Asia-Pacific Employee Relations Review May 2009

Issues for employers dealing with the economic downturn in Asia

Recent months have seen a huge shift in the priorities of many multi-national employers throughout Asia—from a focus on attracting and retaining talent to a concern with maximising efficiency and reducing employment-related costs. The complexity and diversity of employment laws across Asia mean that doing so can be challenging for those responsible for implementing change.

Increased downsizing activities

Many companies, particularly multinational corporations, have acted swiftly to implement downsizing initiatives. This has been a particularly challenging time for regional HR personnel charged with implementing head office directives, as employment laws and regulations vary considerably from one country to the next throughout the Asia-Pacific region.

Employers have needed to consider applicable employment contracts, company policies, staff handbooks, as well as the legal framework in the relevant jurisdictions, and how these all affect downsizing initiatives.

A wide range of local law issues need to be closely examined on a country by country basis, including:

• Is retrenchment permitted and in what circumstances?
• Must the company comply with mandatory obligations to notify, consult with, and/or seek permission from a government authority or court, employees, or a union?
• Where employees are being selected from a pool of potential candidates for retrenchment, do mandatory selection rules apply?
• Are there any special classes of employee who are protected from retrenchment?
• What payments must be made to employees who are retrenched?
• Do any post-retrenchment obligations apply, such as an obligation to give preference to retrenched employees if the employer hires new employees within a certain period?

While retrenchments can be reasonably straightforward to implement under local laws in countries such as Singapore and Hong Kong, other countries are much more complex. For example, in Indonesia, the prior approval of the Industrial Relations Court is required before an employer can unilaterally terminate employment, and this may take many months to obtain. In Malaysia, employers generally must apply the ‘last in, first out’ rule to redundancy selection. And in the PRC, certain categories of employee are protected from redundancy, such as employees at risk of or incapacitated through work-related disease or injury, employees on medical leave, pregnant/maternity leave employees and those with more than 15 years’ service who are less than five years from retirement.

Exploring alternatives to redundancy

In some cases local regulations have made downsizing difficult, if not prohibitive. In any case, many companies have a natural aversion to retrenching employees. Governments throughout the region are also encouraging employers to consider alternatives to redundancy, and have even offered direct incentives and assistance to employers. This has led a number of employers to consider creative ways in which to avoid redundancies.

Of course, local rules and regulations also have a significant impact upon whether redundancy alternatives can be implemented by an employer. In most jurisdictions, terms and conditions of employment cannot be unilaterally reduced by the employer. Consent is generally required, whether by agreement with each individual, or through a collective agreement with the workforce.

Some options that employers have considered implementing in their operations include:

• requiring or encouraging employees to take paid, partly paid, or unpaid leave, and
• reducing employee hours of work and/or wages.

Where employee consent is required, employers are considering how to provide incentives for employees to agree to proposals, such as by offering employees training and education opportunities during periods of unpaid leave. Or employers might seek to promote work-life balance initiatives to encourage employees to consider moving to part-time working arrangements.

Another option for employers is to offer voluntary redundancy arrangements to employees. Typically, this will involve employees being given the opportunity to apply for a redundancy in exchange for a generous severance payment.

Impact on expatriates

It seems that many expatriates in the region have been hit hard by the strategies adopted by employers to deal with the downturn. Expatriates are often at the top of the list in a downsizing situation, as their employment costs are often higher than those of local staff. Often, governmental policies (and sometimes laws) promote retention of local labour over foreign labour.

The increasing number of expatriates being ‘sent home’ has been fertile ground for disputes—it is often at the pointy end of the relationship that the parties look back and find that the contractual documentation establishing the expatriate assignment was not as clear as it could have been. As a result, employers throughout the region are facing risks of potential claims in multiple jurisdictions for both home and host country employment benefits.

Another emerging trend concerning expatriates is the move to adjust salary packages so that expatriates are on the same terms and conditions as locals. In the current environment, employers have added leverage to obtain an expatriate’s agreement to adjust their package downwards in this manner, as it is likely that job prospects are weak for the expatriate in both the host and the home country.

