HG Alert: Modern Awards - Ready or not, here they are! 27 Jan 2010

“If you’ve got a little spare time on your hands this month one of the things not to do is Google Fair Work Australia. Take up miniature golf, bungy jumping into the bathtub or brewing free range beer…

You have to pity the people who have just started dealing with it because you’d need an entire law firm and the reincarnations of Bonnie and Clyde to help you survive.

So said Peter Ruehl in the Australian Financial Review, 12 January 2010.

While he may have overstated things a bit, it is clear in our practice that many employers are unsure how they are affected by the new federal safety net, including modern awards and the National Employment Standards. They are unclear about what, if anything, they need to do now in order to comply. These features of the new federal industrial relations system were among those that came into effect on 1 January. Others, such as the new unfair dismissal regime, have been operating since 1 July last year.

In this article, we have outlined some general observations and signposts that might help those struggling to adapt to, or yet to think much about, modern awards and the other features of the new federal safety net. We’ve attempted to answer some of the burning questions you may have as you come to grips with the new system.

“Why do I need to worry about it?

Variations of this question have been put to me a few times over the last 12 months or so, as the reforms have crept into the spotlight.

Modern awards, like their predecessors, prescribe various minimum terms and conditions of employment for the workers to whom they apply.  Some of the main topics they regulate (among other things) include:

  • minimum wages;
  • overtime and penalty rates;
  • work arrangements (eg rosters and variations to working hours);
  • annualised wage or salary arrangements; and
  • procedures for consultation, representation and dispute settlement.

The most basic consideration is that a breach of the safety net, including the provisions of a modern award, can attract a substantial civil penalty. While penalties of up to $33,000 can be imposed on corporate employers, individuals involved in contraventions can also be penalised up to $6,600.  The penalties are, typically, compounded by multiple breaches that have occurred over a period of time, and are additional to any liability for back pay for unpaid wages and interest.

I don’t want to overstate this point, because not every contravention is prosecuted. But honest bumblers who accidentally get things wrong can not necessarily expect to avoid a prosecution if their mistakes are uncovered by the regulator, the Fair Work Ombudsman, or by a union with an interest in your workplace. Even where a contravention is not prosecuted, if a longstanding back pay liability is uncovered, that alone may have a significant impact on your bottom line.

One of my clients was recently prosecuted for underpaying wages to 16 employees over a period of 12 months. I have no reason to believe that he set out to cheat anyone, but that this occurred because he was simply unaware of his industrial obligations. By the time he was found out, his business had gone broke and he was simply unable to pay the outstanding wages of around $40,000 found to be due.  In addition to that liability, his company was fined $25,000 and he was personally fined $5,000. He also incurred legal costs and attracted a lot of bad publicity in his local community.

In another case a corporate employer was fined $240,000 for underpaying two employees less than $5,000, and the sole director of the employer was fined almost $50,000 personally for the same contravention.

In yet another case, a large Australian company was fined $22,000 for failing to observe the requirements of an applicable award relating to notice and union consultation in a redundancy situation.  All up, these tales from the front line are a significant incentive to get your house in order.

“We’ve never used awards in our business. Why would we start now?

With very limited exceptions, it’s never been the case that employers could pick and choose their way in to, or out of, award coverage.

Under the old rules, the application of a federal or State award to particular employers and their employees depended on a range of considerations. However, whether or not a particular award applied was ultimately a matter of law, not a matter of choice.

In the new system this continues to be true, but the application rules are simpler. Generally speaking, the coverage of modern awards is more expansive than the coverage of awards in the old system. Most workers are now more likely than not to be award regulated.

Whether or not a modern award applies to a particular employee depends on the nature of the employer’s business, the nature of the work performed by the employee and the terms of the award itself.

Modern awards are industry or occupation based.  Awards applicable to particular industries include, as examples, the Black Coal Mining, General Retail and Hospitality Industry awards. Those applicable on an occupational basis include, as examples, the Nurses and Clerks - Private Sector awards.

Some workers who have not previously been award regulated will now be covered by a modern award.  For example, until now, unqualified patient care attendants working in the aged care sector in South Australia were award free. From now on, as a general rule, they will be covered by the Aged Care Award 2010 as ‘aged care employees’.

Other gaps in the old award safety net will be filled by the Miscellaneous Award 2010, which is intended to catch a range of employees not covered by other specific modern awards.

If you think any of the employees in your business are award free, and haven’t recently revisited that subject, it would be a worthwhile exercise to do that now.

As a starting point, see the Australian Industrial Relations Commission’s website for a complete list of the 122 modern awards. Or, contrary to Mr Ruehl’s advice, go to the ‘Modern Awards’ page on the Fair Work Australia website.

