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HG Alert: Flexibility and the Fair Work Act - 29 Jan 2010

Flexibility and the Fair Work Act

The Fair Work Act 2009 introduced new provisions designed to allow for flexibility in the workplace.  Employers and employees can tailor modern awards and enterprise agreements in certain respects to suit their particular circumstances by using ’individual flexibility arrangements’ (IFAs). The National Employment Standards provide employees with children who are under school age, or who are disabled and under 18 years old, with the right to request flexible working arrangements. Extended parental leave can also be requested, allowing employees to take up to 24 months parental leave in certain circumstances.

Individual flexibility arrangements

The Fair Work Act 2009 seeks to promote workplace flexibility through the use of individual flexibility arrangements. These arrangements allow for variations to modern awards or enterprise agreements to meet the needs of employers and individual employees, while at the same time ensuring that minimum entitlements and protections are maintained.

Every modern award and enterprise agreement must include a ’flexibility term’. A flexibility term allows an employer and an individual employee to agree on an arrangement which varies the effect of the modern award or enterprise agreement to meet the genuine needs of the employer and the individual employee. If an enterprise agreement does not include a flexibility term when it is made by the parties, it will be taken to include the model flexibility term set out in Fair Work Regulations 2009.

If it is in relation to a modern award, an employer and employee can only agree to an IFA that varies:

  • arrangements for when work is performed, such as working hours;
  • overtime rates;
  • penalty rates;
  • allowances; and
  • leave loading.

If it is in relation to an enterprise agreement, an employer and employee can only agree to an IFA that varies those terms that are ’permitted matters’ and that are included in the agreement. Permitted matters are:

  • matters pertaining to the relationship between the employer and employees covered by the agreement;
  • matters pertaining to the relationship between the employer and a union covered by the agreement;
  • deductions from wages for any purpose authorised by an employee covered by the agreement; and
  • how the agreement will operate.

When made, an IFA has effect as if it was actually a term of the modern award or enterprise agreement, and it can be enforced as such.

The Fair Work Ombudsman gives the following example of when an IFA may be used to create flexible work arrangements:

An enterprise agreement might provide for ordinary working hours between 9.00am and 5.00pm. If an IFA between an employer and an individual employee provides for ordinary working hours of between 7.00am and 3.00pm, the enterprise agreement will apply to the employee as if the agreement provided for ordinary working hours of between 7.00am and 3.00pm. The unvaried enterprise agreement will continue to apply to other employees unaffected by the IFA so that they have ordinary working hours of between 9.00am and 5.00pm.

Either an employee or employer can initiate a request for an IFA. However, an IFA can only be made after employment begins. An offer of employment cannot be made subject to an IFA being entered into by an employee. Employees cannot be forced to enter into an IFA and cannot be treated adversely or discriminated against for refusing to enter into an IFA. To an extent, then, the use of IFAs to achieve workplace flexibility is limited. 

When an employer and an employee enter into an IFA, it must:

  • be genuinely agreed to by the employer and employee;
  • result in the employee being ’better off overall‘ than the employee would have been if no IFA was made; and
  • be signed by both the employer and employee (or be signed by a parent or guardian if the employee is under 18 years old).

A copy of the IFA must be provided to the employee within 14 days of the agreement.

IFAs do not need to be approved by Fair Work Australia. Instead, the employer is responsible for ensuring that:

  • the employee is better off overall than if there was no IFA. This assessment will usually involve comparing the employee’s financial benefits under the IFA with the financial benefits under the applicable modern award or enterprise agreement. The employee’s personal circumstances and any non-financial benefits which are significant to the employee can also be considered. The Fair Work Ombudsman gives the following example:
    Dave is a full-time industrial chemist at Rosie Industries Pty Ltd. Dave’s employment is covered by the Rosie Industries Pty Ltd enterprise agreement which includes a flexibility term allowing IFAs to be made about the hours an employee works within the agreement’s span of hours. Dave wants to coach his son’s football training on Tuesday afternoons. Dave makes an IFA with his employer allowing him to start and finish work half an hour early on Tuesdays without the usual penalty rate that would apply for the first half hour. Dave is better off overall because he can attend his son’s training, something he values as a significant non-financial benefit.
  • the IFA is made correctly and meets all requirements of the Act.

If an IFA is not made properly:

  • the terms of the IFA continue to govern the employee’s terms of employment as if it was made properly. This ensures that the employee keeps any benefits to which they are entitled under the IFA; and
  • a corporate employer may be liable to a penalty of up to $33,000 and any individual involved liable for a penalty of up to $6,600.

Generally, an IFA may be terminated by agreement or by either party giving the required written notice (a maximum of 28 days). While it might suit an employer in some instances to terminate an IFA, in many instances the ability of an employee to simply ’change their mind‘ and terminate an IFA by giving the employer notice - if the reason they agreed to make it no longer suits them - will limit the effectiveness of IFAs as any kind of significant management tool.

