New 'fairness test' and WorkChoices


New 'fairness test' and WorkChoices

The WorkChoices 'fairness test' legislation is still to be clarified. However some matters seem clear. This article identifies the conditions that can still be 'negotiated out' of an AWA or collective agreement.


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The WorkChoices 'fairness test' legislation is still to be clarified. However some matters seem clear. This article identifies the conditions that can still be 'negotiated out' of an AWA or collective agreement.

The Federal Government recently introduced amendments to agreement making under WorkChoices. Agreements applying to award covered employees which modify or exclude protected award conditions will now be subject to a 'fairness test' to determine whether the employee has been adequately compensated for trading off the condition or conditions.

This commentary identifies those conditions that are protected by the fairness test, and examples of employment conditions that are not protected under this new test. It is presumed the current bill will be passed unamended by the Federal Parliament.

Who is subject to the fairness test?

The legislation introduces a fairness test that applies to workplace agreements (and variations to workplace agreements) lodged on or after 7 May 2007. The fairness test applies to Australian Workplace Agreements (AWAs) covering employees with a gross full-time (or full-time equivalent) basic salary of less than $75,000 p.a. who are employed in an industry or occupation in which the terms and conditions of employment are usually regulated by an award and where the agreement excludes or modifies protected award conditions.

This means the annual salary of a part-time, casual employee or pieceworker may still exceed the threshold if their equivalent hourly rate exceeds the annual amount. For example, a part-time employee on $38 per hour would exceed the annual threshold because the equivalent full-time annual salary would be $75,088 (calculated at $38 x 38 hours x 52 weeks). In that example, the employee's AWA would not be subject to the fairness test.

The amount of $75,000 p.a. excludes incentive-based payments and bonuses, loadings (other than casual loadings), monetary allowances, penalty rates, any other separately identifiable entitlements that are similar to these entitlements, or employer superannuation contributions. Collective agreements covering employees in an industry or occupation in which the terms and conditions are usually regulated by an award and where the agreement excludes or modifies protected award conditions will also be subject to the fairness test.

There is no monetary threshold for collective agreements.

The fairness test applies to workplace agreements as varied, even if the original agreement was made before 7 May 2007, where a variation to the agreement modifies or excludes one or more protected award conditions. This also applies to an agreement that is operating beyond its nominal expiry date.

The amendments do not affect employers which are not covered by WorkChoices or agreements which were in force before 7 May 2007.

What are protected award conditions?

Protected award conditions are those that apply under a Federal award, or a preserved State instrument. If there is no such instrument, the protected award conditions would be those in an award designated as appropriate by the Workplace Authority (previously the Office of the Employment Advocate) for the purpose of the fairness test. The fairness test would require the Workplace Authority to be satisfied that:

  • in the case of an AWA — the agreement provides fair compensation to the employee in lieu of the modification or removal of the employee's protected award conditions
  • in the case of a collective agreement — on balance, the agreement provides fair compensation, in its overall effect on employees, in lieu of the modification or removal of the employees' protected award conditions

The fairness test guarantees the following protected award conditions or fair compensation in lieu of those conditions:

  • rest breaks
  • incentive-based payments and bonuses
  • annual leave loadings
  • monetary allowances — for expenses incurred in the course of employment, responsibilities or skills that are not taken into account in rates of pay for employees, or disabilities associated with the performance of work in particular conditions or locations
  • observance of and payment for public holidays
  • overtime and shift loadings, and
  • penalty rates

An agreement cannot remove other minimum entitlements prescribed by the Workplace Relations Act. These include 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 normally have worked. Also, an employee cannot agree to forgo the minimum period of notice of termination (based on the number of years of continuous service with the employer) required to be given by the employer when terminating an employee.

Passing the test

The agreement will operate from the date it is lodged with the Workplace Authority. The amendment sets out the principal factors that the Workplace Authority must have regard to when determining whether a workplace agreement provides fair compensation to the employee or employees and passes the test. These factors are:

  • the monetary and non-monetary compensation that the employee or employees will receive under the workplace agreement, in comparison to the protected award conditions that apply to the employee or employees under a reference award, and
  • the work obligations of the employee or employees under the workplace agreement (for example, the rostering arrangements or shift patterns of the employee or employees)

'Non-monetary compensation' encompasses compensation that:

  • has a money equivalent or to which a money value can be assigned (eg a car-parking space, child care or shares in the company), and
  • confers a benefit or advantage on the employee which is of significant value to the employee

It is expected, for example, that meals (such as a pizza at the end of a shift) would not constitute adequate compensation for removal of protected award conditions.

The Workplace Authority may also have regard to the personal circumstances of the employee or employees, particularly their family responsibilities, in considering whether a workplace agreement passes the test. This would enable factors such as flexible working hours to be considered, however it would not enable the Authority to look at any period of unemployment of the employee or employees, which may only be considered in exceptional circumstances. Other exceptional circumstances, and provided it is not contrary to the public interest to do so, would allow the Authority to have regard to the industry, location or economic circumstances of the employer and the employment circumstances of the employee.