“My employees are perfectly happy with our existing arrangements, so why do we need to worry?

‘Happy’ workers can, after they leave your employment, become unhappy or pursue matters that they were not willing to raise with you while they worked for you. If the Fair Work Ombudsman receives a complaint from one of your former employees about
their previous working conditions, the Ombudsman will not care that the employee did not make any complaints about their terms and conditions during their course of employment with you. If those terms and conditions did not comply with the applicable safety net requirements, there will be consequences of some kind.

Industrial arrangements ‘of convenience’ have never been enforceable. As such, these arrangements have never been, and aren’t now, appropriate tools for the management of your industrial obligations to your workers.

Problem areas include such things as:

  • the provision of non-cash benefits as part of the pay arrangements (eg use of a motor vehicle);
  • patterns of hours of work outside spreads of hours fixed by an award; and
  • ‘all in’, ‘annualised’ or ‘flat rate’ remuneration arrangements.

The new system does have various flexibility arrangements built into it, including the potential for one-on-one ‘individual flexibility agreements’. Theoretically, these allow some deviation from the strict requirements of a modern award where the parties genuinely desire this to meet particular needs.

For example, in some circumstances, it will be legitimate for the parties to agree that work will be performed outside the spread of ordinary hours fixed by the award, without payment of penalty rates that would otherwise apply.

However, the rules applicable to individual flexibility agreements are not straightforward and are subject to various, and quite significant, limitations. A previously existing ‘arrangement of convenience’ will almost certainly not meet the requirements now applicable to genuine individual flexibility agreements.

For further information, see ‘Flexibility and the Fair Work Act’.

“We’ve always paid ‘above the award’, so why do we need to worry?

Paying ‘above the award’ might have kept you out of trouble before now, but in many cases this is more the result of good luck than good management.

In many situations the rate of pay by itself will be irrelevant to the question of whether or not a modern award applies. ‘Paying above the award’ does not guarantee compliance with the requirements of the award.

Some employers have been confused by the exemption rate provisions contained in various awards in the old system. For example, in Queensland, the former Clerical Employees Award - State 2002 contained a partial exemption from certain provisions in that award for employees paid above the highest rate of pay prescribed by that award - or anything exceeding (currently) around $40,000 per annum (excluding super).

Application of the partial exemption was subject to certain conditions and was not automatic, even when the wage rate exceeded the exemption threshold.

Where it applied, the effect of the old exemption was - among other things - to give employers some flexibility in relation to working hours, including the circumstances in which penalty rates might otherwise have been payable. In practical terms, within limits, employers in this situation were not obliged to pay penalties for work performed by exempt workers outside or in excess of ordinary hours, and could ignore the various loadings and allowances prescribed by the award.

In my experience, many employers of clerks in Queensland relied on the exemption by paying an annualised salary exceeding the exemption rate, but were not actually entitled to do so because they had not complied with the conditions necessary for the exemption to apply.

Even in cases where the partial exemption was operating because the employer had complied with the applicable requirements of the old award, their clerical employees will now be covered by a new award. Some will now be covered by a specific industry award (eg there are various clerical classifications in each of the Black Coal Mining, Meat and Oil Refining and Manufacturing Industry modern awards), while others will be covered by the new Clerks - Private Sector modern award.

Some of the new awards, including the new clerks award, provide for payment of annualised salaries through a mechanism similar to the partial exemption provisions from the old Queensland clerical award. But again, specific conditions apply before an annualised salary arrangement will be effective, and those conditions are different to the conditions that applied under the old Queensland clerks’ award.

Whether or not an effective annualised salary arrangement was in place before 1 January 2010, if the conditions of the new system are not met, the arrangement will contravene the requirements of the applicable modern award.

“My employees all earn more than $100,000 a year, so why does this affect me?

One misconception doing the rounds - probably as the result of ALP publicity before the 2007 federal election - is that employees who earn more than $100,000 are award free, regardless of what they do. This belief is incorrect.

The new system does allow employers, by agreement with high income employees, to opt out of the modern award that would otherwise apply to them. A person is capable of being a ‘high income employee’ if their annual earnings exceed the ‘high income threshold’.  Currently, the threshold is set at $108,300 per annum, but the figure will be adjusted for inflation annually.

It’s important to note that this exception to award coverage is not automatic. Express agreement on the subject is required and particular, quite technical rules apply. If the rules are not complied with, and the work is caught by a modern award, the award will apply even if the employee’s annual earnings exceed the threshold.

“Our employees are professionals. No award applies to them.

Historically this proposition has always had a good chance of being wrong, and the prospect for that is now even greater in the new system.

