The Fairness Test - Q&As


The Fairness Test - Q&As

Australian Business Lawyers has summarised - in a question and answer format - the main aspects of the Federal Government’s Fairness Test relating to workplace agreements.


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Australian Business Lawyers has summarised - in a question and answer format - the main aspects of the Federal Government’s Fairness Test relating to workplace agreements.

In early May of this year, the Government announced its intention to introduce this test into law. It is now in effect. The Fairness Test was part of legislation that made some key /changes to WorkChoices legislation.

What are the key changes?

  • Fair compensation must be provided in a workplace agreement (an AWA or a collective agreement) if the agreement modifies or excludes any 'protected award conditions'.
  • The Workplace Authority is the agency which carries responsibility to assess workplace agreements and to decide whether agreements pass the fairness test.
  • The Workplace Ombudsman is the agency which, amongst other things, carries responsibility to enforce compliance with Federal workplace laws.
  • With one category of exception, workplace agreements filed on or after 7 May 2007 will be subject to the fairness test.
  • A requirement upon employers to issue a Workplace Relations Fact Sheet to employees.
  • Redundancy protections on transmission of business increased from 12 months to 24 months.

Will the fairness test apply to all workplace agreements?

No. The fairness test will not apply to an Australian Workplace Agreement (AWA) if the employee has an annual rate of salary (or full time equivalent rate of salary) which is equal to or greater than $75,000. This will increase by an indexed rate each year.

What are protected award conditions?

Many awards provide for conditions for penalty rates, overtime loadings/rates, observance of and payment for public holidays, monetary allowances, rest breaks, annual leave loading and - in some cases - bonuses and incentive based payments. Collectively these conditions are referred to as protected award conditions.

The fairness test is directed at these conditions. If a workplace agreement modifies or excludes any of these conditions, the agreement must provide fair compensation. This does not mean that each workplace agreement must replicate these conditions, but rather that the compensation must be fair if the agreement excludes or modifies any of these conditions.

Who will carry out the test?

Workplace agreements must be filed with the Workplace Authority (previously known as the Office of the Employment Advocate). The Authority will carry out the test on each agreement filed on or after 7 May 2007.

What will the Workplace Authority take into account?

It is expected that primacy will be given to monetary compensation, but non-monetary compensation will also be taken into account. Non-monetary compensation is compensation that has a monetary equivalent or to which a money value can be assigned.

Car parking space, child care or shares in an employer's company are examples of non-monetary compensation. Non-monetary compensation must confer a benefit or advantage that is of significant value to the employee. This type of compensation must have some substance and cannot be trivial.

The Workplace Authority is also able to consider the personal circumstances of employees including their family responsibilities. In some exceptional circumstances, the Authority may also have regard to the employer's industry, location or economic circumstances and the employment circumstances of the affected employees.

What happens if an Agreement does not pass the fairness test?

A workplace agreement will cease to operate if it does not pass the fairness test. If the Workplace Authority considers that a workplace agreement does not pass the test, the Workplace Authority will advise the parties about how the agreement may be varied in order to pass the test. Employers will usually have 14 days in which to take steps to vary the agreement. In some cases, a written undertaking will be acceptable.

However, in the absence of a variation (or undertaking), the agreement will cease to operate as a workplace agreement under Federal law. There could be consequences for the employer if that occurs. For instance, if the employer has not paid the employee/s amounts owed under the underlying award with respect to any protected conditions, the employer will be liable to compensate the employee/s for those outstanding amounts.

What is the workplace relations fact sheet and how does it affect employers?

The Workplace Authority is in the process of preparing a standard fact sheet containing information about the Australian Fair Pay and Conditions Standard, protected award conditions, the fairness test and the role of the Workplace Authority and the Workplace Ombudsman.

Employers will be required to take reasonable steps to give the standard fact sheet to each new employee within seven days of the commencement of employment.

Employers must take reasonable steps to give the fact sheet to existing employees within three months. There are penalties for failure to comply with these requirements. The standard fact sheet should be available through the website of the Workplace Authority.

What are the redundancy protections on transmission of business and how have these changed?

In certain circumstances, redundancy provisions in terminated workplace agreements continue to apply to employees. Notably, if the employer unilaterally terminates an expired workplace agreement, any redundancy provisions continue to apply to the employees for a limited period. Prior to the amendments, the period was 12 months. This has now been increased to 24 months. Even if the employer's business is transmitted to a new employer, the amendments ensure that the preserved redundancy conditions continue to apply until the end of the 24 month period.

*Australian Business Lawyers specialises in employment law and related areas.


The Fairness Test - key points



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