The Workplace Authority must provide written notice to an employer, an employee in the case of an AWA, and the organisations bound by a collective agreement, about whether or not a workplace agreement or variation of an agreement has passed the fairness test.

What if the agreement fails the test?

If a workplace agreement does not provide fair compensation in lieu of the protected award conditions, the Workplace Authority would provide advice on how the agreement could be varied to pass the fairness test.

The employer would have 14 days to vary the agreement (including by way of an undertaking). If the employer does not vary the agreement within this period, or if the agreement does not pass the test, the agreement would cease to operate. When the agreement ceases to operate the employer and the employee are bound by the instrument that would have applied to them, but for the unfair agreement. This instrument could be an earlier agreement, the award, or a preserved State instrument. In the case of an employee for whom an award was designated (and where no other instrument applies), the protected award conditions from the designated award will apply.

The Australian Fair Pay and Conditions Standard continue to operate, in accordance with the existing provisions of the WRAct. These conditions are:

  • wage rates prescribed by the relevant Australian Pay and Classification Scale or Federal Minimum Wage
  • maximum of 38 ordinary hours per weeks, including reasonable additional hours
  • four weeks' annual leave per year (with cashing out allowed through a workplace agreement)
  • 10 days' per year personal/carer's leave, including two days' compassionate leave
  • 52 weeks' unpaid parental leave after 12 months continuous service with the employer

An employee can recover compensation for any shortfall arising if the value of the entitlements under the 'unfair agreement' is less than the value under the applicable industrial instrument, or the protected award conditions in a designated award, had they applied during the fairness test.

A consequence of the amendment is that where an AWA fails the fairness test, an employee who was not previously covered by an industrial instrument, eg manager, professional employee, etc, will now have the 'protected award conditions' automatically included in his/her contract of employment as prescribed by the designated award as determined by the Workplace Authority.

Redundancy provisions (pre-reform agreements)

Any applicable preserved redundancy provisions, or undertakings made by the employer, following unilateral termination of an earlier agreement also have effect. For those employees bound under a pre-reform agreement, ie pre-reform certified agreement, pre-reform AWA or preserved State agreement, redundancy provisions are preserved where the agreement is terminated by the Australian Industrial Relations Commission on application by the employer.

Redundancy provisions are preserved for a maximum period of 12 months from the date the termination of the agreement takes effect. Redundancy provisions are not preserved where an employee terminates an agreement, or approval of an employee is given for the agreement to be terminated. Also, payments related to a resignation of employment by an employee will not be preserved as a redundancy provision.

An employer who is bound by a 'preserved' redundancy provision continues to be bound by that provision, after a workplace agreement ceases to operate as a result of not passing the fairness test, until the earliest of the following:

  • the end of the 12 months from the time the workplace agreement was terminated
  • the employee is no longer employed by the employer, or
  • a new workplace agreement comes into operation in relation to the employee and the employer

This means a workplace agreement that does not pass the fairness test will not affect the preserved redundancy provisions contained in a pre-WorkChoices agreement.

Conditions not subject to fairness test

While the fairness test is compared to seven specific employment entitlements prescribed in a pre-reform Federal award or NAPSA, there are a number of other entitlements commonly found in pre-reform awards and NAPSAs that may be modified or excluded from a new workplace agreement. These are generally referred to under WorkChoices as 'non allowable award matters', and are unenforceable. As with any condition not included in the 'protected award conditions', there is no requirement on the employer to compensate an employee for the loss (or variation) of these benefits. These entitlements include:

  • long service leave — because this entitlement is usually provide by a State or Territory statute, long service leave may be modified or excluded from a new workplace agreement, and is not subject to the 'fairness test'. Because this entitlement is not subject to the fairness test there is no requirement on the employer to offer compensation to the employee, be it monetary or non-monetary, where the long service leave is modified or excluded from the new agreement
  • jury service — usually a 'make up pay' representing the difference between the rate an employee receives for attending jury service and the employee's actual rate of pay
  • redundancy (severance) pay — a common entitlement under pre-WorkChoices industrial instruments, there is usually a scale of severance pay when an employee's position becomes redundant. Redundancy is not a 'protected award condition', therefore, where an employee is employed under a pre-reform Federal award or NAPSA (pre-reform State award) redundancy pay may be modified or excluded by a new workplace agreement, and is not subject to the 'fairness test'.
  • accident pay — usually a 'make-up pay' that represents the difference between the workers compensation payment and the employee's actual rate of pay, payable for a specified period (between 26 and 52 weeks)
  • blood donor leave — usually paid when an employee attends a recognised blood bank and generally is a maximum of one hour's paid leave on each occasion
  • provision of meals and accommodation —- recovery of costs involved in the performance of work away from the employee's normal place of residence (unless there is an allowance for board and lodging)
  • paid defence force leave — uncommon but usually leave provided on the basis of 'make up pay' when provided
  • hospital leave — common provision in some manufacturing industries, usually provides that where an employee suffers an injury at work, which is not related to a workers compensation claim, an employee usually entitled to up to four hours paid leave on the day of the accident


How the fairness test will work in practice

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