Recession-proofing strategies

For employers who are still hiring in the region, certain ‘recession-proofing’ techniques may prove valuable. Indeed, employers who had the foresight to implement such measures during the boom times are now better placed to see through the downturn. For example:

• using variable employee pay structures, so that discretionary bonus payments and sales commission payments are less during the downturn period
• building flexibility into terms and conditions of employment, for example, expressly allowing for employment mobility and making clear that annual payrises are not guaranteed, and
• engaging employees on fixed-term and/or part-time contracts, where permitted to do so by local laws, to increase flexibility.

Implications for employers

For multi-national employers faced with the challenge of reducing employment-related costs across Asia, there is no one size fits all approach. The best way to engage new employees, manage existing employees, and implement redundancies will vary depending on the jurisdiction and size and nature of the workforce involved.

While downsizing and cost-cutting are difficult for all involved, the current economic situation does present opportunities for employers. Employers throughout the region are closely examining ways to improve efficiency, reduce unnecessary costs, and tidy up their employment arrangements and documentation in order to reduce risks of disputes with employees. Furthermore, downsizing activities across many industries have meant that companies now have better opportunities to attract talent and develop their team and workplace culture in preparation for better economic times.

This article was written by George Cooper, Practice Leader, and Celia Yuen, Senior Associate, Freehills Workplace Law & Advisory–Asia.

Government responses to the economic downturn in Asia

As we enter 2009, governments around the region have implemented a range of creative measures which are designed to alleviate the effects of the global economic crisis on businesses and their employees and to promote employment security.

Background

For the most part, government responses have involved funding and support for training opportunities and programs promoting job creation/retention, rather than legislative measures. In many cases, governments are working closely with peak employer bodies and unions in developing and implementing such strategies.

The following initiatives from Singapore, Malaysia and the Philippines are examples of the range of responses adopted across the Asian region.

Key aspects of the measures adopted

The Singapore Government’s response consists of:

• a Skills Program for Upgrading and Resilience (SPUR) involving funding for a range of subsidised training courses, an increase in the employer’s absentee payroll cap for workers undertaking training, and the provision of training allowances for eligible participants
• a Professional Skills Program (PSP), which complements SPUR by providing training and other assistance catering specifically to the needs of professionals, managers, executives and technicians
• a Job Credit Scheme by which employers are given a quarterly credit on contributions to the Central Provident Fund for the benefit of their local employees, as an incentive to preserve jobs held by local employees in the private sector, and
• publishing the ‘Tripartite Guidelines on Managing Excess Manpower’, which promote options other than retrenchment and encourage cooperation with unions and relevant government bodies where retrenchment cannot be avoided, in order that those affected can be given appropriate support.

The Malaysian Government’s response has consisted of:

• Setting up a dedicated committee (the Workers’ Retrenchment Operations Room), supported by 80 centres around the nation, to monitor and manage retrenchment in Malaysia. This committee has recently released a set of guidelines for employers and employees on the management of retrenched workers. It also has an ongoing role assisting the redeployment of retrenched workers through Jobs Malaysia (a government portal for job seekers).
• Allocating funding to alleviate the high levels of unemployment due to retrenchment by funding retraining schemes, including a monthly allowance for trainees, and providing loans to support cottage industry entrepreneurship.
• Providing relief to certain industries most affected by the crisis by granting a six-month exemption from their human resources development levy obligations.
• Allowing certain businesses to implement a three day working week, with workers’ consent, to avoid plant closures.

The government’s response in the Philippines involves measures to address employment security for its citizens both domestically and overseas. These include:

• a Nurses Assigned in Rural Service (NARS) training program for unemployed nurses to provide the necessary experience for full-time work both locally and overseas
• a range of measures to reduce the costs of business, including automating import/export processing and payments, reducing the costs of business licence and permits, relaxing the criteria for an extension of income tax holiday and providing tax breaks and incentives to businesses in difficulty
• providing hotlines, helpdesks and one-stop worker assistance centres across the Philippines to facilitate access to the various services offered by the government to economically displaced workers
• sending delegations to countries where Overseas Filipino Workers (OFWs) are located to assist those who are vulnerable to job losses, negotiate agreements with foreign governments to facilitate Filipino employment, and identify opportunities for Filipino labour in specific industry sectors, and
• providing a range of services to unemployed citizens, including a referral service for local and/or overseas employment, legal assistance to displaced OFWs with money claims, scholarships for training, retooling and skills upgrading, and business counselling and training for individuals and groups to enable them to establish small businesses in the Philippines.

