WorkChoices - the dawn of a new era

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Andrew Gray
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Murray Kellock
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Murray Kellock

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Andrew Gray

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Robert Lilburne

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Robert Jackson

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Ian Johnson

WorkChoices - the dawn of a new era

The Workplace Relations Amendment (WorkChoices) Bill 2005 was passed by Parliament on Wednesday 7 December 2005. The amendments are now expected to commence operation in the first quarter of next year. WorkChoices dramatically reshapes employment and industrial relations in Australia by introducing sweeping changes to the Workplace Relations Act 1996. It has implications for all employers.

Key changes proposed by WorkChoices

A move towards a single national system of employment and industrial relations.
Significantly reduced powers for the Australian Industrial Relations Commission (AIRC), in particular, the removal of its existing wage setting function and compulsory dispute resolution powers.
Introduction of new Federal regulatory bodies.
Introduction of the Fair Pay and Conditions Standard as a minimum safety net standard.
Limitation of termination of employment laws.
Rationalisation and simplification of industrial awards.
Increased prominence given to workplace agreements (particularly individual workplace agreements).
More restrictive laws regulating industrial action.
Changes to transmission of business laws.
Changes to laws regulating industrial organisations (registration, freedom of association and right of entry provisions).

The key changes are explained in more detail below.

Structural changes

A single national system

WorkChoices proposes to create a single national industrial relations system. WorkChoices relies on the corporations power under the Constitution to cover all employees of “constitutional” corporations. WorkChoices also applies to all employers and employees in the Territories, the Commonwealth and its authorities, all employers and employees in Victoria and waterside, maritime and flight crew employers and employees.

WorkChoices abolishes State and Territory industrial laws. There are a few exceptions including those relating to long service leave, occupational health and safety, workers compensation and anti-discrimination laws.

WorkChoices also contains transitional arrangements to move employers and employees presently covered by State industrial relations systems into the Federal system. It does this by converting existing State industrial instruments and terms of employment into new preserved Federal instruments (State awards are only preserved for three years). We will discuss these transitional arrangements in more detail in a future publication.

Employers currently in the Federal system but who are not constitutional corporations will be covered by WorkChoices (and their existing Federal industrial instruments) for a transitional period of five years. At the end of this period, if these businesses are still then unincorporated, they will automatically revert to their State industrial relations systems.

What this means for employers

A new single national system will, for the vast majority of Australian employers and employees, replace the existing mix of State and Federal systems. Unincorporated employers currently in the Federal system will need to incorporate over the next five years to remain in the new Federal system. Employers currently covered by the State industrial systems will be forced into the Federal system under WorkChoices. Although existing State industrial arrangements are preserved (in the case of awards, only for three years), these employers will need to adapt to the new Federal system. Also, they will need to consider whether new workplace agreements should be implemented for their employees. As the preserved State terms are effectively frozen in time (and in the case of awards, cease to have any effect after three years), employers may be exposed to claims by unions seeking to achieve more favourable conditions under new Federal workplace agreements. The threatened High Court challenge to WorkChoices from the States and the union movement may also create a period of uncertainty for employers.

Reduction in the role of the AIRC

Existing powers and functions of the AIRC are severely curtailed. Under WorkChoices, the AIRC:

loses its wage setting responsibilities
no longer has responsibility for certifying collective bargaining agreements, and
is not permitted to make any new industrial awards and loses its compulsory dispute resolution procedures. The AIRC’s dispute resolution powers are limited to those conferred on it by agreement between employers and employees under workplace agreements.

What this means for employers

The AIRC has long played a role as an independent third party to resolve industrial disputes between parties. WorkChoices focuses on private (not compulsory) dispute resolution procedures and limits the rights of intervention of the AIRC. Employers and employees/unions wishing to retain the AIRC as a forum for dispute resolution will need to enter into agreements conferring this function on the AIRC. These agreements should clearly spell out the powers of the AIRC in respect of disputes (particularly its powers to compel attendance and make binding determinations) - similar to traditional private arbitration clauses. Employers covered by the existing State systems will no longer be able to use the State industrial tribunals and will need to make similar agreements to have disputes resolved in the AIRC instead.

