09 December 2020

The new IR laws: ‘incremental change’ or a lost opportunity?

This article was written by Andrew Gray, Ruth Rosedale, Angela Weber and Darcy Harwood.

Today, the Federal Government introduced the Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Bill 2020 (the Bill) which proposes significant changes to Australia’s industrial relations landscape. 

The Bill follows a process of consultation held earlier this year between the Federal Government, unions, employers and employer groups which reportedly failed to achieve any meaningful consensus.  The Government has claimed the Bill is not “ideologically based” and provides for “pragmatic” reforms but key aspects of the Bill have already met resistance form the ACTU looking to stir up the ghosts of the WorkChoices era.

We now expect a period of debate in Federal Parliament and negotiation between key IR stakeholders before the Bill makes its way into law.

This article unpacks the key features of the Bill.

What is the purpose of the Bill?

Described by the Attorney General and Minister for Industrial Relations, Christian Porter, as “incremental consequential change”, the Bill proposes to amend the Fair Work Act 2009 (Cth) (and the accompanying Fair Work (Transitional Provisions and Consequential Amendments Act 2009 (Cth)) to address the uncertainty created in the wake of a number of significant, controversial court decisions.  Notably, the Bill tackles contentious topics such as casual employment, while also building on the temporary flexibility extended to employers and employees during the COVID-19 pandemic.

The Bill proposes some important reforms which will help to simplify and streamline the existing industrial relations framework, while at the same time balancing the rights and interest of both business and employees / unions. The key reforms, which we summarise below, cover:

  • enterprise bargaining, including streamlined negotiation and approval processes;
  • important changes to casual employment;
  • compliance and enforcement reform for wage underpayment claims;
  • significant changes to greenfields agreements; and
  • additional flexibility for employers to respond to economic and employment conditions in the COVID-19 era. 
However, some crucial opportunities for reform don't appear to be on the agenda, including:
  • tackling the complexity of the modern award system (other than in a limited way). On this issue, just prior to the Bill being introduced, the Minister wrote to the Fair Work Commission (FWC) President requesting that the FWC use its powers to amend a number of modern awards for sectors hardest hit by the COVID-19 pandemic (namely the retail, hospitality, restaurant and licensed clubs industries).  The request asks the FWC to provide for simplified pay arrangements in the form of “loaded rates” and/or “exemption rates” which employers and employees can opt-in to, as well the streamlining of existing classification structures.  Whilst no doubt welcome in those sectors, the limited scope of these changes means that the challenges of the modern award system remain largely unaddressed;
  • resolving uncertainties surrounding the elements of a general protections claim (against the backdrop of burgeoning litigation in this area);
  • the uncertainty surrounding the use of independent contractor arrangements and alternative modes of labour under the gig economy; and
  • how employers should respond when underpayments are detected. The Bill doesn’t introduce a requirement for employers to report underpayments to the FWO. The closest it comes is introducing voluntary disclosure as a factor the FWO is required to take into account in accepting an enforceable undertaking as an alternative to enforcement proceedings.

For some, the COVID-19 pandemic presented a unique opportunity to address pressing issues in the industrial relations space and the absence of reform on the above issues will be seen as a missed opportunity.  

Key elements

The key elements of the new Bill are summarised below:

Key Features

Commentary

Casual employment

Seeking to address the uncertainty and controversy which was the result of the Full Federal Court’s decision in WorkPac v Rossato [2020] FCAFC 84, the Bill proposes the introduction of a statutory definition of casual employment in the FW Act.  The definition will apply to casual employment offers made before, on or after commencement of the new laws.

Under the Bill, a person is a casual employee if an employee accepts an offer of employment from their employer which is made on the basis that the employer makes no firm advance commitment to continuing and indefinite work according to an agreed pattern of work.  This determination is assessed at the time of the offer and acceptance of employment, and not on the basis of any subsequent conduct of either party.

