IR Reform: Redefining and Redesigning

The Morrison Government proposed the Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Bill 2020  (Cth) (the ‘Bill’) in parliament this week.  The Bill comes after the Minister of Industrial Relations, Christian Porter, conducted a review into Australia’s industrial relations system, with discussions in working groups comprising business groups, unions, and the government.  These working groups conducted discussions between June and September on the following five areas:

1. Casual employment arrangements;
2. Enterprise Agreement making;
3. Compliance and Enforcement;
4. Award Simplification;
5. Greenfield Agreements.

The Bill proposes a number of significant changes to the current Fair Work Act. The Bill redefines what it means to be a casual employee; introduces a 21-day timeframe for the approval of enterprise agreements by the Fair Work Commission (FWC); and implements a provision for simplified additional hour agreements to be made between employers and part-time employees covered by select Modern Awards.

1.       Casual Employment arrangements

The Bill has taken into consideration the meaning of casual employment in terms of casual employees’ eligibility for leave entitlements and their ability to convert to permanent employment.

Casuals make up around 25% of the total workforce, but this representation is much higher in sectors such as hospitality and retail. Many employers rely on casual employees to flex their workforce to meet peak period demands. For many years, employers have relied on the traditional definition of a casual – ‘one engaged and paid as such’ and have paid casual employees accordingly.

However, these arrangements have been turned on their head by two landmark cases, causing much uncertainty for employers about potential backpay entitlements for those people engaged on casual basis  –  WorkPac Pty Ltd v Skene [2018] FCAFC 131 and the more recent, Workpac Pty Ltd v Rossato [2020] FCAFA 84. In the most recent judgement (Rossato), casuals who work regular and predictable hours were found to be owed permanent entitlements such as annual leave, sick leave and redundancy pay, and the employer was unable to use casual loading to offset these entitlements.  In other words, the decision meant that casuals are able to ‘double dip’ – receive the casual loading and claim leave entitlements such as paid annual leave and paid personal leave. Mr Porter, Minister of Industrial Relations, has estimated that if the ruling is applied economy-wide, businesses could owe an estimate of $39 billion in back payments.

The proposed Bill provides employers the mechanism to use the casual loading to offset retrospective leave liabilities that arise where a court considers the casual employee (former, current or new) does not meet the statutory definition of a casual employee and is deemed to be ‘other than casual’. This will provide great relief to employers potentially burdened with unforeseen liabilities when adjusting and responding to a global pandemic.

The Bill proposed to adopt the definition that a “casual has no firm advance commitment to ongoing work”. In offering additional protection, the Bill provides that the statutory definition of casual employees applies retrospectively meaning former and current casual employees who meet the definition at the commencement of their engagement cannot later claim paid leave entitlements. This applies even if the employee’s employment status changed due to post-contractual conduct.

Unions have objected to the Government’s intention of subverting the Rossato judgement with claims that employers and the Government are exaggerating the effects of the decision.

The Bill has also focused on strengthening casual employee’s rights to convert to permanent employment following 12 months of service. Under the proposed amendments an employer must offer eligible casual employees’ conversion, unless there are reasonable grounds not to do so. With existing casual employees in mind, the Bill provides that such employees may request conversion within six months of the legislation commencing provided they have been employed on a casual basis for at least 12 months. Casual employees who choose to remain casual will retain the right to request conversion once every 6 months.

2.       Enterprise Agreement Making

Over the last twelve months, the time taken for the FWC to approve enterprise agreements has decreased significantly, by around half. This has been attributed to simplification around the Notice of Employee Representation Rights (NERR), and the Form F17 Application for Approval Form.[1] However, one of the complex features of agreement making is the Better Off Overall Test (BOOT). The BOOT is fundamental to gaining approval of an enterprise agreement by the FWC. An approval of an enterprise agreement by the FWC often involves the employer providing an undertaking to the FWC to meet BOOT requirements, which has the effect of requiring an employer to conduct regular audits of agreement arrangements for compliance against the relevant Modern Award. In 2018-19, two thirds of agreements were approved with such undertakings.[2] A common view amongst employers is that the BOOT process is too complex and onerous, if particularly required to be applied to all employees. This had led for calls in some sectors for the Federal Government to re-institute the ‘no disadvantage test’ which was contained in the previous IR legislation, prior to the Fair Work Act, and is generally regarded as being simpler to comply with.

The Bill has reconsidered the BOOT and if passed by parliament, the BOOT will only apply to patterns or kinds of work currently engaged in or reasonably foreseeable. The BOOT will still require an assessment of overall benefits including non-monetary ones; however, the FWC will be able to approve agreements that do not pass the BOOT where it is not contrary to public interest and by taking into account the views and circumstances of parties in relation to:

• The impact of COVID-19 on the enterprise; and
• The extent of employee support for the agreement.

