

Opposition intends to launch Senate enquiry

The Opposition has moved a motion for a Senate enquiry into the Bill, reporting on April 28. Until July, the Coalition has the numbers in the Senate to force an enquiry – although it will not have a majority on the Senate Committee that will hear the enquiry. The proposed report back date will, however, frustrate the government’s stated intention of passing the legislation by Easter.

Assuming that the Coalition (or sufficient numbers of Senators) support the Bill, it could pass in the May sittings. If the Coalition blocks the Bill, however, the earliest it is likely to pass is August – the first scheduled sittings after the composition of the Senate changes on 1 July.

Clients can obtain a copy of the materials introduced to Parliament by clicking here.

Clients with any queries should contact one of the Employee Relations partners.

This article was written by Julian Clarke, Special Counsel and Tony Wood, Partner.