In determining whether this criteria has been fulfilled, regard must be had only to the following considerations:

  • whether the employer can elect to offer work and whether the employee can elect to accept or reject work;
  • whether the employee will work only as required;
  • whether the employment is described as casual employment; and
  • whether the employee will be entitled to a casual loading or a specific rate of pay for casual employees under the terms of the offer or a fair work instrument.

The Bill highlights that a regular pattern of hours does not in and of itself indicate a casual relationship.

A casual employee will remain such until their employment is converted to full-time or part time employment or they accept an otherwise alternative offer of employment by the employer and commences work on that basis.

The Bill envisages that the Fair Work Ombudsman will prepare and publish a Casual Employment Information Statement which explains the above matters. This will impose a communication requirement on employers similar to the current Fair Work Information Sheet.

Requirement for casual conversion

Under the new laws, employers will be required to offer long-term casual employees the opportunity to convert to full-time employment or part-time employment (depending on the normal hours worked by the casual employee) where the employee has:

  • been employed by the employer for a period of 12 months; and
  • during the last 6 months, the employee has worked a regular pattern of hours on an ongoing basis which, without significant adjustment, the employee could continue to work as a full-time employee or a part-time employee.  

This is intended to strengthen the pre-existing right in many modern awards for employees to request permanent employment by placing a positive obligation on the employer to make an offer of permanency.

An employer is not required to make such an offer of permanency where there are reasonable grounds not to.  This includes if the employee’s position will cease within the next 12 months, their hours of work will be significantly reduced or there will be a change in the days or times the employee works which cannot be accommodated or the offer would not comply with a recruitment or selection process.

The Bill also sets out a number of procedural requirements for this offer and acceptance process.

In addition, casuals retain a residual right to request to be converted to permanent if they satisfy the conversion criteria and neither the employer or employee have previously refused such an offer. An employer is not permitted to refuse such request unless:

  • they have consulted the employee; and
  • there are reasonable grounds to refuse the request on known or reasonably foreseeable facts (such as requiring a significant adjustment to hours of work or the employee’s position will cease within the 12 months of conversion).

If any issues arise in relation to the casual conversion process, the matter may go before the FWC.

Casual loading

Seeking to redress the “double-dipping” scenario left open by Rossato, the Bill proposes that casual leave loadings paid to compensate a casual employee for not having relevant entitlements (i.e. annual leave, personal/carers leave, compassionate leave, redundancy pay etc) will be set off against any claim for entitlements by a casual  employee who is later found to have been a permanent employee.

In this scenario, a court must reduce any amount owed to the employee for the relevant entitlements by an amount equal to the loading amount.  This reduction may be guided by various considerations, including whether the employment contract specifies the proportion of the loading amount attributable to each entitlement.

Whether these provisions are affective to achieve their purpose will need to be carefully considered given the approach the Federal Court took in Rossato to similar language in the existing regulations.

Flexible work directions

The Bill permits employers to issue flexible work directions to employees about their duties and location of work. This is intended to replicate and continue the flexibility which has been available to employers during COVID-19 under certain modern awards and the JobKeeper scheme.

The flexible work directions only apply to employers and their employees covered by the following awards:

  • Business Equipment Award 2020;
  • Commercial Sales Award 2020;
  • Fast Food Industry Award 2010;
  • General Retail Industry Award 2020;
  • Hospitality Industry (General) Award 2020;
  • Meat Industry Award 2020;
  • Nursery Award 2020;
  • Pharmacy Industry Award 2020;
  • Restaurant Industry Award 2020;
  • Registered and Licensed Clubs Award 2010;
  • Seafood Processing Award 2020; and
  • Vehicle Repair, Services and Retail Award 2020

Flexible work directions can only be given by an employer where specific threshold requirements are met (such as the duties and location are safe having regard to the nature and spread of COVID-19, the place is suitable for the employee’s duties and the employee has the relevant licence or qualification to perform any new duties), consultation has been undertaken with the impacted employee and certain written records of the consultation and flexible work direction are created and retained. 