In the past, for example, I have seen employers in Queensland overlook the application to relevant employees of a range of awards applicable to professionals in various occupational areas, including particularly the provisions of the Professional Scientists’ and Professional Engineers’ Queensland awards.

Unless a particular industry award applies, employees previously covered by these awards are now likely to be covered by the Professional Employees Award 2010. However, that modern award also applies to various classifications of information technology, quality auditing and telecommunications workers. Some of these workers will have been award regulated in the old system. For others, award coverage will be new.

For example, many workers in Queensland in the information technology industry will not previously have been award regulated, but now many will be covered by the Professional Employees Award 2010.  Other professionals, such as doctors and teachers, are covered in the new system by industry specific awards.

Nevertheless, exceptions to award coverage for some professionals remain. Generally speaking, no award will apply to accountants and finance, marketing, legal, human resources, and public relations specialists.

As a general rule senior ‘managerial’ employees will not be covered by modern awards, although it is not the case that every person employed as a ‘manager’ will be award free. For example, the Fast Food Industry Award 2010 applies to employees ‘in charge’ of a shop or outlet to which the award otherwise applies.

“We have a collective agreement. None of this affects us.

In very general terms, so far as modern awards are concerned, this is basically right. However, base rates of pay prescribed by the award or awards that would otherwise have applied will prevail over anything in the agreement, and other features of the new federal system may also supersede various aspects of the agreement.

The same considerations will apply to employers and employees who are party to operating Australian Workplace Agreements and Interim Transitional Employment Agreements.

Employers in these situations should get advice about how, if at all, the operation of their agreements is affected by the Fair Work reforms. 

“Our solicitor (or industry association) drew up our employment contracts only recently. We’ll be right… the law can’t have changed that much!

The older your ‘template’ employment contracts are, the less likely they are to comply with a range of features of the new system, including the requirements of modern awards.

In particular, the new technical rules applicable to high income employees and annualised salary arrangements are just that: new. While industrial relations professionals have had some information to work with on the potential content of modern awards since the first draft awards were released in late 2008, the drafts have been subject to ongoing amendment over the intervening period. For example, the provisions in the Clerks and Banking, Finance and Insurance modern awards setting out the requirements for legitimate annualised salary arrangements under those awards were not finalised until mid-November last year.

There is a real chance that document templates prepared even relatively recently do not address all of the matters that need to be covered to ensure compliance, or deal accurately with, all relevant features of the new system.

A particular area for potential review is the effectiveness of ongoing annualised salary arrangements - see the notes above about paying above-award rates of pay and high income earners.

“My business is not federally regulated, so none of this affects me.

That might have been true for a limited group of employers in the private sector before 1 January 2010 - mainly unincorporated employers trading as sole traders or in partnership, or incorporated entities not engaged substantially in trading activities, such as some charities and service organisations.

Except for business activities in Western Australia, it is unlikely to be true now. Every State except for WA has passed legislation opting into the federal industrial relations system from now on. The Territories have always been, and of course continue to be, federally regulated.

Employers from this group just now moving into the federal system are subject to new regulation on several fronts. However, special transitional arrangements apply until 31 December 2010.

“For crying out loud! What do I do now?

Modern awards and the National Employment Standards apply now. If you are unsure how your business is affected, working through the following basic checklist may help you ensure that you comply with industrial regulation now applicable:

  1. Familiarise yourself with the requirements of the National Employment Standards. As a starting point, the Fair Work Ombudsman has put together a series of fact sheets. The National Employment Standards apply to all federal system workers, including those not covered by a modern award, although some transitional arrangements apply.
  2. If your current industrial arrangements depend on a collective agreement, Australian Workplace Agreement or Interim Transitional Employment Agreement, get advice on how the agreement is affected, if at all, by the new federal safety net, particularly the National Employment Standards.
  3. For employees not covered by a collective or other agreement, find out which, if any, modern award applies to them.
  4. For those employees who do not fit neatly into the coverage provisions of any particular industry or occupation award, consider the potential application of the Miscellaneous Award 2010.
  5. Read all of the provisions of each modern award that applies in your business.
  6. Compare your existing industrial arrangements - whether documented in formal employment contracts or not - with the requirements of each relevant modern award. Identify areas of potential non-compliance. Be particularly careful with annualised salary or flat hourly rate arrangements designed to ‘buy-out’ all award entitlements. These will not be effective unless the relevant formal requirements are met.
  7. Do the same thing for each aspect of the National Employment Standards.
  8. Get advice about how to go about fixing any problem areas.

Bear in mind that most modern awards, and some aspects of the National Employment Standards, are subject to phasing in arrangements. This is no excuse for doing nothing, but in some areas will give you some breathing space to make necessary changes.

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