NEW FAIRNESS TEST FOR WORKPLACE AGREEMENTS

On 4 May 2007 the Federal Government introduced a Fairness Test for workplace agreements. The Fairness Test applies to all workplace agreements lodged on or after 7 May 2007 even though it has not been legislated yet.

WorkChoices removed the old “no-disadvantage” test that applied to all workplace agreements prior to 27 March 2006. 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. The removal of the “no disadvantage” test led to a lot of controversy, particularly between the Federal Government and the Australian Labour Party (and the ACTU). This is due to the ability for protected award conditions to be removed or varied under workplace agreements 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
• incentive-based payments and bonuses.

It has been common for these conditions to be removed or varied considerably under WorkChoices. Many industries have opted for a flat hourly rate that is higher than the base hourly rate in a relevant award and apply this to all hours worked (ordinary hours and overtime hours) regardless of the day of the week. The problem has arisen where employers have simply used the minimum base hourly rate and then applied it to all hours worked – therefore, not paying anything additional for working weekends, overtime, public holidays, etc.

As a result of this; pressure from the ALP and the looming election, the Federal Government has introduced the Fairness Test. The Fairness Test will apply to all AWAs and Collective Workplace Agreements where an employee earns less than $75,000 per year. It will only apply to workplace agreements filed on or after 7 May 2007 – not any agreements lodged prior to this date.

While it is still unclear exactly what satisfying the test will entail, generally if an agreement has removed or amended any protected award conditions, then 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.

Workplace agreements are to be lodged with the Office of Employment Advocate which is now known as the Workplace Authority. The Workplace Authority will be responsible for assessing compliance with the Fairness Test and registering the agreements. In conducting the Fairness Test the Workplace Authority will:

• focus on agreements that modify or remove penalty rates and will consider the compensation given to employees for doing this;
• consider both the monetary and non-monetary compensation offered against what the employee would receive under the relevant award;
• look at the employee’s work obligations (e.g. whether the employee will be required to work shift work on weekends) and relevant working arrangements and entitlements (including any family friendly conditions); and
• look at the industry, location and economic circumstances of the business and the specific employment circumstances or opportunities of the employee.

If an employer is unsure about whether its workplace agreement passes the Fairness Test, the employer can lodge a draft workplace agreement with the Workplace Authority for a pre-lodgement assessment before it is signed by the employee. The time frame for this process is unclear and could take weeks or months depending upon the back log.

If a workplace agreement is officially lodged and assessed as failing the Fairness Test, the employer and employee will have 14 days to make the agreement fair - in the meantime, the relevant industrial instrument (award or existing certified agreement) will apply. If the agreement is not varied it will be declared void and the employer may need to back pay the employees in accordance with their entitlements in the relevant award. If the agreement is varied, the employer may have to back pay their staff in relation to the varied entitlements.

Amendments will also be made to the legislation to make it illegal for an employer to dismiss an employee because the workplace agreement which applied to that employee failed the Fairness Test. In addition, an employer will be prohibited from “forcing” an employee agree to the removal or variation of a protected award condition.

It is anticipated that the legislation for the Fairness Test will be tabled when Parliament returns on 21 May 2007. If that occurs, it will not go before the Senate until 12 June 2007.

Main Implications

The Fairness Test only applies to workplace agreements lodged on or after 7 May 2007 where the employee earns less than $75,000 gross per annum.

Given the time between the Fairness Test commencing and the legislation being passed, there will be a period of uncertainty as to what is required to meet the test. Any workplace agreements being lodged within this period should be lodged with caution – particularly if they remove protected award conditions.

Employers now need to consider what they can give back if they want to remove penalty rates, overtime, annual leave loading, etc. This can be done through a higher rate of pay or other benefits such as flexible work hours; additional annual leave and/or personal leave; rostered time off; etc. If no compensation is given and the agreement is found to fail the Fairness Test employers could be ordered to back pay entitlements.

If you are unsure about whether a workplace agreement will pass the Fairness Test you can seek legal advice and/or pre-lodgement assessment from the Workplace Authority.

If you have any questions regarding this Employment Update, or you would like assistance with a workplace agreement, please contact us.