The award modernisation process has continued with some vigour since our last update. The modernisation process is a key plank in the simplification of the current complex array of state and federal awards which apply somewhat inconsistently throughout Australia.

Most recently on 25 September 2009, 29 further exposure draft awards were released1 covering some 32 industries and industry sectors included within stage 4 of the process being undertaken by the Australian Industrial Relations Commission (Commission). This is the final grouping of industries and the Commission appears to be ‘on track’ to meet its statutory deadline for the completion of the process on 31 December 2009.

Hence, the foreshadowed commencement of the new modern awards—to operate in conjunction with the statutory safety net, the National Employment Standards, appears set to be 1 January 2010.

Much has occurred in the award modernisation process and much activity will still occur between now and the end of the year. This article touches upon some of the more significant developments which will have implications for employers.

Why are awards still relevant?

Awards have been re-enlivened by the federal government as a result of the ministerial request to the Commission and the role awards play under the Fair Work Act 2009 (Cth) (Act). The key significance of awards are that they:

  • will apply generally to in-scope employees who are not regulated by enterprise agreements. However, employees who would otherwise be award covered can be provided with a guarantee of annual earnings which, if it exceeds $108,300 per annum, excludes the application of the award, and
  • continue to be lynchpin for determining whether an enterprise agreement satisfies the Better Off Overall Test under the Act. If an agreement does not offer beneficial terms and conditions of employment, it cannot be approved by Fair Work Australia (FWA).

Timetabling

Parties who have an interest in the stage 4 exposure draft awards referred to above must lodge any submissions or comments in relation to those awards by 16 October 2009. Consultations will occur between 26 and 30 October 2009 in Sydney and on 4 November 2009 in Melbourne. Final awards for these industries will be made on 4 December 2009.

On 4 September 2009 the final stage 3 modern awards were released. There were 39 of them. Submissions from parties interested in those awards in relation to transitional provisions must be lodged by 23 October 2009. Reply submissions are due on 6 November 2009.

We deal with the issue of transitional provisions below. A significant decision2 in connection with transitional provisions for the priority and stage 2 awards established various model clauses and a distinct approach to transition. It is thought likely that the transitional provisions in the stage 3 and stage 4 awards will adopt these model clauses.

Transitional provisions

In our last update3 we noted that one of the most important features of the award modernisation process was the creation of a set of awards which would apply uniformly across the nation. The legislation specifically prohibits awards applying on a state by state basis or only to certain geographical locations. There is an exception, however, which allows different conditions to apply during a transitional period, which might be as long as five years. On 2 September 2009 the Commission issued a detailed decision4 relating to transitional provisions for the priority and stage 2 modern awards. This decision received significant attention in the press for the following statement:

‘However, the introduction of modern awards applying across the private sector in place of the variety of different provisions in the Federal and State awards inevitably means that some conditions will change in some states. Some wages and conditions will increase as a result of moving to the terms which apply elsewhere in the industry. Equally some existing award entitlements will not be reflected in the applicable modern award because they do not currently have general application.’

Increased costs flowing from the process has been a concern for many of our clients for some time. That the significant changes, including increased costs, which will flow from the process was expressly stated by the Commission highlights the need for business to quickly review the modern award which will apply after 1 January 2010 and identify exactly where any increased costs might arise.

In short, the decision:

  • applies to changes in the modern awards which deal with minimum wages, casual and part-time loadings, Saturday, Sunday, public holiday, evening and other penalties and shift allowances
  • provides that none of these matters will change in the period between the commencement of the modern award on 1 January 2010 for six months until 1 July 2010
  • provides that on and from that date, changes to these matters will take effect in 20 per cent annual increments
  • confirms that employers can absorb increases to these matters against any over-award payments
  • implements a mechanism where ‘take-home pay orders’ can be made for the benefit of employees who suffer a reduction in their take-home pay under the phase-in provisions, and
  • confirms that the Commission would consider applications by superannuation funds to be made to a default fund in an award where the fund had been a default fund in awards being replaced by the modern award.

Superannuation

As mentioned above, on 25 September 2009, 29 exposure draft awards were released.

There has been a minor change concerning superannuation. The standard superannuation clause has been varied in each of the stage 4 exposure drafts so as to include ‘successor funds’ as able to be default funds. The effect of this was stated to be to avoid the need for a award variation where a fund ceases to exist and a successor fund takes over its operation.

