The Government announced on 4 May 2007 that it will amend the Workplace Relations Act 1996 (Cth). As has been the case throughout the Work Choices implementation process, we expect that the devil will be in the detail. Caution needs to be exercised when trying to divine what the legislation will look like (and how it will affect your business) when all there is to work with are press releases and radio interviews. With that said, however, this alert summarises what we know of the changes and their likely effect.
The office of the Minister for Workplace Relations has advised us that it is intended that the legislation will not pass through the Parliament until about July 2007. However, it appears that when legislation does pass through the Parliament, it will be made retrospective so that it will be taken to have applied from 7 May 2007.
Australian Workplace Agreements (AWAs) – what changed with Work Choices?
Prior to March 2006 when the Work Choices amendments became law, AWAs had to pass a “no-disadvantage test” – that is, they had to provide for terms and conditions which were, overall, no less favourable than any award which was applicable. This meant that if employers wanted to dispense with public holiday loading, or shift penalties, or other entitlements of this kind, those entitlements had to be “bought out”. The Office of the Employment Advocate had the function of ensuring that AWAs which were lodged met the no-disadvantage test.
Work Choices abolished the requirement of the “no-disadvantage test”. This meant that employers could (and in a number of cases did) offer AWAs which dispensed with entitlements without the need for a corresponding trade off. Union campaigns highlighted employers such as Spotlight, Pow Juice and Darrell Lea which were alleged to be using AWAs to strip away award conditions without providing any benefit for employees in exchange.
It is worth noting that the complete abolition of the no-disadvantage test for AWAs did, arguably, travel beyond what the major business lobby groups were contending for before the Work Choices legislation was unveiled. In its “Workplace Relations Action Plan for Future Prosperity”, released on 15 February 2005 (that is, after the last Federal election but well before any detail of what was to become Work Choices was released) the Business Council of Australia (BCA) argued that the no-disadvantage test should be abolished for “AWAs that involve remuneration in excess of the top income tax threshold.” That the removal of the no-disadvantage test for all employees, regardless of their remuneration, travelled beyond what the BCA wanted perhaps indicates why the Government has announced the amendments which it has.
It seems to be becoming rapidly apparent to Australians generally that there is a real difference between the sorts of AWAs under which mine workers in Western Australia are paid more than $100,000 per year, and the AWAs which some employers were offering when their sons and daughters sought casual employment at the local shopping mall. The changes announced on 4 May 2007 have no impact on any new AWAs in the first class, but will significantly affect AWAs in the second class.
AWAs – the “Fairness Test”
The changes announced 4 May 2007 do not re-introduce the no-disadvantage test, but they do introduce a new “Fairness Test” which is analogous to the old no-disadvantage test. However, the “Fairness Test” will only be applicable where a worker employed under an AWA would otherwise have the benefit of an award, where the worker receives a remuneration of less than $75,000, and where the AWA removes or modifies a “protected award condition”.
Under Work Choices, certain conditions are described, in respect of AWAs, as “protected award conditions”, namely:
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penalty rates;
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overtime and shift work loadings;
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monetary allowances (for employment expenses,skills, and disabilities);
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rest breaks;
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annual leave loading;
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public holidays; and
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incentive based payments and bonuses.
Prior to the changes announced on 4 May 2007, it was arguable that “protected” in this context didn’t really mean protected, because the protected award conditions are only protected if an AWA does not expressly vary or remove them. That is, as long as an employer in drafting an AWA expressly removes (or overrides) each protected condition, the “protection” for the employee will be lost.
Employers will still have the power to modify or exclude these protected award conditions in an AWA, but if they do, they will need to have the AWA approved by the Workplace Authority (which is to be the new name for the Office of the Employment Advocate.) The Workplace Authority will be able to offer pre-approval advice so that employers can prepare draft AWAs in advance of actually employing people and have the certainty of knowing that such AWAs will meet the “Fairness Test”.
