IS YOUR WORKPLACE AGREEMENT “FAIR”?

As discussed previously, on 4 May 2007 the Federal Government introduced a Fairness Test for workplace agreements. The Fairness Test applies to workplace agreements lodged on or after 7 May 2007. The legislation for the Fairness Test passed through Parliament on 20 June 2007 and applies retrospectively to 7 May 2007.

Since WorkChoices, technically a new employee could commence employment under an AWA on the minimum terms and conditions of employment in the Australian Fair Pay and Conditions Standard. Technically, this allowed for the removal of protected award conditions without any requirement for a “balance” to be met. Protected award conditions are: penalty rates; shift and overtime loadings; monetary allowances; annual leave loading; public holidays; rest breaks; and incentive-based payments and bonuses.

While these conditions can still be removed or modified, the workplace agreement now needs to meet the Fairness Test. The Fairness Test applies to all AWAs where an employee earns less than $75,000 per year and all Collective Workplace Agreement. As a result, where any protected award conditions are removed or varied, the employer will be required by law to provide fair (“adequate”) compensation for such removal. This can be either of a monetary or non-monetary nature.

In most cases complying with the Fairness Test will mean a higher rate of pay in lieu of protected award conditions that have been amended or removed, however, it may also include flexible work hours; additional annual leave and/or personal leave; rostered time off; paid child care, subsidised accommodation, etc. If no compensation is given and the agreement is found to fail the Fairness Test employers could be ordered to back pay entitlements to the date when the agreement was lodged.

The legislation also (among other things):

• extends the redundancy protection for businesses in transmission from 12 months to 24 months but the Government declined to introduce this as a protected award condition;
• gives power to the Workplace Authority to delegate a Federal award or preserved State award as a reference award for the Fairness Test where there is no relevant award;
• clarifies that where an employer is ordered to pay back pay due to workplace agreement not meeting the Fairness Test, the back pay will be required to the date of lodgment of the agreement;
• stipulates that the Fairness Test applies to all new workplace agreements and any existing agreements where variations are sought (and it will apply to the whole agreement not just the variation);
• provides that where a workplace agreement fails the Fairness Test, the Workplace Authority is to provide advice as to how the agreement would need to be amended to pass and inform employees that they have a right to compensation for any shortfall in entitlements that they experience during the Fairness Test period;
• provides the employer with 14 days to vary the agreement to make it fair upon which time the test will be applied again; and
• obliges employers to provide employees with the Workplace Relations Fact Sheet (see below).

What is “fair” and how will the agreement be assessed?

When an agreement excludes or alters one of the protected award conditions it is subject to the fairness test.

An agreement will pass the fairness test when the Workplace Authority is satisfied reasonable compensation has been given to the employee in lieu of the exclusion or modification of a protected award condition. However, some confusion still exists over what is suitable compensation.

How the test works:

Consideration is given to the value of monetary and non-monetary compensation and the personal circumstances of the employee (particularly their family responsibilities). Consideration may also be given to the financial and business circumstances of the employer.

Non-monetary compensation is to be assessed in terms of the money equivalent value of the supplemented benefit and must be of significant benefit or advantage to the employee.

Therefore, “fair compensation” will be evaluated on 3 criteria:

1. value of compensation both monetary and non-monetary;
2. the employees work obligations under the agreement; and
3. personal circumstances of the employee.

Examples of monetary and non-monetary compensation:

• child care payments in lieu of penalty rates;
• increased flat rate of pay in lieu of penalty rates; allowances, etc;
• CBD car parking space in lieu of weekend penalty rates;
• Shorter weekly shifts with time made up on Saturday at normal rates to pick up children daily from school;
• Flexibility in work hours e.g. working from home at night to fit in other commitments in lieu of penalty rates;
• Subsidised accommodation and meals in lieu of penalty rates and public holiday rates; and
• Offer of company shares in lieu of penalties.

When assessing the compensation the Workplace Authority will consider whether the value is equivalent to or exceeds the lost financial benefits in the workplace agreement as compared to the applicable award or delegated award. If the compensation is comparable then it is likely to be considered fair and will pass the Fairness Test.

Main implications for Employers:

• The Fairness Test only applies to employees covered by workplace agreements. It does not apply to award-free employees. If the employees are in an industry or occupation which is usually covered by an award but there is no current award the Workplace Authority may designate an award against which the Fairness Test will be applied.
• Review all workplace agreements lodged on or after 7 May 2007 to assess whether the Fairness Test will apply (bearing in mind it does not apply to AWAs where the employee earns more than $75,000 gross p.a.); and where it does apply whether the agreement passes the test.
• Comply with any notices from Workplace Authority regarding a workplace agreement not meeting the Fairness Test. A failure to do so may lead to the agreement being cancelled and compensation claims from employees.
• If you are unsure, seek advice from the Workplace Authority or give us a call.

THE “WORKPLACE RELATIONS FACT SHEET”

From 20 July 2007, employers operating under the federal workplace relations system have a legal obligation to provide the one page government Workplace Relations Fact Sheet (‘Fact Sheet’) to all employees. The legislation requires that the Fact Sheet be provided to:

• new employees within 7 days of commencement; and
• all existing employees by the 20 October 2007.

Penalties of up to $110 per employee apply if employers fail to issue the Fact Sheet in the prescribed time.

Where can you get the Fact Sheets?

The Fact Sheet is available from the Workplace Authority website www.oea.gov.au and can be ordered by phone or internet or downloaded and copied for distribution.

The sheet may be printed and given to staff, uploaded to company intranet accessible to all staff or emailed to employees.

What does the Fact Sheet cover?

The purpose of the Fact Sheet is to ensure all employees are award or their entitlements and their rights in relation to their employment.

The Fact Sheet advises employees that they are protected by a set of pay and conditions standard covering minimum wage rates; maximum working hours; annual leave; personal / carers leave; and parental leave.

It informs them of where they can gain support when negotiating a workplace agreement and provides the contact information for the Workplace Authority.

The Fact Sheet contains information about the Fairness test. It explains where and how the Fairness Test applies; and discusses the protected award conditions which require additional compensation if they are varied or removed.

Main implications for Employers:

• Obtain copies of the Fact Sheet immediately, if you have not already done so. You can download the Fact Sheet from the Workplace Authority website www.oea.gov.au or order them by phone on 1300 363 264.
• Ensure that all existing employees receive a copy of the Fact Sheet, or are informed of the requirement for them to read it on the intranet site (if that is where it is placed), before 20 October 2007.
• Update recruitment procedures to ensure that all new employees are provided with a copy of the Fact Sheet within 7 days of commencing their employment.

If you would like further information in relation to the information provided in this Employment Update please contact Aitken Legal.