Fairness Test - how it works

Analysis

Fairness Test - how it works

No legislation setting up the Fairness Test for AWAs has yet been released by the Federal Government, so the precise details of how it will work are not known.

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Source: Dick Grozier, Director of Industrial Relations, Australian Business Industrial *

No legislation setting up the Fairness Test for AWAs has yet been released by the Federal Government, so the precise details of how it will work are not known. However the following information has been put together from material released by the Prime Minister, John Howard, when he announced the new testing procedure last week.

On 4 May 2007 the Prime Minister announced changes to agreement making under WorkChoices. Agreements applying to award covered employees which modify protected award conditions will be subject to a fairness test to determine whether the employee has been adequately compensated for trading off the condition or conditions. The changes affect agreements which are lodged with the Employment Advocate (now to be known as the 'Workplace Authority') on or after Monday 7 May 2007. The changes do not affect employers which are not covered by WorkChoices or agreements which were in force before 7 May.

The 'Fairness test'

Agreements lodged on or after 7 May will be subject to a new fairness test if:

  • the employee would otherwise have been covered by an award (or NAPSA), and
  • the agreement modifies or removes one or more of the relevant award's 'protected award conditions', and
  • the agreement is a collective agreement, or
  • the agreement is an AWA, the employee is paid less than $75,000
  • the agreement is silent about a 'protected award condition' that condition will continue to apply to the employee under the agreement

'Protected award conditions' are:

  • shift and overtime loadings
  • penalty rates including those for working on public holidays or weekends
  • public holidays and substitution arrangements for public holidays
  • rest breaks
  • incentive-based payments and bonuses
  • reimbursement and work-related monetary allowances, and
  • annual leave loading

If you are currently negotiating or lodging an agreement

Most agreements do modify or remove one or more of the protected award conditions and will be subject to the fairness test, and will need to pass it. In many cases fairness will be determined by comparing what the employee would have received if the protected award condition had not been modified or removed with his or her pay under the agreement. For example, penalty rates might be traded-off against a higher hourly rate of pay. In some circumstances the trade-off might be non-monetary.

It is expected that there will be changes to the mandatory Information Statement and Employer Declaration, but at present the current forms apply.

Where an agreement fails the fairness test the Workplace Authority will advise how the agreement fails to compensate the employee fairly, what is required to meet the test, and any back pay which is to be paid to the employee. The agreement must be changed within 14 days to enable it to pass the fairness test. If not, it becomes void and the employee is covered by the previous arrangements which applied.

The Workplace Authority will also give written advice about the fairness of a proposed agreement. However, until the new legislation comes into effect the Workplace Authority cannot test new agreements, give written advice about their fairness or change its forms.

What's not changed

Agreements will continue to apply from the date that they are lodged with Workplace Authority with the completed Employer Declaration.

The requirement that agreements do not reduce 'outworker conditions' remains in place.

Agreements cannot reduce the conditions provided in the Australian Fair Pay and Conditions Standard. These are:

  • rates prescribed by the relevant Australian Pay and Classification Scale or Federal Minimum Wage
  • maximum ordinary hours
  • annual leave
  • personal leave
  • parental leave

Agreements cannot remove an employee's right to reasonably refuse to work overtime or work on a public holiday, or be paid on a public holiday which the employee would ordinarily have worked.

* Australian Business Industrial is the registered IR entity of NSW Business Chamber.

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