Australian Fair Pay Commission

The Australian Fair Pay Commission is the new wage setting body. Its chief functions are to set and adjust:

a single minimum wage (known as the “Federal Minimum Wage”)
minimum award classification rates of pay (these will be known as Australian Pay and Classification Scales)
minimum wages for piece workers, juniors, trainees/apprentices and employees with disabilities, and
casual loadings.

The initial Federal Minimum Wage will be $12.75 per hour and will apply to all employees covered by WorkChoices. The initial default casual loading will be 20%.

The Fair Pay Commission will determine the timing, scope and frequency of wage reviews, the way in which wage reviews are to be conducted, and the date on which wage setting decisions are to come into effect.

Fair Pay and Conditions Standard

Five minimum conditions are enshrined in the WorkChoices legislation. These conditions are:

annual leave
personal/carer’s leave
compassionate leave
parental leave, and
maximum ordinary hours of work.

These conditions, together with wages set by the Fair Pay Commission, will make up the new Australian Fair Pay and Conditions Standard (“the Standard”).

Annual leave

Annual leave will remain at four weeks’ paid leave per year, with an additional week for shift workers. Leave loading is not included as a statutory entitlement. In addition:

employers can direct employees to take excessive leave accruals (if more than eight weeks untaken leave has accrued over a two year period)
employees are entitled to “cash out” up to two weeks accrued leave every 12 months, if their workplace agreement allows for this, and
accrual of annual leave excludes any “reasonable additional hours” worked (see below) and can be paid on the employee’s “basic periodic rate of pay” (which excludes incentives, bonuses, loadings, allowances and penalty rates).

Personal/carer’s leave

Personal/carer’s leave (which includes sick leave) will consist of 10 days of paid leave per year after 12 months’ service. It will be pro-rated for employees who have not completed 12 months’ service. This leave is cumulative.

If required, an employee must give the employer a medical certificate (or, if this is not practicable, a statutory declaration) for each period of sick leave taken.

Employees are entitled to a further two days of unpaid carer’s leave for each occasion in the event of an unexpected emergency.

Compassionate leave

The Standard provides for two days of paid compassionate leave for each occasion where an employee’s immediate family or household member contracts an illness or sustains an injury that poses a serious threat to life or dies.

Parental leave

Employees will be entitled to take up to 52 weeks of unpaid parental leave at the birth or adoption of a child. This entitlement will apply to all full and part-time employees with 12 months continuous service and to casual employees who have been employed on a regular and systematic basis for at least 12 months and who have a reasonable expectation of on-going employment.

Maximum ordinary hours

An employee must not be required to work more than 38 hours per week. However, there are two important qualifications to this rule, namely:

if agreed to by the employee, the hours can be averaged over rolling periods of up to 12 months. For example, if a workplace agreement provides that, on average, over a four week period, the employee’s hours will be 38 hours per week, the employee can be required to work more than 7.6 hours on a given day or more than 38 hours in a given week, provided the average, over that four week period, remains under 38 hours per week, and
an employer can require an employee to work “reasonable additional hours” in excess of the 38 hour weekly cap. Factors which may be taken into account when assessing the reasonableness of any request are broadly consistent with the recent AIRC “working hours test case” and are set out in the Standard.

Payment for hours worked in excess of 38 hours will be a matter for awards and agreements, subject only to the employee receiving the minimum hourly wage as set by the Fair Pay Commission for each hour they are required to work.

What this means for employers

Employers will need to review their existing terms and conditions of employment and ensure that these are at least as favourable as those guaranteed by the Standard.

All employees should benefit from new rules restricting work to no more than 38 hours per week plus “reasonable additional hours”. However, the averaging provisions in the ordinary hours Standard (if agreed to by an employee) will provide employers with flexibility as to when and how an employee’s hours may be worked. Employers will need to ensure that contracts of employment adequately deal with the employer’s ability to require reasonable additional hours in excess of 38 hours per week. In the case of employees earning annualised salaries, salary provisions in written contracts of employment will also need to be reviewed to ensure they adequately provide that the salary is compensation for all hours worked. Employers will then need to ensure the annualised salary is, in fact, sufficiently generous to cover payment for every hour worked at the minimum hourly rate.