Implications for employers

Employers who are having difficulties managing their workforce requirements and are considering retrenchments should carefully consider any options offered by government to alleviate the pressure to reduce numbers.

This article was written by George Cooper, Practice Leader, and Gillian McKenzie, Solicitor, Freehills Workplace Law & Advisory–Asia.

Proposed reforms to executive remuneration

Recent global media criticism of excessive remuneration and termination payments to executives has resulted in a plethora of reform proposals from stakeholders, designed to curb the perceived excesses.

Background

The fallout from the global financial crisis has resulted in increased interest in executive remuneration, not just from shareholders and the media, but from governments across the Asia-Pacific region and beyond.

Developments in the United States have contributed to this interest. President Obama made headlines around the world with the announcement of strict new regulations on executive compensation for financial services firms and companies set to receive part of the United States government’s $700 billion financial rescue plan, the Total Asset Relief Program (TARP).

The issues

Some concerns recently expressed about various aspects of executive remuneration include:

• the degree of independence of the board of directors / remuneration committee from the executives
• the quantum of base pay, annual bonus and long-term incentives compared with average earnings and historical executive remuneration levels
• a perceived lack of nexus between remuneration and performance, and low transparency in this regard
• the short-term focus and/or excessive risk-taking induced by some performance hurdles
• the ability for measures of performance to be manipulated, and
• termination benefits being provided in circumstances of individual or company underperformance.

There are many reported instances in recent times of companies announcing voluntary reductions in executive salaries, and in some instances, of executives returning bonuses paid to them during the 2008 period. However, some governments have taken matters further and proposed reforms to limit the amount companies can offer their executives, causing concern within the business community as to whether companies will be able to offer adequate incentives to attract and retain the best people in an international market for talent.

Proposed reforms in Australia

One example of government intervention is the recent announcement in Australia of proposed reforms to the corporations legislation, aimed at curbing termination payments to executives.

Following the announcement on 18 March 2009 proposing reforms to the Corporations Act 2001 (Cth) (Corporations Act) in respect of termination payments to certain executives, on 5 May 2009 the Minister for Superannuation and Corporate Law, Senator Nick Sherry, released an Exposure Draft of the Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009 (Exposure Draft).

The government’s media release regarding the Exposure Draft provides that the legislation is required ‘to address community concerns over executive “golden handshakes”’

In summary, the proposed amendments include the following:¹

• Termination payments are to be capped at one year’s average base pay unless shareholder approval is obtained.
• The shareholder approval requirement is to be extended to cover termination payments made to senior executives and key management personnel of disclosing entities (and anyone who has held such a role in the three years before termination) rather than just directors. However, for non-disclosing entities the requirement will only apply in respect of directors (and anyone who has held such a role in the three years before termination).
• The definition of ‘termination benefit’ in the Corporations Act will be expanded and clarified to catch any payment, other consideration, property or right, including the accelerated or automatic vesting of options and payments in lieu of notice. The expanded definition does not include a ‘deferred bonus’. Further, power is given for expansion of the definition by regulation.
• The shareholder vote to approve termination benefits will be required to be held after a director’s or executive’s employment has been terminated rather than at any point before the benefit is paid or provided, in order to allow shareholders to ‘assess golden handshakes in the context of the recipient’s actual performance’.
• A company will be prohibited from holding a general meeting for the sole or dominant purpose of voting on a termination benefit.
• Unauthorised termination benefits will be required to be repaid immediately with any unpaid benefits held on trust by the executive for the company.
• Penalties for breach of the shareholder approval requirement will be increased.

The Explanatory Memorandum notes that the proposed amendments, if passed, will not apply retrospectively to existing contracts ‘which have already been settled’. The Exposure Draft provides that the amended law applies ‘in relation to resignations of offices, or positions of employment, held under agreements entered into, or extended, on or after the commencement [of the provisions]’. Accordingly, it appears that any extension of an existing contract will be caught by the new provisions, whether or not the terms of the contract are amended.

The Federal Government is seeking written submissions on the Exposure Draft by 2 June 2009.

Broader examination of regulatory framework in Australia

The Rudd Government has also referred the broader issue of executive remuneration to the Productivity Commission, which is expected to report by the end of 2009.