To have effect, any flexible work direction must also not be unreasonable taking into account all the circumstances and must be supported by an employer’s reasonable belief that the direction is a necessary part of a reasonable strategy to assist in the revival of the employer’s enterprise – for example, because of the ongoing impact of COVID-19. 

While an employee is subject to a flexible work direction, the employee must be paid at least their normal base rate of pay.

It is proposed that flexible work directions will only be available to employers on an interim basis for 2 years following the passing of the new laws. During that time, any flexible work direction will continue in effect until it is withdrawn or revoked by an employer or replaced by a new flexible work direction. It will otherwise automatically cease to have effect after 2 years of the commencement of the Act. 

These new provisions allowing for the operation of flexible work directions are to be seen a term of the relevant modern award and will prevail to the extent of any inconsistency with a modern award.

Interestingly, the FWC will be permitted to deal with disputes about the operation of flexible work directions via existing dispute resolution terms in modern awards.

Part-time flexibility

The Bill enables part-time employees to agree with their employers to work additional hours outside of their ordinary hours of work at ordinary time rates instead of overtime rates (which would otherwise be payable under certain awards). This applies to employees covered by modern awards listed above and where certain circumstances are met, including:

  • the employee agrees to work the additional hours and the agreement is recorded and retained;
  • the agreement identifies the additional agreed hours to be worked and is entered into before working such additional hours;
  • the part-time employee is engaged to perform at least 16 regular hours per week (or where appropriate, the employee’s average hours are 16 hours per week); and
  • the shift length is at least three hours or is part of a continuous work stream of at least 3 hours (i.e. 1 hour of additional agreed hours worked after the end of a 2 hour shift) – this is unaffected by any breaks.

Although at first blush the parameters of the ability of an employer and employee to agree additional hours to be paid without overtime seems reasonably broad, it is not without limitations. In particular, overtime will still remain payable to an employee despite having entered into an additional agreed hours arrangement where as a consequence of working those hours, the employee works:

  • outside the span or spread of hours which otherwise attracts the payment of overtime under the modern award; or
  • in combination with any other hours worked by the employee, in excess of 38 hours per week or an average of 38 hours per week;
  • more than the maximum number of daily hours specified in the modern award that requires the payment of overtime.

Additionally, except for the circumstances described above, additional agreed hours are treated as ordinary hours of work for the purposes of paying penalty rates that apply to ordinary hours of work as well as for the accrual and payment of annual and personal leave entitlements and superannuation guarantee contributions.

Any agreement entered into with a part time employee can be terminated with 7 days’ written notice or at any time agreed between the employer and employee.

This proposed flexibility does not impact the ability for an employer and employee to agree for an employee to work additional hours if an identified modern award allows for this. However, an agreement will not be effective where it is inconsistent with a modern award that limits the number of consecutive days an employee may be required to work and which cannot be overridden by any agreement or arrangement between the employer and employee.

Greenfields agreements

The new laws will enable greenfields agreements to be entered into for a period of eight years for ‘major’ construction projects, providing considerably more industrial relations certainty for significant projects of this nature.

Projects will quality where the project is:

  • worth $500m or more; or
  • worth at least $250m and the project is deemed to be nationally significant.

Currently, enterprise agreements must have a nominal expiry date which is no longer than four years from the date the FWC approves the agreement.

Greenfields agreements made with longer than four-year terms must contain annual pay increases for the life of the agreement.

Enterprise agreement making process

The enterprise agreement making is proposed to be simplified and streamlined to promote enterprise bargaining. 

The Bill proposes the following changes:

  • the time for an employer to provide the notice of representation rights (NERR) will be extended from 14 days to 28 days from the notification time;
  • employers will be required to take reasonable steps to ensure employees are given a fair and reasonable opportunity to decide whether or not to approve a proposed enterprise agreement;
  • the voting rules will be amended to clarify that casuals who have worked through the access period for the proposed enterprise agreement are entitled to vote; and
  • the FWC will no longer need to be satisfied that the proposed enterprise agreement does not exclude the National Employment Standards (NES).  Rather, a new model “NES interaction term” will need to be included, which explains the interaction between the NES and enterprise agreements. The model term has not yet been published.

