Flexibility provisions in Fair Work Act: how will compliance provisions work?

Analysis

Flexibility provisions in Fair Work Act: how will compliance provisions work?

Some parties have expressed concern that lack of scrutiny of the Fair Work Act’s 'individual flexibility arrangements' may lead to problems including the existence of unfair arrangements.

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Some parties have expressed concern that lack of scrutiny of the Fair Work Act’s ‘individual flexibility arrangements’ may lead to problems including the existence of unfair arrangements.
 
This second article in a series looks at the requirements employers have to meet to comply with the law, and the sources of redress available to employees. (See the first article in this series on flexible work arrangements.)
 
As explained in a previous article, there are three ways that individual work flexibility arrangements can be made:
  • using the flexibility clause in a modern award
  • using the flexibility clause in a collective agreement
  • an employee applies for a flexible working arrangement under the National Employment Standards (NES).
 
All awards and agreements covered
 
In practice, there will always be a flexibility clause in the award or agreement because, if it doesn’t contain one initially, the model flexibility clause will automatically be inserted into it. Schedule 2.2 of the Fair Work Regulations contains the Model Flexibility Term.
 
Clauses don’t have to be registered or lodged
 
A point of concern for some parties is that if a flexibility agreement is made with an individual employee, there is no formal third party scrutiny of its contents required.
 
Fair Work Australia is  required to check only that the award or agreement actually has a compliant flexibility clause, or to insert the model one if it doesn’t. It is NOT required to check, or even keep a record of, any actual agreement made between an employer and individual employee. Thus, the clause ALLOWING FOR flexibility is checked, but the clause IMPLEMENTING it is not.
 
There are some basic in-house compliance requirements:
  • The arrangement must be in writing and signed by both parties (and also by a parent or guardian if the employee is aged under 18), with the employee to receive a copy.
  • Both employee and employer must have genuinely consented to it. 
  • It must clearly identify the provisions of the award or agreement that it modifies.
  • The employee must be better off than if the standard award or agreement provisions applied — see further discussion below.
  • It must specify how either party can terminate the arrangement.
 
In the case of employee requests for flexible working arrangements under the NES:
  • The employee must lodge a formal written request to the employer that sets out the reasons for wanting a change to working arrangements.
  • The employer must reply in writing within 21 days advising either acceptance or rejection of the request. If rejecting it, the employer must set out its reasons, which must be ‘reasonable business grounds’. 
  • Again, each party must have a written copy of the new arrangement.
  • However, there is no requirement to lodge any record of the arrangement with FWA or anyone else.
 
No definition of ‘reasonable business grounds’
 
The Act does not define ‘reasonable business grounds’, so any dispute would appear to come down to an evaluation of the individual circumstances of each case, and there may need to be some ‘test cases’ before Fair Work Australia before the situation becomes any clearer. This is unless FWA issues any guidelines meanwhile.
 
In the meantime, it can reasonably be assumed that an employer would have to demonstrate that the business would be adversely affected in at least one of the following ways:
  • damage to its financial position (eg significant extra costs incurred)
  • adverse impact on customer service level (eg due to not having staff available at peak times)
  • adverse impact on occupational health and safety (eg employee security)
  • not feasible on technical grounds to have an employee not physically present at the workplace (eg working from home instead).
 
Example of issues to consider
 
The Explanatory Memorandum to the Fair Work Bill provided the following example of how an enterprise agreement could be varied to provide individual flexibility, and what issues the employer would need to take into account:
‘Josh works as a membership consultant at a gymnasium. Under the enterprise agreement applying to his employment, the ordinary hours of work are 37.5 hours each week to be performed in a span between 8 am and 6 pm each day. Hours worked outside this span attract penalty rates. Josh's employer usually requires membership consultants to work from 9 am to 5.30 pm.
 
In his spare time, Josh coaches an under-12s footy team. To do this, he needs to be able to leave work at 4 pm on Tuesdays and Thursdays each week.
 
He wants to start work at 7.30 am on these days, but usually this would attract a penalty under the terms of the agreement. The agreement allows the employer and an employee to make an individual flexibility arrangement that varies the terms of the agreement dealing with hours of work and penalty rates.
 
Josh approaches his employer and asks whether the employer will make an individual flexibility arrangement with him under which the employer agrees that Josh can work from 7.30 am to 4 pm on Tuesdays and Thursdays.
 
Josh agrees that he will not be paid a penalty on these days, even though he starts work at 7.30 am.
 
Josh is genuinely happy to agree to this arrangement because it enables him to balance his work and personal commitments. The employer agrees to this arrangement.
 