On 7 April 2009, the Productivity Commission released its initial issues paper called the ‘Regulation of Director and Executive Remuneration in Australia’.

The inquiry will be a broad-ranging examination of Australia’s corporate law, considering the existing regulatory framework governing director and executive remuneration for companies that are disclosing entities under the Corporations Act, including shareholder voting, disclosure and reporting practices.

The Productivity Commission has indicated that it will also reflect on the outcomes of the recent G20 meeting in London in considering executive remuneration for the financial sector. It will also examine whether differing regulatory responses are appropriate for different industries.²

The Productivity Commission is calling for submissions by 29 May 2009. It will hold an initial round of public hearings starting 16 June 2009. It proposes to release a draft report with preliminary findings in late September to elicit feedback through further submissions and a second round of public hearings.

Proposed reforms in China

In the People’s Republic of China it has been reported that a draft regulation on executive remuneration is soon to be submitted to the State Council for approval. The draft regulation proposes a pay ceiling of 2.8 million yuan a year for senior executives of all state-owned enterprises, commencing with the financial sector. Under the proposal, executives may also receive performance-linked pay of no more than three times the basic salary.

Implications for employers

Depending on the approach that governments throughout the region choose to take, employers should be mindful of potential compulsory or recommended changes to executive employment arrangements and how this will affect their ability to attract and retain talent at the executive level.

This article was written by George Cooper, Practice Leader, Celia Yuen, Senior Associate, and Gillian McKenzie, Solicitor, Freehills Workplace Law & Advisory–Asia.

Significant changes to Singapore Employment Act

On 1 January 2008, sweeping changes to the Employment Act (Act) came into effect in Singapore.

Background

The Act deals with certain basic terms and conditions of employment, as well as rights and obligations of employers and employees to whom the Act applies.

Key changes

The first major change is a change in the scope of the Act’s coverage. Previously, all employees in managerial, executive or confidential positions were excluded from the Act’s scope. The ‘confidential position’ exclusion has now been removed, hence bringing more employees within the scope of the Act. This change makes clear that ‘confidential’ positions, such as non-managerial accounts assistants, HR clerks and secretaries, are now covered by the Act.

Another major change is a change in the scope of coverage of Part IV of the Act. Part IV prescribes certain minimum standards regarding matters such as rest days, hours of work, holidays and leave. Previously, Part IV applied to a subset of covered employees, namely to all ‘workmen’ (generally, manual labourers and related occupations) regardless of salary level, as well as all non-‘workmen’ earning less than SGD$1,600 per month. As a result of the changes, Part IV coverage has been amended so that ‘workmen’ are only covered if they earn less than SGD$4,500 per month, and non-workmen are covered if they earn less than SGD$2,000 per month (up from SGD$1,600).

Thirdly, minimum entitlements to paid public holidays and to paid sick leave have been moved out of Part IV of the Act and now apply to all employees covered by the Act. This means a significant increase in the number of employees who have a legal entitlement to paid public holidays and to paid sick leave in accordance with the Act.

Finally, a key amendment is to change the definition of ‘dismissal’ to include termination of employment with or without notice. Though the government describes this as a ‘technical update’, its potential implications are significant, due to the fact that under the Act, an employee may approach the minister and seek reinstatement if he/she believes they have been ‘dismissed’ without just cause or excuse. Whether this ‘technical update’ will in fact give rise to a significantly broader unfair dismissal regime in Singapore, for terminations with or without notice, remains to be seen.

Implications for employers

The proposed changes will have significant consequences for most employers in Singapore. Employers should carefully review and consider the proposed changes and the likely impact upon their obligations towards their workforce.

This article was written by George Cooper, Practice Leader, and Celia Yuen, Senior Associate, Freehills Workplace Law & Advisory–Asia.

Update on Singapore bank defection case

In our third edition of the Freehills Asia-Pacific Employee Relations Review in September 2008³, we reported on the criminal proceedings that were brought against seven former employees of Citibank in early 2008.

Background

The individuals had worked in Citibank’s private banking division until mid-2006 when a number of them left the bank to join a competitor, UBS. It was alleged that in the months leading up to their departure, the individuals accessed Citibank's computers without authority, printed out certain information and sent data to their personal e-mail addresses.

