Key Points:

The Productivity Commission has reported that, while Australia’s workplace relations system is “not dysfunctional”, there is room for improvement.

On 21 December 2015, the Productivity Commission issued its final report into the workplace relations framework in Australia.

While recognising that Australia’s workplace relations system is relatively good by global standards, the Report recommends (amongst others) the following major changes which, if accepted may affect employers.

Penalty rates

Recommendation: The payment of a “weekend rate” which is aligned with the Saturday rate of pay (rather than the higher Sunday rate of pay), in the hospitality, entertainment, retailing, restaurants and café industries.

Comment: This recommendation is made on the basis that the current Sunday rate of pay in these industries is outdated in the context of current and future consumer habits, frustrates job opportunities for the unemployed and those only available to work on Sundays, and is inconsistent across the industries, despite the similar nature of the work being performed.

The reduction of the Sunday penalty rate in the relevant industries would obviously have positive effects on business profitability for employers operating on Sundays.

Enterprise bargaining

Recommendation: The Fair Work Act 2009 (Cth) should be amended, to allow the FWC to overlook minor procedural or technical errors in the enterprise agreement approval process, without requiring an undertaking from the employer. Further, the terms of enterprise agreements should be extended (from the current four-year term), allowing parties to negotiate agreements with up to a five-year term.

Comment: Such amendments to the ability of the FWC to overlook minor errors in the bargaining process would be beneficial to employers which, under the current legislation, can conceivably be required to repeat the entire bargaining process because of such minor issues as a typographical error in a notice, if that error cannot be addressed by an undertaking. Additionally, the introduction of a five-year term for enterprise agreements may result in reduced bargaining costs for employers, given that bargaining for a new agreement can occur less frequently.

Employment arrangements

Individual Flexibility Arrangements (IFAs)

Recommendation: Parties should be allowed to agree to a notice period of up to one year for termination of an IFA, with the default period set at 13 weeks (a significant extension from the current prescribed 28 day notice period). Additionally, measures should be taken to encourage the use of IFAs, including the provision of information on their use through the development and distribution of an information pack by the Fair Work Ombudsman.

Comment: The extension of the required period for notice of termination will allow employers more certainty with respect to the arrangement of their labour force.

A New Statutory Arrangement – the “Enterprise Contract”

Recommendation: The Enterprise Contract (akin to an enterprise agreement) should be introduced, which would allow an individual enterprise to vary award terms to suit its own circumstances in respect to certain classes of its employees.

Comment: The introduction of an enterprise contract would provide employers with flexibility to vary award conditions to apply to certain groups of employees within their business, however its utility may be limited given that the Productivity Commission has also recommended that employees have an option to opt out after one year of operation.

Industrial disputes

Recommendation: More readily allow the FWC to intervene in some industrial disputes (such as in determining whether to suspend or terminate industrial action), deter short or brief stoppages as a form of industrial action, allow more options for employers to respond to stoppages, and increase the penalties payable for unlawful industrial action.

Comment: Such measures may operate to lessen the significant financial cost of industrial action to employers, by deterring disruptive industrial action, providing employers with better response mechanisms and a more effective role for the FWC in intervention.

Sham contracting

Recommendation: The Fair Work Act should be amended to provide a lower threshold for requisite level of knowledge required for an employer to have contravened the sham contracting provisions. Rather than a requirement that the employer be “reckless” as to their involvement, they should be required to have “reasonably expected to know”.

Comment: The recent decision of the High Court in Fair Work Ombudsman v Quest South Perth Holdings Pty Limited [2015] HCA 45, has confirmed that a wide interpretation of the sham contracting provisions should be applied. The amendment recommended above would extend the operation of the sham contracting provisions and expose employers to a risk of penalty for sham contracting in a wider range of circumstances.

Migrant workers

Recommendation: Measures should be put in place to encourage migrant workers, who are particularly vulnerable to exploitation, to report such exploitation to the Fair Work Ombudsman. Additionally, the FWO should be provided with additional support to assist with its function of detecting and prosecuting employers engaging in such exploitative work practices.

Unfair dismissal

Recommendation: The imposition of safeguards to ensure that unmeritorious claims are less likely to be pursued, such as a non-refundable initial lodgement fee, and a further fee upon progression of an application to arbitration.

Additionally, changes to the legislative test of what is “unfair” to ensure that mere procedural errors do not result in employer being required to compensate (or reinstate) employees for unfair dismissal, by introducing a two-stage test which first requires the FWC to assess whether there was a valid reason for the dismissal.

Comment: If accepted, these amendments may reduce the instances where an employer is forced to pay an employee “go-away money” to avoid the time-consuming and costly implications of defending an unfair dismissal application.

General protections

Recommendation: Discovery processes in general protections applications should be aligned with the Federal Court Rules, which are predicated on an assumption against standard discovery, and require parties to seek orders for discovery.

Comment: If enacted, such reforms would provide some protection for employers who are often forced to undertake onerous and costly discovery processes in order to discharge the reverse onus and defend a general protections application made by an employee.

Next steps

Employment Minister Michaela Cash has indicated that the government will now examine the recommendations set out in the report and, if sensible and fair, take the suggested changes to the next election.