Clearly IFAs are designed with the interests of employees, rather than employers, in mind.

Preferred hours clauses and flexibility

To allow for long term planning and workplace flexibility, employers have commonly included ’preferred hours’ clauses in collective agreements to provide for flexibility in working hours. These clauses typically allow employees to request to work at particular times that would otherwise be outside their ordinary hours, for reasons to do with their personal circumstances, on the basis that they will be paid at the ordinary hourly rate, rather than at any overtime or other penalty rate that might otherwise apply.

However, in the last month, Fair Work Australia has refused to approve two enterprise agreements containing preferred hours clauses on the basis that the clauses failed the ‘no disadvantage’ test (as was applicable before 31 December 2009).

In light of these decisions, employers might reconsider including preferred hours clauses in enterprise agreements and instead use IFAs to achieve similar outcomes. In doing so, employers will need to ensure that employees are ’better off overall’ underneath an IFA when compared to the applicable modern award or enterprise agreement. However, as discussed above, IFAs do not necessarily provide employers with industrial solutions incorporating any reasonable degree of longevity and certainty.

Unless and until there is some clarity from Fair Work Australia about the extent to which preferred hours clauses will be accepted, if at all, employers should consider not including these clauses in enterprise agreements. If they do, there is a risk that an agreement will be rejected by Fair Work Australia and the employer will have to amend the agreement, hold a new vote and re-lodge the agreement for approval, all of which will take additional time, effort and cost.

The National Employment Standards

The National Employment Standards came into effect on 1 January 2010. They introduce a new legislative entitlement for employees with children under school age or, in the case of disabled children, under 18 years old, to request a change in their working arrangements to help them care for their children.  Examples of changes in working arrangements in the  National Employment Standards include changes in work hours, changes in work patterns and changes in work location. However, these are only examples and the changes that might be made are really only limited by the confines of an employer’s operational requirements.

A request for a change in working arrangements must be made in writing and set out the details of the change sought and the reason for the change.  Employers must provide a written response to the request within 21 days, stating whether the request
has been approved or refused. An employer can only refuse a request on reasonable business grounds and must provide details of the reason for refusal.

The National Employment Standards also provide for an extended period of unpaid parental leave. As was the case previously, employees are entitled to 12 months of unpaid parental leave. However, employees may request that their employer agree to an extended period of unpaid parental leave of up to 12 months immediately following the end of the initial 12 month period.

Any request for an extended period of parental leave must be made in writing and be given to the employer at least four weeks before the end of the initial period of leave. The employer must provide a written response to the employee’s request, stating whether they grant or refuse the request. The response must be given no later than 21 days after the request is made. As with a request for flexible working arrangements, an employer may refuse the request only on reasonable business grounds.

If an employer refuses to agree to a request for flexible working arrangements or an extended period of parental leave, that decision will not ordinarily be reviewable by Fair Work Australia, although it could lead to a claim alleging ’adverse action‘ under the Fair Work Act or unlawful discrimination under anti-discrimination legislation. However, Fair Work Australia is able to deal with a dispute arising from a refusal to agree to flexible working arrangements or an extended period of parental leave if the parties have agreed that it has the power to do so in an employment contract, enterprise agreement or other written agreement.

Conclusion

While IFAs are designed to allow for workplace flexibility, they have their limitations. These include the following:

  • An IFA cannot be made before employment begins and an offer of employment cannot be made subject to the employee agreeing to make an IFA.
  • An IFA can be terminated by an employee at any time on giving notice of up to 28 days.

Any flexibility gained by an employer under an IFA could be lost if an employee simply decides to terminate the IFA, making long-term business planning and structuring around IFAs almost impossible.

At this stage it is not clear whether the inclusion of preferred hours clauses in collective enterprise agreements offers a more viable alternative to the default IFA arrangements. Early indications are that Fair Work Australia will carefully scrutinise preferred hours arrangements proposed for inclusion in enterprise agreements, and in the future the terms of what will actually be permitted might be very limited. While the right to request flexible working arrangements or an extended period of parental leave under the National Employment Standards does not impose a mandatory obligation on employers to agree to such requests, it does impose an obligation to properly consider such requests when they are made.

Ordinarily a decision to refuse these requests cannot be reviewed by Fair Work Australia. However, properly drafted employment documentation will permit disputes of this kind to be referred to Fair Work Australia for resolution, including through arbitration.

Failure by an employer to comply with the requirements of any flexibility option in the new system could result in various kinds of proceedings against the employer, including adverse action claims and the imposition of civil penalties of up to $33,000 per breach. Individuals involved in breaches, such as company directors or those with human resource management responsibilities, can also be penalised up to $6,600 per breach.

For more information about modern awards and individual flexibility arrangements, please contact HopgoodGanim’s Industrial and Employment Law team.