A total of 1,223 charges were brought against the former employees, relating to alleged unauthorised access to computer data, disclosure of customer information and destruction of evidence.

Recent developments

Five of the former employees involved have now been fined for their actions, and one has been acquitted with a warning. The penalties imposed were significant:

• A penalty of SGD$173,000 was imposed upon a former Vice-President, who pleaded guilty to 21 charges under the Computer Misuse Act and one charge of destroying evidence under the Penal Code. The former Vice-President had reportedly been the top relationship manager in her division prior to her departure for UBS. According to media reports, the court heard in the course of the proceedings that she had already paid SGD$180,000 to the bank to settle the related civil claim.
• A penalty of SGD$40,000 was imposed upon the personal assistant to the Vice-President, who pleaded guilty to six charges. She had acted on the Vice-President’s instructions in compiling and keeping Citibank customer information in the months leading up to their departure. She subsequently destroyed a number of the Citibank documents that she had taken.
• A penalty of SGD$160,000 was imposed upon a relationship manager who, two weeks into her notice period after resigning from Citibank, compiled and emailed customer information to her own personal email account and to her future manager at UBS (who was also her former manager at Citibank). She pleaded guilty to 20 charges under the Computer Misuse Act. According to media reports, the court heard in the course of the proceedings that she had already paid SGD$85,000 to the bank to settle the related civil claim.
• A penalty of SGD$130,000 was imposed upon another relationship manager who similarly had accessed Citibank’s database and sent customer information to her personal email account, three days after tendering her resignation. She pleaded guilty to 20 charges under the Computer Misuse Act. According to media reports, the court heard in the course of the proceedings that she had already paid SGD$15,000 to the bank to settle the related civil claim.
• A penalty of SGD$70,000 was imposed upon another relationship manager who e-mailed spreadsheets of Citibank customer information to her husband's personal e-mail account. She pleaded guilty to 10 charges under the Computer Misuse Act.

Proceedings against the one remaining former employee, the former manager in charge of the group, are still pending.

Implications for employers

The cases are significant as they are the first of their kind in Singapore. It is clear that the court has not taken lightly the conduct engaged in, given the significant penalties imposed, though so far no individuals have been sentenced to jail.

The cases have drawn widespread interest given the propensity for movement of personnel between employers in the banking industry, and the severe stance that has been taken by the regulators and the courts to the conduct engaged in. It may give some comfort to employers to know that they not only have civil remedies available to them in these circumstances, but may also seek the involvement of the police and/or other relevant regulatory bodies in protecting their confidential information.

This article was written by George Cooper, Practice Leader, and Celia Yuen, Senior Associate, Freehills Workplace Law & Advisory–Asia.

Implementing Regulations for the PRC Employment Contract Law

On 18 September 2008, the State Council of the People’s Republic of China issued the final Implementing Regulations for the PRC Employment Contract Law (ECL).

Background

The Implementing Regulations supplement the ECL, which took effect on 1 January 2008. A draft of the Implementing Regulations had previously been released in May 2008 for public comment.

Key aspects of the regulations

The Implementing Regulations provide important clarifications on some topical issues which have arisen under the ECL, including:

• The meaning of ‘employer’: Partnerships and foundations are deemed to be employers. In addition, guidance is given on the circumstances in which branches and offices of an organisation may enter into contracts directly with employees.
• Consequences of failure to sign a written employment contract: If the employee refuses to sign the contract within the first month, the employer is entitled to terminate the contract without paying severance, and need only pay for services provided to that date. If the employer fails to sign the contract within the first month, the employer must pay double salary from the day after the end of the first month to the day subsequent to the date on which the written contract is concluded.
• Consequences of breach of contract by an employee: The employer may claim ‘liquidated damages’ if they terminate a contract in certain serious circumstances (for example, where the employee materially breaches company policies or causes serious damage to the employer).
• Restrictions on staffing agencies: Clarification that staffing agencies may not engage part-time employees for the purpose of placement with client companies.

The Implementing Regulations also appear to establish that an employer is bound to enter into an open-ended contract, if the employee so requests, at the conclusion of the second of two consecutive fixed-term contracts. A least, this now appears to be the settled view in the PRC. Therefore, employers need to think very carefully before renewing a fixed-term contract the first time.