Termination of employment

WorkChoices prevents an employee from bringing an unfair dismissal claim where:

their employer (and its related companies) employs 100 or less employees
they have not completed six months employment with the employer
the termination of their employment is for genuine operational reasons (ie reasons of an economic, technological, structural or similar nature) eg redundancy, or
they are engaged on a seasonal basis.

Existing unlawful termination laws will continue with some changes. Perhaps the most significant will be the cap on compensation: for award covered employees - a maximum amount equivalent to six months’ remuneration, for non-award covered employees - a maximum amount of $32,000 (indexed). Employees who earn less than $40,000 will be eligible to apply to the Government for a grant of up to $4,000 worth of legal advice on the merits of these claims.

What this means for employers

The ability to bring an unfair dismissal application against a small or medium sized employer (with, overall, less than 100 employees) will be eliminated. For large employers, only employees with more than six months service will be able to make a claim. Even those employees will be precluded from making a claim if their termination was for genuine operational reasons.

Employers who benefit from these new exemptions have greater flexibility in terminating employees without running the risk of timely and costly unfair dismissal claims. Issues such as substantive and procedural fairness (and the associated performance management processes) should not be an obstacle to terminating an employee. Apart from remedies for unlawful termination and unlawful discrimination, employees will have to rely on rights provided under their contract of employment.

Employers implementing redundancy programs will no longer be exposed to industrial tribunals scrutinising the fairness and objectiveness of the redundancy process and selection criteria used to determine employees for retrenchment.

A further implication of the national WorkChoices system is the abolition of State unfair contract jurisdictions such as that frequently utilised by employees in New South Wales to seek enhanced termination payments.

Workplace agreements

WorkChoices implements a wide range of very significant reforms in this area.

Types of agreements

Collective agreements (union and employee negotiated), Australian Workplace Agreements (AWAs) and multiple business agreements will remain, but with some important changes. A new form of greenfields agreement - an “employer greenfields agreement”, will become available. An employer greenfields agreement is an agreement an employer can make with itself without negotiating with any union or employees.

AWAs will prevail over collective agreements. AWAs and collective agreements will prevail over awards.

Making, approving and lodging agreements and notification requirements

The process for making agreements will dramatically alter. No longer will collective agreements be certified by the AIRC. No longer will AWAs need to be approved by the Employment Advocate. Procedures for negotiating collective workplace agreements and lodging AWAs are simplified and streamlined. The Employment Advocate is not required to consider whether there has been compliance with those procedural requirements or review the content of the AWA.

What this means for employers

The procedures for making and approving AWAs under the current Act have been a disincentive to entering into individual workplace agreements. The simplification of procedures for approving workplace agreements (particularly AWAs) will facilitate employers entering into workplace agreements with their employees.

Employers can be exposed to penalties for failing to comply with the new procedural requirements.

Mandatory content

Collective agreements and AWAs will no longer need to satisfy the no-disadvantage test. Instead, all new workplace agreements need only comply with the Standard.

Agreements must include a nominal expiry date (up to five years, or one year in the case of an employer greenfields agreement) and a dispute settling procedure.

Protected content

Award conditions dealing with rest breaks, incentive-based payments and bonuses, annual leave loading, public holidays, allowances, shift/overtime loadings, penalty rates and outworker conditions will be “protected” and will be taken to be included in a workplace agreement. However, these protected award conditions can be modified or removed altogether by the terms of the agreement. If these conditions are not mentioned in a workplace agreement, the award conditions will continue to apply.

Prohibited content

Certain content will be prohibited from being included in workplace agreements. This content is to be set out in regulations which are yet to be published.

However, it is expected that the list will include clauses which: do not pertain to the employment relationship; breach freedom of association laws; restrict the offering of AWAs; restrict the use of contractors and labour hire; allow for industrial action during the term of an agreement; provide for trade union training leave, bargaining fees or paid union meetings; provide that any future agreement must be a union collective agreement; mandate union involvement in dispute resolution or provide a remedy for unfair dismissal.

