Summary of Fair Work Bill – 2008

The Federal Government has today introduced in Parliament its long-awaited substantive legislation to implement its election commitments made in Forward with Fairness. As expected, the Fair Work Bill 2008¹ is an entirely new Bill and, at 575 pages, it is substantially shorter than the current Workplace Relations Act 1996 (Cth). The Bill was published with an extensive Explanatory Memorandum² and the government has already issued fact sheets³ on a number of key areas.

Fair Work Australia and ancillary bodies

Creating one body to carry out arbitral, judicial and enforcement functions—as flagged by Labor’s policy—was always likely to present some constitutional difficulties. Unsurprisingly, therefore, the Bill maintains a distinction between the new bodies, Fair Work Australia (FWA), the Fair Work Ombudsman and the courts. The Explanatory Memorandum indicates, however, that FWA will act as a ‘one stop shop’, so, for example, employees will be able to file applications in one place regardless of whether they will be heard by FWA or a court.

The Bill establishes FWA to replace the Australian Industrial Relations Commission (AIRC) and its Registry, the Australian Fair Pay Commission and its Secretariat and the Workplace Authority. The government has already indicated that all existing AIRC members will be appointed to FWA.

In many ways, FWA looks similar to its predecessors, although its processes are intended to be more user-friendly and less formal with fewer hearings and more matters determined quickly ‘on the papers’. The Bill gives FWA much greater discretion both as to how it conducts itself and how its powers are exercised than is currently enjoyed by the AIRC. FWA will have a much more important role than is currently the case—particularly in setting and adjusting minimum wages, facilitating bargaining for enterprise agreements, the expanded unfair dismissal jurisdiction and dispute resolution under modern awards and enterprise agreements.

The Bill will also establish the Office of the Fair Work Ombudsman, which is tasked with promoting harmonious and cooperate workplace relations through education and compliance. It will take over the functions currently performed by the Workplace Ombudsman.

As under the current legislation, the Federal Court and Federal Magistrates Court have jurisdiction in most matters arising under the legislation—some matters can also be brought in state or territory courts. The Explanatory Memorandum flags that the Transitional and Consequential Bill will establish new Fair Work Divisions in the Federal Court and Federal Magistrates Court.

The safety net – the National Employment Standards and modern awards

Many employers will be familiar with the proposed new safety net under the Bill, made up of the NES and modern awards. The award modernisation process remains on foot, with the first finalised modern awards due to be published by Christmas.

The government has made clear that the new safety net will not operate until 1 January 2010.

The Bill provides that FWA must make a national minimum wage order which will cover those employees who are award-free (those currently covered by the federal minimum wage).  The order will also have to set special national minimum wages (for example for non-award covered junior employees) and a casual loading.

A Minimum Wage Panel of FWA will be required to adjust the national minimum wage and award wages annually, with adjustments generally taking effect from the first pay period after 1 July each year.

The Bill also enables an employer and a high income employee to agree to a guarantee of annual earnings, the effect of which is that an award will no longer apply to the employee. High income employees are employees earning over $100,000 (indexed from 27 August 2007). Giving such a guarantee may be attractive to employers who have award covered employees earning a high income who do not want to engage in collective bargaining to gain flexibility not provided for in the award itself.

The Bill also contains provisions relating to payment of wages and deductions from wages. Broadly, these provide that employees must be paid at least monthly and that deductions can only be made where authorised by an employee (and where principally for the employee’s benefit) or by a contract of employment, modern award or enterprise agreement. Deductions for the benefit of an employer will be unlawful unless they are reasonable.

Dispute settlement

The Bill gives FWA a significant role in resolving disputes. FWA will have a much more prominent role in dispute settlement during bargaining (see further under ‘FWA’s role in bargaining’) as well as in settling disputes under modern awards and enterprise agreements and in areas such as stand down, right of entry and unlawful termination.

FWA will only have power to make binding decisions in relation to disputes arising under modern awards and enterprise agreements where the parties agree to it. Otherwise, FWA’s powers will be limited to its general powers such as conciliation, mediation, recommendations and compulsory conferences. Even where FWA does have power to make binding decisions, there are some limits—for constitutional reasons—on the types of decisions it can make. For example, it could not make a decision that modified the operation of the NES in a particular workplace.