Notwithstanding that the aim of the Implementing Regulations is to provide clarification of the ECL, some points arising under the ECL have not been addressed. For example:

• the way in which mandatory employee ‘consultation’ procedures in relation to company rules and policies are to be conducted in practice, and
• the level of compensation that should be paid in respect of non-compete obligations.

Implications for employers

Organisations with employees in the PRC should carefully review and consider the Implementing Regulations in light of their current practices, and may wish to revise their standard contract templates and company policies/rules in light of these. As some areas remain unclear, employers should also keep abreast of any applicable local regulations, as well as the interpretations being applied in practice by the local labour bureaus.

In the event a dispute arises, employers should familiarise themselves with the procedures for dispute resolution set out in the new Arbitral Rules on the Handling of Labor and Personnel Disputes (see further below).

Further update – new Arbitral Rules on the Handling of Labour and Personnel Disputes

In a separate, but related development, on 1 January 2009 the Ministry of Human Resources and Social Security issued and implemented new Arbitral Rules on the Handling of Labor and Personnel Disputes.

These rules set out case-handling procedures for the resolution of labour disputes between employers and employees, including disputes involving the rights and obligations of employers and employees under the ECL and its Implementing Regulations.

This article was written by George Cooper, Practice Leader, Freehills Workplace Law & Advisory–Asia, together with Davide Boffi, Senior Associate on secondment to Freehills from Toffoletto e Soci, Milan (co-member of global employee / labour law alliance, Ius Laboris). An earlier version of this article was translated by Davide and published in the prominent Italian financial newspaper Il Sole 24 Ore.

Significant changes for employers of expatriates in India

Recent changes to obligations under the Indian provident fund schemes are likely to result in a significant increase in costs for employers who engage expatriates in India.

Background

The provident fund schemes in India include the Provident Fund Scheme and the Pension Scheme. Contributions are made to the schemes by employers and employees at prescribed rates.

Currently, provident fund scheme obligations apply to most Indian establishments which engage a total of 20 or more workers. Employees of several different companies working together in an ‘establishment’ will be counted together for the purposes of this test, and subject to the obligations if the threshold is met.

Recent changes

Previously, the same rules applied to both local and foreign employees, being that participation was only compulsory for employees in India earning less than INR6500 (approximately US$135) per month. It was therefore common for employers to make contributions to expatriates’ home pension funds rather than participate in the Indian schemes. Now, there is the risk of unforeseen contribution costs in India, and duplication.

There is some relief from the obligations for International Workers who are contributing to a home pension scheme in a country which has a bilateral social security agreement with India. Currently, however, no countries have an applicable bilateral agreement in place with India—the agreement with Belgium will come into effect from June 2009. India has signed agreements with France and Germany, but the dates of entry into force are yet to be notified. Negotiations are underway with the Netherlands, Czech Republic, Hungary, Norway, Switzerland, Sweden, Luxembourg, the United States and Australia.

It is unlikely that expatriates will be able to withdraw the contributions that have been made in respect of their employment until they reach the ages of 55 (Provident Fund Scheme contributions) and 58 (Pension Scheme contributions), though there may be arguments to support earlier withdrawal of the Provident Fund Scheme contributions if the expatriate leaves India permanently.

Implications for employers

The impact of the change is effectively an additional financial burden of 24 per cent of the expatriate’s salary, which is shared equally between the employer and employee. However, the compliance burden falls upon the employer—who is required to deduct the employee’s contribution from salary payments and remit it to the relevant fund (together with the employer contribution).

While the reported purpose of the amendments is to place pressure on countries that are reluctant to negotiate social security agreements with India, it will still take some time for those agreements to be negotiated, finalised and ratified. Meanwhile, the impact on employers is immediate and costly.

This article was written by George Cooper, Practice Leader, and Celia Yuen, Senior Associate, Freehills Workplace Law & Advisory–Asia.

Update on workplace relations reform in Australia

In our third edition of the Freehills Asia-Pacific Employee Relations Review in September 2008⁴ we looked at the first tranche of workplace relations changes that had been passed by the Federal Government in Australia and foreshadowed the second tranche of proposed changes due to take effect on or before 1 January 2010.