Penalties can be imposed for seeking to include prohibited content in an agreement or for lodging an agreement containing prohibited content.

Prohibited content is void, but does not otherwise affect the validity of an agreement.

The Employment Advocate is empowered to remove prohibited content from workplace agreements.

What this means for employers

Collective Agreements and AWAs under WorkChoices no longer need to pass a no-disadvantage test against the terms of underlying industrial awards. Workplace agreements only need to comply with the Standard which provides employers with opportunities to depart from existing prescriptive award provisions.

Termination

A workplace agreement can be terminated either by agreement or unilaterally.

Unilateral termination can take place after the nominal expiry date has passed either as set out in the agreement or by any party simply giving 90 days written notice.

If an agreement is terminated in this way and is not replaced by another agreement, the minimum terms of employment will be only those in the Standard plus any protected award conditions.

What this means for employers

The ease by which a WorkChoices workplace agreement can be terminated (ie on notice by either party) is a significant change. An employer can terminate a workplace agreement and if it is not replaced, the minimum conditions of employment for its employees will be governed only by the Standard and any protected award conditions and not by the more comprehensive terms of any previously applicable agreement or award.

Pre-WorkChoices workplace agreements

Certified agreements in place at the commencement of WorkChoices will continue to operate beyond their nominal expiry date until terminated or replaced. These agreements can only be terminated using the current pre-WorkChoices termination provisions - not the new 90 day notice procedure.

An existing agreement will not be able to be varied or extended after the commencement of WorkChoices.

An existing agreement will not be required to comply with the Standard for the period of its operation. It will also not be subject to the new prohibited content rules (except the anti-AWA provisions).

Existing AWAs will continue on a similar basis to pre-reform certified agreements.

Certified agreements for non-constitutional corporations will cease to apply after a five year transitional period.

Workplace agreements: summary of implications for employers

The relative ease with which new workplace agreements can be made and terminated, the abolition of the no-disadvantage test and the new rules governing the content of agreements, when coupled with the simplification and rationalisation of awards and restrictions on taking industrial action (see below), constitute major reforms which will generate, for the benefit of employers, the potential for workplace flexibility and change through the implementation of workplace agreements. Employers who do not take benefit of the opportunities provided by WorkChoices may be subject to a competitive disadvantage in labour costs.

Awards

Under WorkChoices awards will be “simplified” and “rationalised”. Simplification will involve reducing the content of awards to the new allowable matters. Rationalisation will involve reducing duplication and complexity of current awards. This process will be initiated by an Award Review Taskforce which will report to the responsible Minister who will then direct the AIRC to implement the rationalisation. It is expected that the number of awards following rationalisation will be significantly reduced and will comprise national industry wide awards.

Existing awards will be incapable of being varied (except in limited circumstances) and will, therefore, be frozen. These awards will be deemed to include the new model dispute resolution procedure. No new awards will be made.

Allowable matters

WorkChoices reduces the list of allowable award matters. The matters that may be included in awards are: ordinary time hours of work, incentive-based payments and bonuses, annual leave loadings, ceremonial leave, public holidays, allowances, loadings for working overtime or shift work, penalty rates, redundancy pay for employers with 15 or more employees, stand-down provisions, the model dispute settling procedure, type of employment (full time, part-time, casual and shift), conditions for outworkers, limited facilitative provisions allowing agreements between individual employers and employees, incidental and machinery terms, a model anti-discrimination clause, provisions for boards of reference, provisions for substituting alternative days for public holidays and provisions allowing for time off during a notice period to find alternative employment.

Pay rates and classifications will be removed from awards and replaced by the Australian Pay and Classification Scales.

Once WorkChoices commences, matters contained in awards which are either non-allowable or not preserved entitlements (see below) will be unenforceable.

Preserved entitlements

WorkChoices preserves certain award conditions where these are more generous than the Standard. The preserved conditions are current award provisions dealing with: annual leave, personal/carer’s leave, parental leave, long service leave, notice of termination, jury service, and superannuation (to 30 June 2008). These preserved conditions are deemed to be included in any rationalised award.