The Bill also proposes limitations on who has the right to be heard in relation to an application to approve or vary an enterprise agreement. Persons not otherwise prescribed can only be heard in “exceptional circumstances”.  Notably, unions will only be prescribed if they are covered by the agreement (or are a bargaining representative for the agreement).

Additionally, the FWC will be required to determine applications to approve or vary enterprise agreements within 21 days (as far as practical).

Franchisees and enterprise agreements

Franchisees will be able to opt-in to a single-enterprise agreement that covers a larger group of employers operating under the same franchise.

Termination of enterprise agreements after nominal expiry date

The Bill will prevent an application to terminate an enterprise agreement after its nominal expiry date from being made until 3 months after that date.  This seeks to prevent employers using the termination of an enterprise agreement (which typically results in employees falling back to modern award terms and conditions) as a tool during bargaining.

Revised Better Off Overall Test (BOOT)

The BOOT is proposed to be amended under the new laws to ensure that it does not discourage bargaining.

In particular, the BOOT will be modified by :

  • permitting the FWC to take into account only patterns or kinds of work, or types of employment, that employees currently perform or could reasonably be foreseen to perform (meaning the agreement will be assessed against the actual working arrangements of the employer, not a theoretical working arrangement which would leave employees worse-off);
  • enabling the FWC to have regard to overall benefits (including non-monetary benefits, such as flexibility) employees would receive under an agreement compared to a relevant modern award; and
  • requiring the FWC to give significant weight to any views of the employees, employer and bargaining representatives for the agreement that have been expressed as to whether the agreement passes the BOOT.

In addition, the Bill proposes that the FWC is provided with a new mechanism to approve an enterprise agreement that does not pass the BOOT (in addition to the existing temporary capacity to do so where this would not be contrary to the public interest) where appropriate by taking into account all the circumstances, including:

  • the views of the employees and each employer covered by the agreement, and each bargaining representative for the agreement;
  • the circumstances of those employees and employers, and any employee organisation that has applied to be covered by the agreement, including the likely effect of approval or non-approval;
  • the impact of COVID-19 on the enterprise or enterprises to which the agreement relates;
  • the extent of employee support for the agreement as expressed in the outcome of the voting process; and
  • because of these circumstances, approving the agreement would not be contrary to the public interest.

An agreement approved under this mechanism must have a nominal expiry date of no more than 2 years after the day it is approved.  Further, this mechanism will only be available for 2 years after commencement of the new laws (noting their purpose to assist in the economic recovery from the impact of COVID-19).

This change has already come under attack from the ACTU as the ghost of WorkChoices

Killing off the “zombie agreements”

All agreement based transitional instruments preserved under the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009, including Division 2B State employment agreements, and enterprise agreements and workplace determinations made during the Fair Work Act ‘bridging period’ from 1 July 2009 to 31 December 2009, will cease on 1 July 2022.

These so-called “zombie” instruments have created complexities (and at times, unfair) outcomes for employees and the approach taken by the Bill is a pragmatic way to address the challenges associated with these instruments.  Employees covered by these instruments will revert to being covered by the applicable modern award in full unless they have negotiated a new enterprise agreement. This change could have significant implications for employers who still relay on these old industrial instruments in lieu of modern awards.

Transfer of business

The Bill proposes that where employees transfer between associated entities at their own initiative before the termination of their employment with the old employer, this will not constitute a ‘transfer of business’.  This change will also mean that industrial instruments won’t transfer between associated entities (provided the employee transfers at their own initiative). There is some commentary in the Explanatory Memorandum that this provision is not intended to apply in a corporate restructure initiated by the employer where acceptable alternative employment is offered which may operate to limit the scope of this helpful provision (not that the restriction in the EM is made express in the Bill).

