June 2007

Employment law: testing times for Work Choices

Work Choices - the legislation that dare not speak its name. Over the last year Work Choices has been the trade mark of the Federal Government’s reform of workplace relations. Last week Minister Hockey said Work Choices had poor brand image.

And so Work Choices has now been replaced by "A Stronger Safety Net" the term contained in the Workplace Relations Amendment (A Stronger Safety Net) Bill 2007 which was tabled in Federal Parliament on Monday 28 May 2007. Work Choices simply provided too many testing problems for the Government.

Work Choices previously allowed an employer to make an AWA or collective workplace agreement with their employees that excluded "protected award conditions" such as annual leave loading, overtime, shift loadings, penalty rates and other specified allowances. Under Work Choices it did not matter if there was no compensation for the loss of those conditions provided the parties had agreed to make the workplace agreement, and some basic statutory minimums were met

This bulletin examines the implications of the Bill with its introduction of a "Fairness Test" for AWAs and collective agreements lodged after 7 May 2007.

Workplace Relations Amendment (A Stronger Safety Net) Bill 2007

The Bill is a fundamental shift in ideology from Work Choices. Workplace agreements, like AWAs, are now subject to review and must provide employees with compensation for any loss of their existing protected entitlements. It is no longer the bargaining that matters, but rather the quality of the bargain.

The main amendments made by the Bill are to:

  • introduce a Fairness Test for workplace agreements;

  • confirm that an employer taking over a business cannot require a transferring employee to sign an AWA;

  • change the name of the Employment Advocate to Workplace Authority Director and the name of the Office of Workplace Services to Workplace Ombudsman.

The Fairness Test

The main features of the new test are:

  • Where a worker is to earn less than $75,000 a year under a workplace agreement (or a variation to a workplace agreement) and the agreement excludes or modifies any protected conditions in a relevant award, then the agreement must pass the "Fairness Test";

  • The Fairness Test is administered by the Director;

  • A workplace agreement passes the Fairness Test if the Director is satisfied that the agreement provides fair compensation to the employee in lieu of the excluded or modified protected award conditions;

  • In considering whether the agreement meets the test, the Director is to consider the monetary and non-monetary compensation the employee receives under the agreement in lieu of the protected award conditions, the work obligations of the employee and the employee’s personal circumstances, including family responsibilities;

  • Any non-monetary compensation must have a "money value equivalent" and confer a benefit on the employee before it can be considered;

  • If the test is not met, an employer has 14 days to vary the workplace agreement to meet the test or else the agreement will cease to operate;

  • Where an agreement does not meet the Fairness Test, an employer will have to pay compensation equivalent to the difference between what the employee would have received had the agreement not been made, less what the employee was paid;

  • An employee cannot be dismissed if the agreement fails the test; and

  • There are new procedures relating to the Fairness Test which employers are expected to follow or risk penalties.

In most cases satisfying the Fairness Test will mean paying a higher rate of pay in an agreement to incorporate the loss of allowances and loadings unless benefits peculiar to the employee have been provided such as family friendly arrangements.

Employers will not be unfamiliar with idea of the Fairness Test because they were previously required to comply with the no-disadvantage test prior to Work Choices.

In this sense the new legislation puts back what was there before Work Choices but with more complexity. There is the $75,000 salary cap, the vagaries of monetary and non-monetary compensation, more red tape, the risk of unintentional non-compliance and the general appeal to undefined fairness.

Conclusion

The new laws are still to be passed by Parliament but will have immediate impact because they are backdated to apply to agreements after 7 May 2007.

The new law has some unusual peculiarities which need to be ironed out. It remains uncertain how the Workplace Authority Director will actually apply the test. Is a free pizza non-monetary compensation? What if it’s a load of pizzas delivered to your footy mates? How many overtime hours will the Director take into account in determining the effect of the loss of overtime rates? What about offering a work location closer to home but with a loss of some penalties? More flexible hours may have no monetary value but are invaluable to some employees.

Reaching agreement with employees won’t be enough. Employers now have to satisfy the Workplace Authority Director as well. There will be cases where both the employer and employee are happy but the Director is not.

The new laws will provide further testing times for employers already having to comply with Work Choices. The legislation is technical and we will keep you informed of developments.

Author: James Mattson