Miscellaneous Award

One of the exposure draft awards released in stage 4 was the ‘Miscellaneous Award’5. The creation of this award arises from a specific paragraph in the ministerial request directing the Commission to create a modern award ‘to cover employees who are not covered by another modern award and who perform work of a similar nature to that which has historically been regulated by awards (including State awards)’. The request goes on to say that this modern award ‘is not to cover those classes of employees, such as managerial employees, who, because of the nature or seniority of their role, have not traditionally been covered by awards’.

Arguably, the exposure draft proposed by the Commission goes significantly further than this. In its decision the Commission said:

‘It is unclear which employees will be covered by this award. It may be that it will have application in some areas of the workforce which have not been covered by awards before’.

The Commission went onto say that it had some doubt about what the existing conditions of employment were for employees who might be covered by the award.

Some employer organisations have been critical of this approach where the award is apparently proposed to be made in circumstances where there is some uncertainty as to the extent of its coverage.

What is clear, however is that:

  • it will not apply to an employee who is covered by another modern award (including occupational awards such as the Clerks Award) or who works in an industry where another modern award applies. Essentially, the approach seems to be that if a modern award in a particular industry does not extend to an employee in that industry then the miscellaneous award should not so extend, and
  • the employee must not be a ‘high income employee’. This is an employee who has accepted a ‘guarantee of annual earnings’ from their employer which is a written undertaking to pay the employee an amount of earnings at a rate that exceeds $108,300 per annum during a period of 12 months or more.

It is expected that significant submissions will be made to the Commission in relation to the terms of this award and some care should be taken by those clients who operate in industries that have traditionally not be covered by awards to monitor the outcome of this process.

Amendments to the Minister’s request

In our last update we reported that the Minister had decided to vary the ministerial request so that the Commission was required to make a standalone award to apply in the restaurant and catering sector. Employers in that sector had apparently complained that it was inappropriate for them to be subject to the same award that applied in hotels, casinos and other areas of the hospitality industry.

The stage 4 exposure drafts we have referred to above include a further exposure draft for the restaurant industry and the Commission’s statement6 includes a detailed consideration of the changes to the ministerial request.

Since our last update further amendments to the request have been made:

  • on 1 July 2009 relating to Victorian referral employers, certain state public sector employees and maritime crew on ships sailing along the Australian coast referred to as ‘permit ships’. This amendments to the request is directed to non-citizen crew members on such ships
  • on 17 August 2009, again to apply to the maritime industry relating to licensed ships, permit ships and majority Australian crewed ships. Again the emphasis of this variation appears directed to extending the reach of the modern award applying in the maritime industry, and
  • on 26 August 2009 to require the Commission to look more closely at the horticulture industry, the call centre industry and the retail and pharmacy industries.

The amendments to the request reflect something of a dynamic nature of the process. Because the Commission is required to conduct the process in accordance with the Minister’s request these amendments have a real and significant impact upon the outcome for employers in these sectors.

Variation applications

The Commission is considering an increasing number of applications to vary the terms of

modern awards. Some of these applications relate to more technical matters but many of them to substantive issues. The Commission has made clear that it will consider such applications on their merits but that it would be unlikely to alter substantive award terms absent a ‘significant change in circumstances’ being shown by the applicant. A variation in the Minister’s award modernisation request has been found to constitute such a change.

Enterprise awards

Employers with enterprise awards (that is, those only applying to a specific enterprise) still have the opportunity to apply to the Commission for modernisation from 1 July 2009, rather than 1 January 2010 as originally designated. Enterprise awards which have not been modernised will continue after 1 January 2010, but will ‘die’ on 31 December 2013 unless they are modernised in the meantime.

Implications for employers

With the modern award start date rapidly approaching, employers should consider:

  • in light of the Commission’s decision on the transition to modern awards (including the phasing in of increased wages and conditions flowing from the modernisation process), reviewing the modern awards which will apply to their business after 1 January 2010, to identify exactly where and when any increase costs might arise
  • reviewing those areas of their business where the ‘Miscellaneous Award’ might apply to employees who might not previously have been covered by awards, and continue to monitor the outcomes of the stage 4 process, and
  • contributing to the stage 4 modernisation process in October 2009 by making submissions and participating in the Commission’s consultations.