Enterprise agreements

The Bill provides for the making of enterprise agreements between an employer and employees (other than greenfields agreements which are made between an employer and an employee organisation).

Agreements can be either single-enterprise agreements (SEAs) or multi-enterprise agreement (MEAs). Either type of agreement can also be made as a greenfields agreement: it must relate to a genuine new enterprise (which includes a genuine new business, activity, project or undertaking).

Other than greenfields agreements, unions are not parties to agreements. However, a union that is a bargaining representative for a proposed agreement can apply to FWA to be ‘covered’ by the agreement. A union is automatically a bargaining representative for an agreement if it has a member in the workplace whose industrial interests it is entitled to represent, and the member does not appoint another person. A union need not be involved in bargaining in order to be covered by the agreement. Provided a union is a bargaining representative and notifies FWA, FWA must order that the union is covered.

In effect, this means that true non-union agreements are only possible:

• in workplaces where there are no union members, or
• where the union chooses not to be covered by the agreement.

Another effect of this change is that employers will no longer be able to bargain with one union in preference to another, including for greenfields agreements. So long as a union has a member in the workplace (or is entitled to represent employees’ interests for greenfields agreements), the union can apply to be covered by the agreement. Further, any attempt to bargain with only one union may well mean that an employer is not bargaining in good faith, and so could be subject to bargaining orders (see ‘FWA’s role in bargaining’ below). One issue to watch as a result of these changes is the potential for inter-union demarcation disputes.

As is currently the case, related companies, joint ventures and employers in a common enterprise can bargain together as ‘single interest employers’ to make an SEA. In addition, certain other employers, including franchisees, can apply to FWA for authorisation to bargain together for an SEA.

For the first time, bargaining for an MEA will be available without any public interest test. Protected industrial action in support of multi-enterprise bargaining will, however, still not be possible, nor will FWA be able to make bargaining orders, scope orders or majority support determinations (see under ‘FWA’s role in bargaining’).

The Bill introduces a new special bargaining stream for MEAs for low-paid employees. This stream can only be accessed through authorisation from FWA. The Bill does not define who ‘low-paid’ employees are but gives FWA various criteria to consider when deciding whether to issue an authorisation. The key features of this stream are that:

• FWA can play a ‘hands on’ role during bargaining, as it is able to exercise powers (other than arbitration) on its own initiative, and
• in certain circumstances where bargaining breaks down, the bargaining parties can jointly, or sometimes singly, apply for an arbitrated workplace determination.

The pre-approval and approval processes will be fairly familiar to employers. An employer must give ready access to the agreement for at least seven days and explain its terms and effect to employees. The agreement must be approved by a valid majority of employees. Importantly, a vote cannot occur until at least 21 days after employees have been given their ‘notice of employee representational rights’. The requirement to give the notice, together with the obligation to bargain in good faith, is likely to restrict an employer’s ability to put an agreement to employees on a ‘take it or leave it’ basis.

Once approved by employees, FWA must approve an enterprise agreement before it can operate. This includes a requirement that the agreement must pass a ‘better off overall' test against the relevant award in relation to each employee that it covers.

Other important points about enterprise agreements include:

• Agreements can include a wider range of content than under the current legislation—in particular they can contain matters about the relationship between the employer and a union covered by the agreement. This might include terms granting unions right of entry (in areas other than those set out in the right of entry provisions in the Bill), requiring employers to promote union membership and terms about paid time off for union activities.
• Certain terms cannot be included in agreements, including terms cutting back the unfair dismissal ‘minimum employment period’ (the former qualifying period) and terms which limit right of entry as set out in the Bill.
• Agreements must contain a flexibility term that allows for the making of ‘individual flexibility arrangements’ between an employer and an individual employee—the scope of these clauses will be a matter for bargaining which may limit the degree of flexibility permitted.
• Agreements must contain a term dealing with consultation about major workplace change and a term allowing for the settlement of disputes about matters arising under the agreement and the NES (which must allow for the resolution of disputes by an independent party)—both types of terms must also allow for employee representation.
• Award wage rates will override rates in enterprise agreements where the enterprise agreement rate falls below the award rate during the life of the agreement.