By drafting such amendments, the government has attempted to make the BOOT less structured than its current form. This will likely provide businesses with increased flexibility.

Additionally, a new agreement must contain a model term that explains the interaction between the NES and the agreement. The Bill also seeks to amend the current prescriptive process that the FWC takes, in relation to the requirement to ensure that an enterprise agreement was ‘genuinely agreed’ to by employees. This will be replaced with a broad requirement that demonstrates that the employer took reasonable steps to give employees a fair and reasonable opportunity to decide whether to approve the agreement or not.

A significant amendment that may affect long-standing businesses is the provision that legacy or ‘zombie’ agreements made prior to the commencement of Fair Work Act or during the ‘bridging period’ in July-December 2009, will automatically cease by 1 July 2022. Employers who are currently underpinned by a ‘zombie’ agreement should begin to consider if their businesses would benefit from a ‘modern-day’ enterprise agreement and if so, look to commencing the bargaining process.

3.       Compliance and Enforcement

Despite the impact of the pandemic, it is apparent that compliance and enforcement is becoming more prominent as an issue for employers. Many large employers have self – reported underpayment of wages to the Fair Work Ombudsman (FWO) in the last twelve months. Further, the FWO has seen a three – fold increase in both monies recovered for employees and compliance notices issued.[3]

The Bill seeks to make the process of pursuing an underpayment claim procedurally less cumbersome and costly. The Bill proposes to introduce a new criminal offence of ‘dishonestly’ where engaging in a systematic pattern of underpaying employees attracts a maximum penalty of $5.6 million for a comparison and $1.1million and/or 4 years’ imprisonment for an individual.

Further, the Bill seeks to increase the threshold for a small claim to $50,000 and provides that the FWC will have the ability to conciliate small claims matters and arbitrate them by consent. Currently, the threshold for small claims is $20,000 and applications are to be made to the Federal Circuit Court or Magistrates Court. Therefore, if the Bill is passed, the FWC will have an increased scope in dealing with matters of underpayment. By increasing the threshold, the government will expand the number of underpayments claims that can be processed as a small claims matter.

4.       Modern Awards

The Bill seeks to expand flexibilities for twelve designated Modern Awards by introducing ‘simplified additional hour agreements’ including, but not limited to:

•  the General Retail Industry Award 2020 ;
• the Hospitality Industry (General) Award 2020;
• the Restaurant Industry Award 2020; and
•  the Registered and Licensed Clubs Award 2010;

A simplified additional hour agreement provides that part-time employees who work a minimum of 16 hours per week may agree to work more hours at their ordinary rate of pay where the employee performing such additional hours is engaged for a minimum of 3 consecutive hours. Overtime will still be payable for hours worked outside of, or in excess of, ‘ordinary hours’ under the relevant award.

Additionally, the Bill seeks to introduce ‘flexible work duties directions’  and ‘flexible work location directions’   that  will permit employers to direct employees to perform different duties and/or to work at different locations provided such directions are reasonable, safe and necessary as part of a reasonable strategy to revive the business. Employers will be required to ensure employees on such a direction are paid the greater of their base rate of pay payable to the employee prior to the direction or the base rate of pay applicable to the duties the employee is performing.

5.       Greenfields Agreements

The Bill is recommending changing the maximum length of a Greenfields Agreement from 4 years to 8 year for major projects ($500M or $250M with Minister approval). Additionally, for Greenfields Agreements with a term of 8 years, there must be annual wage increases included in the Agreement.

Next Steps

As the Bill was introduced to parliament on 9 December 2020, Mapien will continue to provide updates as new information regarding the progress of the Bill is released.

In relation to the proposed reforms, Scott Morrison speaking at a Business Council of Australia event said:

“There won’t be sweeping praise from the union movement and businesses won’t see their version of an industrial utopia either.”

The Shadow Industrial Relations Minister, Tony Burke, has told The Australian Financial Review that as long as the proposed legislation was based on the discussions that have occurred with the relevant parties, that parliament’s debate would be ‘fairly calm’.

Any passage of legislation with the IR changes is not expected until around mid – 2021.

[1] President’s Statement: The Fair Work Commission’s Coronavirus (COVID – 19) Response, 7 August 2020 August 2

[2] Fair Work Commission Annual Report, 2018 – 19.

[3] Fair Work Ombudsman and Registered Organisations Commission Entity Annual Report 2018 – 19