What this means for employers

The matters which may be contained in awards will be immediately reduced to 18 allowable matters. Significantly, existing award pay rates and classification structures which are often heavily relied on by employers will be simplified and moved into the Australian Pay and Classification Scales and guaranteed under the Standard. Existing award classifications are often quite prescriptive and rigid so this simplification process should benefit employers bound by awards. The rationalisation of the vast number of industrial awards that currently apply throughout Australia will also benefit employers.

Awards cannot be varied (other than in the rationalisation process) and will, therefore, be “frozen” as at the commencement of WorkChoices. No new awards will be made. Over time, awards will become obsolete. As a result, employees will be forced to enter into workplace agreements to bring about a change in terms and conditions of employment. This, in conjunction with the ease with which new workplace agreements may be made and the fact that once such agreements have been made the employee will effectively be removed from the award system, should provide employers with a substantial opportunity to bring about significant workplace change and flexibility.

Industrial action

The most significant changes are:

new powers for the AIRC to suspend and terminate bargaining periods
the Minister is empowered to terminate a bargaining period and issue directions where industrial action is threatening personal safety or has the potential to cause significant damage to the Australian economy or an important part of it
if a bargaining period has been terminated because the industrial action is threatening personal safety or is likely to cause significant economic damage, the AIRC is empowered to make a “workplace determination” to settle the dispute
new powers for the AIRC to restrict the initiation of new bargaining periods
a secret ballot will be required before protected industrial action can be taken and an application for a ballot must be made to the AIRC. The AIRC must refuse the application if the applicant has not genuinely tried to reach agreement or is engaging in pattern bargaining. If a union applies for a ballot, only members of the union who will be subject to the proposed collective agreement will be eligible to vote. To approve the action, 50% of eligible voters must vote and 50% of the votes cast must approve the action
if a union obtains a ballot, protected action can only be taken by members of that union, and
WorkChoices also makes it clear that industrial action cannot be taken before the nominal expiry date of a collective agreement, whether or not such action is to be taken in respect of matters covered by the agreement.

The AIRC will continue to supervise protected industrial action. The AIRC must hear and determine an application for an order to stop industrial action within 48 hours, failing which it must make an interim order to stop that action.

What this means for employers

These reforms are likely to significantly reduce the occurrence of protected industrial action and enhance an employer’s ability to obtain relief against unprotected industrial action. They should also reduce the ability of unions to apply industrial pressure to support claims in negotiations for collective agreements.

Transmission of business laws

If no employee accepts employment with the new employer within two months of the transfer of the business, no industrial instrument will transfer to the new employer.
Transmitted industrial instruments have a maximum period of application of 12 months. After that period, the employees will be covered by the new employer’s existing collective agreement or award or, if there is no such instrument, the Standard.
Within 28 days after the transferring employee starts with the new employer, the new employer must take reasonable steps to give that employee written notice identifying the transmitted instrument and a variety of other prescribed matters. This notice must be lodged with the Office of the Employment Advocate.
Transmitted industrial instruments only apply to the transferred employees of the new business - these instruments will not “infect” other parts of the new employer’s business.

Organisations

WorkChoices restricts the rights of union officers to enter the workplace.

WorkChoices increases the protection offered by the current freedom of association provisions under the Workplace Relations Act including to independent contractors and their employees. A potentially significant change is the removal of the reverse onus of proof in applications for interim injunctions with respect to alleged violations of the freedom of association laws.

Concluding comments

WorkChoices will dramatically alter the industrial relations landscape, chiefly for the benefit of employers, both small and large. However, whether these changes become a reality may, to some extent, depend on some industrial politics and, possibly, a High Court ruling.

The impact of these changes will be most likely seen in the gradual replacement of State industrial relations systems, the significant curtailing of unfair dismissal claims, changes to the way minimum wage rates are set (with the likelihood these increases will be less generous than in the past), the increasing irrelevance of awards, the abolition of the no-disadvantage test with respect to AWAs and certified agreements (opening up those agreements to the potential for greater flexibility), the ability of employers to unilaterally terminate certified agreements after the passing of their nominal expiry dates and restrictions on the taking of industrial action.

This publication is only a general outline. It is not legal advice. You should seek professional advice before taking any action based on its contents.