If an AWA is lodged which does not meet the “Fairness Test”, the Workplace Authority will notify the parties of its concerns and the parties will have 14 days to agree how to vary the AWA to make it fair. If no agreement is reached, the AWA will be void. In that circumstance, if the employee has been working in accordance with the AWA, a liability to pay back pay may arise. The Workplace Authority can seek further information from the parties in determining whether an AWA meets the “Fairness Test” but it appears that it will not hold hearings.
What does an employer need to do to comply with the “Fairness Test”?
In an interview given on 4 May 2007, the Prime Minister described the application of this new test as involving the application of “good Australian common sense”. The difficulty in capturing, in legislation, the concept of common sense (whether Australian or of any other kind) is plain, and we will wait with interest to see how this will be done once the draft legislation is available.
It appears that the “Fairness Test” will require the consideration of all of the circumstances of the case, and of balancing all of the financial and non-financial benefits which an employer provides (above and beyond those required by law, one assumes) in exchange for the removal or modification of the protected award conditions. Obviously, the provision of a higher hourly rate will be one way of achieving this. However, the provision of non-financial benefits, or flexible working arrangements which provide benefits to employees, can also be taken into account.
It also appears that the “industry, location and economic circumstances of the business and the specific employment circumstances or opportunities of the employee” may be taken into account. These matters appear more controversial, and may permit an employer who is employing a worker who qualifies as “long term unemployed” to provide lesser benefits on the basis that “any job is better than no job.” Equally, it may allow employers in areas of high unemployment to be permitted to offer AWAs which might not pass muster in more prosperous areas.
What is not changing in relation to AWAs?
Any AWA which is in existence on or before 6 May 2007 will not be affected by these changes. It appears that any AWAs which do not modify or exclude the protected award conditions will still be processed by the Workplace Authority in the current manner (that is, without the need for a process of review.) AWAs which provide a remuneration of more than $75,000 per year will not be affected, regardless of whether or not an award applies. It is not clear whether this amount will be indexed annually or how it will be calculated (for example, whether it includes overtime or only ordinary time earnings.)
What other changes are occurring?
The Office of Workplace Services is to be renamed the Workplace Ombudsman and may, it appears, be given greater powers (or greater resources, or both) to ensure compliance by employers with their obligations, especially to young employees.
It also appears that there may be a prohibition, when a business is transferred, preventing a purchaser from requiring employees who were previously employed by the vendor to enter into an AWA if they wish to be employed by the purchaser. No detail of this prohibition, which has potentially serious and far-reaching effects, has been provided.
What does all of this mean for employers?
There is no doubt that these changes will substantially lessen the attractiveness of AWAs for many employers. Even those employers who have not been seeking to undermine award conditions have been greatly relieved, since the advent of Work Choices, by the fact that they no longer need to go through the process of balancing out what the AWA gives and what it takes away. Equally, the fact that Office of the Employment Advocate has not been required, under Work Choices, to carry out the no-disadvantage test has greatly streamlined the process of making AWAs.
Employers who have succeeded in employing employees on terms and conditions which would not now pass muster under the “Fairness Test” will find themselves having to employ new employees on more favourable terms – and it is axiomatic that where you have people in the same workplace doing the same work on different pay and conditions, that is not a recipe for a happy workplace.
Equally, many employers may be concerned about the willingness of the Government to make changes to legislation when it might reasonably have been thought that the reasonably tumultuous period of change in industrial law had come to an end. Recently, when DAS Sydney presented our seminar on the first year of Work Choices, we called it “The Year of Employing Cautiously.” With further change, there might be another such year to come.
Conclusion
We will provide a further alert when the draft legislation becomes available, and in particular, when we have a clearer view of the prohibition on the offer of AWAs in the context of sale of business situations. However, it is important to note that it appears that the legislation, when it comes in, will be retrospective. It is not clear what arrangements will apply to AWAs lodged between 7 May 2007 and the commencement date of the legislation, but there must be a serious risk that if such AWAs do not comply with the new rules, they may be void or expose employers to liability to pay back pay.
If you would like more information, please contact a member of our National Workplace Relations Team listed on the right hand side of the screen.
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