Fair Work Act 2009 (Cth) passed: Workplace Relations Act 1996 (Cth) to be replaced

The second tranche of changes has now passed through Parliament and received royal assent, in the form of the Fair Work Act 2009 (Cth) (FW Act), which will replace the current Workplace Relations Act 1996 (Cth) (WR Act).

The government’s Forward With Fairness package of reforms will now be rolled out commencing from 1 July 2009. Many of the details of the legislation are as expected, based on Labor’s election commitments and post-election government announcements. In particular, the legislation:

• introduces a new safety net, comprised of the National Employment Standards (NES) and modern awards
• sets out a new system of good faith bargaining for collective agreements in which the new body ‘Fair Work Australia’ will have a significant role in dealing with disputes
• brings back unfair dismissal protection for most employees—though there are some concessions for ‘small businesses’ (see below for definition), and 
• maintains many of the existing rules in the areas of industrial action, freedom of association and right of entry—with subtle, but significant additional powers to unions.

However, the legislation also contains some surprises, in terms of what had been expected prior to its introduction to Parliament:

• It seems that genuine non-union collective agreements will become a thing of the past, particularly for large employers where unions are traditionally active.
• The ‘transfer of business’ (formerly referred to as ‘transmission of business’) provisions are extended to cover a much wider range of transactions, including outsourcing, insourcing and movement between related companies. The 12-month limitation on transferring instruments is removed so transferring instruments now continue until they are terminated or replaced. Fair Work Australia will however be able to vary the substantive terms of a transferred instrument to enable the instrument to operate in a way that better fits the new employer’s enterprise—for example to align ordinary hours of work. Given the increased application of the transfer of business provisions, this may prove a useful mechanism for employers.
• Arbitrated workplace determinations will be available in a wider range of situations, including where protracted industrial action is causing significant economic harm to the parties or where there are sustained breaches of bargaining orders. 
• The pre-existing freedom of association and discrimination provisions have been consolidated and, in some cases, expanded to create broader liabilities for employers. 
• Union right of entry has been expanded to permit union access to premises in respect of members, including the right to inspect non-members’ pay and employment records if the employee provides their consent in writing, or if Fair Work Australia orders such access. An employer need not however give a union access to documents if that would contravene a Commonwealth or state law—for example, privacy laws.

Most aspects of the new system will commence on 1 July 2009, although the NES and modern awards will commence on 1 January 2010.

The changes to the definition of a ‘small business’ for the purposes of the unfair dismissal regime will take effect in two stages. The threshold used to define a small business will be:

• from 1 July 2009 until 1 January 2011, fewer than 15 full-time equivalent employees, and 
• from 1 January 2011, fewer than 15 employees, based on a simple headcount.

The unfair dismissal system will be the subject of a review by Fair Work Australia in 2012.

Transitional Bill introduced: Important detail on bargaining and safety net laws after July 2009

The transitional arrangements from the old Work Choices system to the new Forward with Fairness system are still being finalised by the Parliament. The Transitional Bill was introduced into Parliament on 19 March 2009 and is yet to be passed. The key features of the Transitional Bill are:⁵