FWA’s role in bargaining

FWA will have a much greater role in bargaining for enterprise agreements than currently the case, particularly through its role in ensuring that parties bargain in good faith and its role in facilitating bargaining.

Good faith bargaining

The Bill sets out the five good faith bargaining requirements that all bargaining representatives must follow:

• attending and participating in meetings at reasonable times
• disclosing relevant information (other than confidential or commercially sensitive information) in a timely manner
• responding to proposals made by other bargaining representatives in a timely manner
• giving genuine consideration to the proposals of other bargaining representatives and reasons for any responses, and
• refraining from capricious or unfair conduct that undermines freedom of association or collective bargaining.

FWA has power to make bargaining orders enforcing these requirements and has a broad discretion as to the precise types of orders it can make. For example, the Explanatory Memorandum states that this might include restraining a termination of employment or an order for reinstatement (with compensation) where an employee was dismissed in breach of the good faith bargaining requirements. On the other hand, the Bill clearly states that employers cannot be required to make concessions or reach an agreement. There is therefore no obligation to conclude an agreement.

In practical terms, the introduction of good faith bargaining is likely to result in significant changes to the way in which many employers bargain. Most obviously it will affect employers who have traditionally used AWAs or ITEAs, or those who have bargained directly with their employees for a collective agreement. But even employers who regularly bargain for union collective agreements are likely to have to adjust the way in which they bargain to meet the new requirements and still obtain the best commercial outcome. On the other hand, good faith bargaining is a two way street and unions which do not bargain genuinely may compromise their rights and members’ interests.

Breach of a bargaining order attracts a penalty. Further, where a bargaining representative has continually flouted bargaining orders, another bargaining representative can apply to FWA for a serious breach declaration which, if made, leads to an arbitrated workplace determination.

Majority support determinations

Where an employer has not started bargaining or refuses to bargain, employees can apply to FWA for a majority support determination. The determination, which FWA must grant if it is satisfied that a majority of employees want to bargain collectively, does not itself have any effect. But if an employer refuses to bargain with employees who have obtained a declaration, FWA may issue good faith bargaining orders against the employer.

Scope orders

Where a bargaining representative has concerns about the scope of a proposed enterprise agreement, it can apply to FWA for a scope order setting out which employees the proposed agreement should cover. These orders may well be used in workplaces where there has historically been disagreement about which employees are covered (for example, whether supervisory employees should be covered by the collective agreement) or where there has been disagreement about the geographic scope of agreements (such as whether they should be site-by-site or national). No penalty attaches to a breach of a scope order, but it may be relevant if FWA is asked to make bargaining orders. Further, if a subsequent agreement is made that covers a group of employees different from that in the scope order, FWA can only approve the agreement if it is satisfied approval would not be inconsistent with or undermine good faith bargaining. This is a potentially very significant change to the past arrangements.

FWA’s general facilitative role

FWA will also have a general role facilitating bargaining through dealing with bargaining disputes. FWA can provide assistance on the application of a bargaining representative (if the agreement is an MEA, other than for the low-paid, the application must be by all bargaining representatives).

FWA’s assistance is limited to conciliation or mediation (or similar techniques) unless the parties jointly agree that it may arbitrate. However, FWA’s powers would include calling compulsory conferences. The extent to and manner in which FWA involves itself in bargaining will be significant in determining the shape and success of the new bargaining system.

Access to protected industrial action and responding to unprotected industrial action

Many of the provisions governing industrial action under the Bill remain the same as at present—Labor’s election commitment was to retain ‘clear, tough rules’.  The provisions have, however, been simplified and streamlined. For example, there is no longer the concept of a ‘bargaining period’. However, protected industrial action can only occur after the nominal life of an enterprise agreement.

The definition of industrial action remains the same for employees and employers, although the reverse burden of proof that applied to the health and safety exception for action taken by employees has been removed. The provisions governing protected industrial action are also broadly the same. The main differences are that:

• employers can now only take protected industrial action, in the form of a lockout, in response to action by employees, and
• employees can take industrial action in support of claims for enterprise agreement terms that would not be ‘permitted matters’ if they reasonably believed that the term was permitted—given the expanded content rule for agreements, this may not have too great an impact.