Increased penalties for workplace non-compliance, plus changes to enforcement and small claims 

The Bill  increases the civil penalties for existing ordinary remuneration-related contraventions where such non-compliance does not constitute a criminal offence by approximately 50%.

In addition, the Bill envisages the introduction of a new mechanism for determining fines for large companies who have committed remuneration-related contraventions whereby the relevant penalty will be based on a multiple of the “value of the benefit” obtained by the company. This is to ensure that the civil penalty serves as a measurement of the actual scale of  the underpayment.

Small businesses and individuals will be exempt from this new mechanism. However, the maximum financial penalty for these groups will significantly increase.

Further, the fines which attach to infringement notices, sham contracting and failing to comply with a compliance notice will also increase by 50%.

Greater clarity is also proposed around the Fair Work Ombudsman’s enforcement approach.  The Ombudsman will be required to publish more details about its approach to commencing enforcement proceedings, and when it will decide to accept an enforceable undertaking.

The Bill increases the current small claims jurisdictional limit from $20,000 to $50,000.  Courts will also be required to consider whether to refer small claims to the FWC for conciliation (and arbitration, if the parties consent). 

Criminalising underpayments

As part of delivering on the Government’s recommendations to the Report of the Migrant Workers’ Taskforce, the Bill introduces a criminal offence of wage underpayment.  This offence is intended to attract a maximum penalty of up to four years imprisonment and/or a fine of $1.11 million for an individual and up to $5.55 million for a body corporate.  Individuals will also be automatically disqualified from managing corporations for a period of five years under the Corporations Act 2001 (Cth) if they are convicted of an offence that involves dishonestly and is punishable by imprisonment for at least three months.

It has been noted by the Attorney General that the criminal offence is not intended to apply to one-off underpayments, inadvertent mistakes or miscalculations, but rather employers who dishonestly engage in a systematic pattern of underpaying one or more employees with intentional dishonest and systematic conduct.

Dismissal of applications before the FWC

The Bill broadens the existing grounds on which the FWC can dismiss an application, to include where the FWC is satisfied an application is:

  • misconceived or lacking in substance; or
  • otherwise an abuse of the processes of the FWC.

This will not apply to general protections applications involving dismissal or unlawful termination applications.

Other amendments

The Bill will make it unlawful to advertise for employment at a rate of pay less than the minimum wage. 

De-merger of unions

Separate from the Bill, the Federal Government has also introduced the Fair Work (Registered Organisations) Amendment (Withdrawal from Amalgamations) Bill 2020 which seeks to amend the Fair Work (Registered Organisations) Act 2009 (Cth) (the Registered Organisations Act) and re-affirm the right to freedom of association by enabling parts of amalgamated unions to de-merge within 5 years of their amalgamation. It is understood these amendments seek to address the internal issues within the CFMEU and Victorian construction union chief John Setka.

Currently, the Registered Organisations Act only allows a constituent part of an amalgamated organisation to withdraw from the organisation within a three year window – being more than two years but no later than five years after amalgamation.  The Bill seeks to allow the FWC to accept an application after this five year period if the application is deemed appropriate in light of specific considerations.

These considerations are whether the amalgamated organisation has a record of non-compliance with workplace or safety laws, any contribution of the constituent part to that record and the likely capacity of the organisation which will be registered when the constituent part withdraws to promote and protect the economic and social interests of its members. Interestingly, where the organisation has a record of non-compliance, but the constituent part has not contributed to that record, the FWC is required to accept the application.

The Bill provides that these amendments to the Registered Organisations Act will be reviewed within two years they are introduced.  The Bill also sets out additional requirements around the form of the applications, proposed names for the new organisation, balloting and providing information to certain officials.  

Where to from here?

The Attorney General has signalled an intention to continue to consult with unions and business groups as the Bill makes its way through Parliament.  It is also anticipated that the Bill will be referred to a Parliamentary committee to be considered further.

As expected, there has already been significant push-back from the unions in relation to some of the more controversial features of the Bill, particularly in relation to the proposed definition of casual employment, which will likely continue to impact its passage through Parliament. 

 

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