1. Continuation of instruments: The Bill provides for all existing WR Act instruments to continue as ‘transitional instruments’ until they are terminated or replaced by a FW Act instrument. Awards and Notional Agreements Preserving State Awards (NAPSAs) will become ‘award-based transitional instruments’ and all WR Act agreements will become ‘agreement-based transitional instruments’. Different rules apply to agreement-based transitional instruments depending on whether they are derived from individual or collective agreements.
2. New rules governing variation and termination: New rules will govern the ways in which transitional instruments can be varied or terminated. The circumstances in which transitional instruments can be varied will be limited. 
3. Interaction rules: The existing interaction rules as between transitional instruments are preserved. The interaction rules between transitional instruments and Fair Work instruments can be summarised as follows:
   • Individual agreements continue to override all collective agreement-based instruments, including enterprise agreements.
   • Enterprise agreements can replace collective agreement-based transitional instruments (whether or not the instruments’ nominal expiry date has passed).
   • Modern awards replace award-based transitional instruments.
   • Modern awards will not apply to employees covered by an individual agreement-based transitional instrument or by an enterprise agreement made under the FW Act.
   • Modern awards will, however, apply to employees covered by a collective agreement-based transitional instrument such as a pre-reform certified agreement. The agreement will prevail over the modern award to the extent of any inconsistency. This may cause some surprising outcomes and employers covered by such an agreement should review the interaction of these instruments carefully.
4. Dispute resolution: Disputes arising under transitional instruments continue to be dealt with under the relevant WR Act provisions, with any reference to the Australian Industrial Relations Commission being taking to be a reference to Fair Work Australia.
5. The safety net: The new safety net of modern awards and the NES will not start operating until 1 January 2010. In the meantime, the Australian Fair Pay and Conditions Standard will continue to operate and interact with other industrial instruments much as it does now. Current awards and NAPSAs will continue as transitional instruments until they are replaced by modern awards. From 1 January 2010, the NES will apply to all employees, regardless of which other instruments also apply.
6. Enterprise award modernisation: The Bill provides a process for enterprise awards and NAPSAs to be modernised. Like other awards and NAPSAs, enterprise awards will become transitional instruments on 1 July 2009. They will continue to operate once modern awards start operating on 1 January 2010. The Bill makes clear that modern awards must be expressed not to cover employees who are covered by an enterprise award/NAPSA. There is no obligation to modernise but if an enterprise award is not modernised by 31 December 2013 it ceases to apply. Employees would fall back to the relevant industry modern award.
7. Making agreements under the WR Act: The Bill allows for agreements to be made under the WR Act up until 30 June 2009. These agreements can be lodged with the Workplace Authority, but strict deadlines apply. The Workplace Authority will assess these agreements (and any others it has not assessed by 30 June 2009) against the No Disadvantage Test (NDT) (that is, the agreement does not result, on balance, in a reduction in the employees’ overall terms and conditions under any ‘reference instrument(s)’). The Bill makes some minor amendments to the rules that apply where an agreement fails the NDT.
8. Bargaining and agreement-making under the Fair Work system: The Bill adopts a ‘clean break’ model for parties who are bargaining as at 30 June 2009. If the parties have not made a workplace agreement by 30 June 2009, they will need to start bargaining again in the new Fair Work system. Because the NES and modern awards will not be operational between 1 July and 31 December 2009, FWA will apply the current NDT when deciding whether to approve enterprise agreements lodged for approval during this period. The ‘better off overall test’ will apply from 1 January 2010 (that is, each employee who will be covered by the agreement must be ‘better off overall’ under the agreement, compared with under the relevant award).
9. ITEAs can continue to made and lodged: Employers who are able to make Individual Transitional Employment Agreements (ITEAs) will be able to continue to do so until 31 December 2009. They will continue to be lodged with the Workplace Authority. However, ITEAs will become transitional instruments immediately, meaning that the new variation and termination rules (mentioned above) will apply to them.
10. Employees on individual agreements and collective bargaining: An employee on an individual agreement-based transitional instrument can participate fully in bargaining if the nominal expiry date of their individual agreement has passed or if the nominal expiry date has not passed but they have made a conditional termination with their employer.
11. Transfer of business: The Bill extends the new Fair Work rules governing transfer of business to cover transitional instruments, so that these instruments can cover a new employer in relation to transferring employees. The existing rules, including the 12-month transmission period, will continue to apply where a transmission of business occurs on or before 30 June 2009.

Implications for employers

Employers are advised to familiarise themselves with the new FW Act and the draft transitional legislation and to consider how they are likely to impact upon their workplace relations practices in Australia from 1 July 2009.

This article was written by George Cooper, Practice Leader, and Celia Yuen, Senior Associate, Freehills Workplace Law & Advisory–Asia.

Endnotes

1. For more details regarding the proposed reforms, refer to 'Limits on termination payments: Exposure Draft legislation released'
2. For more information regarding the Productivity Commission's terms of reference and key issues to be considered, refer to 'Productivity Commission releases issues paper on executive remuneration'
3. ‘Serious criminal proceedings in Singapore bank defection case’, Asia-Pacific Employee Relations Review, September 2008
4. ‘Update on Australian workplace relations legislation’, Asia-Pacific Employee Relations Review, September 2008
5. For further information on the Transitional Bill, refer to 'Transitional Bill introduced: important detail on bargaining and safety net laws after July 2009'

More information

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