To be protected, industrial action must still be authorised by a secret ballot and three working days’ notice of the action must be given.  Protected action ballots will be conducted by the Australian Electoral Commission (AEC), unless FWA is satisfied that another ballot agent is capable of conducting the ballot. Other key points about protected action ballots are:

• an application can be made from 30 days before the nominal expiry date of the existing agreement (at present it can only occur after the NED has passed)
• the provisions allow for easier access to ballots by non-union members
• where conducted by the AEC, a ballot will be fully funded by the government
• a ballot order can still only be made where the applicant is genuinely trying to reach agreement
• where a ballot authorises, for example, 12 hour stoppages and employees take three such stoppages in a row, only the first would be authorised (reversing some recent AIRC decisions), and
• if a ballot order is appealed, FWA cannot grant a stay of the original decision.

Many of the circumstances in which protected industrial action might be suspended or terminated remain the same. In addition, there is a new ground on which protected action may be suspended or terminated: where protracted industrial action is causing significant economic harm. It will be interesting to see how high a threshold FWA adopts here, especially as industrial action is, of its essence, designed to inflict economic harm. Where protected industrial action is terminated, FWA may arbitrate a workplace determination.

The provisions governing unprotected industrial action are also largely the same. It remains unlawful to take industrial action during the nominal life of an enterprise agreement. Where unprotected action is taking place, an employer will have a choice whether to apply to FWA for a ‘stop order’ or to a court for an injunction.

Stop orders work in the same way as current section 496 orders—FWA will have to make an interim order if it cannot determine the application within two days.

The old section 166A certificate has not been reintroduced. An employer can therefore still go to court immediately to obtain an injunction (and damages) as an alternative to a stop order from FWA.

Strike pay and stand down

It will remain unlawful for an employer to pay ‘strike pay’ or for an employee or union to demand it.  Where industrial action is unprotected, the four hour rule will still apply, meaning a minimum deduction of four hours’ pay, regardless of the duration of the action. Where industrial action is protected, the deduction must be commensurate with the period of the action. Special rules apply to overtime and partial work bans. Broadly, an employer will have three choices with partial work bans:

• accept part performance and pay in full
• issue a part performance notice and reduce an employee’s pay by a reasonable amount to reflect the part performance, or
• not accept part performance, issue a notice to this effect and withhold all payment.

The Bill contains provisions relating to stand down that apply in broadly the same way as those in the current legislation.

Right of entry

Unions will continue to have the right to enter premises to hold discussions with employees or to investigate a suspected contravention of the Bill or a workplace instrument. The government committed to no change in this area. While many aspects of the current regime remain, including the requirement to give 24 hours’ notice of intended entry and to conduct, the circumstances in which right of entry is permitted will be significantly broader.

For example, right of entry for discussion purposes is now permitted where work is carried out on premises in relation to which the union is entitled to represent employees, and the employees wish to participate in discussions with the union. Unions will therefore gain the right to enter premises which are currently award-free. Unions will also, controversially, have the right to inspect non-member records (where they relate to a suspected contravention).

Terms dealing with right of entry will be permitted in enterprise agreements, but only to the extent they relate to purposes not dealt with in the Bill (for example, to assist with dispute resolution). In other words, the Bill creates a code relating to right of entry for the purposes of investigating breaches, discussions and (together with state/territory legislation) occupational health and safety reasons.

FWA will retain its power to deal with disputes about right of entry, such as whether a particular room is reasonable.

General protections – freedom of association

The Bill contains new provisions, dubbed ‘general protections’, that consolidate and streamline existing provisions dealing with freedom of association, unlawful termination, sham arrangements in relation to independent contractors and certain other provisions (such as coercion during bargaining).

The provisions are intended to replicate all of the existing protections in this area. The Explanatory Memorandum notes that, in some cases, providing rationalised more general protections has expanded a provision’s scope. Careful analysis will be required to see what additional types of behaviour might become unlawful under the Bill.

One obvious new area of protection is in the field of discrimination. The Bill will make unlawful for the first time at a federal level a wide range of ‘adverse action’ against employees on a number of discriminatory grounds. In some respects, this goes beyond the protection offered under federal and state equal opportunity laws. For example, the grounds of discrimination are broader than those under most federal equal opportunity legislation and the range of remedies available will be much greater, including injunctions and penalties as well as compensation. The provisions do not draw a distinction between direct and indirect discrimination, potentially exposing employers to liability for indirect discrimination that would currently be lawful because it is reasonable in all the circumstances.