The employer must ensure that Josh is better off overall under the individual flexibility arrangement than under the agreement. Often this will require the employer to make a comparison of the relevant financial benefits that the employee would receive under the agreement, and the agreement as varied by the individual flexibility arrangement.
 
In Josh's case, however, he has agreed under the individual flexibility arrangement to give up a financial benefit (penalty rates) in return for a non-financial benefit (leaving work early). It is intended that, in appropriate circumstances, such an arrangement would pass the better off overall test.
 
Because the better off overall test is being applied here to an individual arrangement, it is possible to take into account an employee's personal circumstances in assessing whether the employee is better off overall.
 
Relevant factors in Josh's case that suggest the individual flexibility arrangement is likely to pass the better off overall test are:
  • Josh initiated the request for the individual flexibility arrangement, suggesting that he places significant value on being able to leave work early to coach the footy team.
  • Josh genuinely agreed to the arrangement.
  • The period of time falling outside the span of hours is relatively insignificant. It is only one hour out of the 37.5 hour ordinary week that Josh works.’
The Explanatory Memo adds:
‘Because the value that a particular employee may place on a non-monetary benefit is important, it is less likely that an employee would be better off overall where the employer has initiated a request to agree an individual flexibility arrangement under which the employee gives up a monetary benefit in exchange for a non-monetary benefit. Similarly, it is less likely that an individual flexibility arrangement would result in an employee being better off overall where the monetary benefit given up by the employee had a substantial value, or if the value of the monetary benefit was, in the view of a reasonable person, disproportionate to the non-monetary benefit for which it was exchanged.’
While the above example and comments may provide some insight into evaluating whether an employee is better off overall, the fact remains that, at the time of making an individual flexibility arrangement, there is no formal third party scrutiny or confirmation of whether this is actually the case.
 
The ‘sunlight test’
 
In a previous WorkplaceInfo article, leading workplace flexibility and management consultant Juliet Bourke suggested that a good way for employers to evaluate their responses to employees’ requests for flexibility arrangements is to apply a ‘sunlight test’ — that is, will the reasons for the response stand up to public scrutiny?
 
What action can an employee take?
 
An employee whose request for individual flexibility is rejected could consider taking one of the following actions:
  • A discrimination claim, using equal opportunity/anti-discrimination legislation. The employee would have to prove that a ground of discrimination covered by the legislation (eg sex, marital status, age, parental status, family responsibilities) was at least one of the reasons why the employer rejected the request.
  • Action under the ‘adverse action’ or ‘workplace rights’ provisions of the Fair Work Act could be a possible option. As these are new provisions, however, little guidance is currently available as to how these provisions will work in practice. However, coercing an employee to accept a ‘flexibility arrangement’ that only suited the employer, or victimising an employee who refused to agree to such an arrangement are examples within the scope of these provisions.
  • Although Fair Work Australia cannot deal with disputes over an employer’s refusal of a flexible work request (there is a specific provision of the Act that prevents it), if both parties agree, a dispute can be referred to an independent third party for consideration and arbitration.
  • An employee could ask his/her union to pursue the matter with the employer. Alternatively, the employee could use the employer’s in-house grievance resolution channels.
 
In each case, the employer would need to provide evidence that there were legitimate business-related reasons why it could not allow the request. This means that ANY request from an employee should be seriously considered and evaluated in a fair and objective way — with the evidence documented.
 
What sanctions may apply to an employer?
 
Although individual flexibility arrangements may not need to be registered or lodged with FWA, the employer is still required to keep records of any arrangement. Failure to do so will be a breach of the Act’s usual employment record-keeping requirements.
 
Fair Work Inspectors may inspect the employer’s records, and action against the employer may be taken if any breaches are found. The usual inspection provisions apply to flexible work arrangements.
 
An employer also has to comply with the Act’s requirements in relation to bargaining representatives, complying with awards and agreements and complying with the NES. The usual penalties for non-compliance will apply.
 
Summary
 
While the compliance requirements for individual flexibility arrangements may not appear very stringent, there are still some requirements to meet and detailed records should be kept. The latter is both good practice (eg if the fairness or legality of an arrangement is later challenged) and the law.
 
For example, the employer may need to prove that the arrangement meets the better off overall test, so needs to keep documentation that supports its position. Note: because the arrangement is not subject to third party (eg FWA) approval when implemented, whether it actually passes the test or not, will not truly be known until some time later, if it is questioned.
 
Employers who attempt to misuse the arrangements can still be caught out and have action taken against them, which can have implications for both costs and business reputation.
 
Source: Mike Toten, HR writer.
 
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