The Bill maintains the prohibition on coercion in agreement making. There is an expanded prohibition dealing with the making of false or misleading statements about another person’s workplace rights. Such a provision might catch an employer who tells an employee that there was no right under the Bill to take unpaid carer’s leave if the employer knew this was untrue.

Other matters of note are that it be unlawful to offer employment conditional on the making of an individual flexibility arrangement under a modern award or enterprise agreement, but not on the making of a guarantee of annual earnings for a high income employee.

Unfair dismissal

As promised, the Bill will restore unfair dismissal protection to all employees, provided they have completed the minimum employment period of 6 months (or 12 months for small businesses). Employees covered by a modern award or enterprise agreement, and instrument-free employees earning less than the high income threshold ($100,000 indexed from 27 August 2007—a reduction in the current high income limit) will be able to bring claims.

The Bill retains an exemption for redundancy, but it is much narrower in scope than the current 'genuine operational reasons' exception. An employee will be genuinely redundant if:

• his/her job was no longer required to be performed by anyone because of changes in the operational requirements of the employer’s enterprise
• the employer has complied with any consultation requirements in a modern award or enterprise agreement, and 
• it was not reasonable in all the circumstances to redeploy the employee within the enterprise of the employer (or an associated entity of the employer).

The final requirement may make it difficult for large employers to demonstrate that a redundancy is genuine for the purposes of the unfair dismissal provisions. Where an employer cannot rely on the exemption, the usual test of whether the dismissal was ‘harsh, unjust or unreasonable’ will apply.

Other matters of note relating to unfair dismissal are:

• the factors FWA must consider remain broadly the same
• there is  renewed emphasis on reinstatement as the primary remedy
• applications must be made within seven days of dismissal, and
• FWA has more discretion about the way in which it hears applications.

A Fair Dismissal Code has also been introduced to apply to small businesses (with fewer than 15 employees).

Transfer of business

The Bill makes fairly significant changes to the current circumstances in which a transmission of business (now called a transfer of business) occurs, broadening the types of transaction caught to include some outsourcings and insourcings and to cover some changes of employer within corporate groups.

A transfer of business will occur where:

• an employee changes employer
• the work the employee does for each employer is the same or substantially similar, and
• there is a particular ‘connection’ between the old and new employers—either a transfer of assets used in connection with the work, or an outsourcing, or an insourcing or where the two employers are ‘associated employers’.

The types of instrument that can ‘transfer’ are enterprise agreements, named employer respondency modern awards (other modern awards would continue to apply on their terms) and guarantees of annual earnings for high income employees. The Bill returns to the pre-Work Choices position that an instrument that transfers continues to apply to the new employer until it is terminated or replaced (under Work Choices they applied for up to 12 months). Importantly, however, instruments only transfer where the new employer takes on employees, and there is no obligation to do so. Where the new employer does take on employees, the application of the transferred instruments is generally confined to those employees, plus any new employees the employer takes on in the business where the workplace is instrument-free.

The Bill gives Fair Work Australia quite significant power to alter the coverage of instruments following a transfer of business. This includes power to order that an employer’s existing instruments cover the employees instead.

Enforcement and compliance

The enforcement and compliance provisions in the Bill are similar to those in the current legislation. Most enforcement proceedings will be in the Federal Court or Federal Magistrates Court, but state and territory courts can hear some matters, particularly relating to underpayment of wages.

Maximum penalties for civil penalty provisions remain at $33,000 for employers who are corporations.

One key change is that the range of remedies for breach of industrial instruments has been expanded to include injunctions, compensation and other remedial orders. This could have far-reaching effects—for example, an employer who tries to implement redundancies without allegedly having fulfilled the consultation obligations under an enterprise agreement may face an application for an injunction restraining the employer from making employees redundant.

The summary of the Fair Work Bill 2008 is not intended to be a comprehensive analysis of the legislation. There are very many changes made to the current Workplace Relations Act and each employer will need to consider these in light of their existing employment arrangements.

Endnotes

This article was written by Tony Wood, Partner, Melbourne.

More information

For information regarding possible implications for your business, contact a member of the Employee Relations team.