On 20 December 2011 the Hon Bill Shorten MP announced the appointment of a three-member panel to review the operation of the Fair Work Act 2009 (FW Act) and related legislation. In particular, the Panel was asked to assess the operation of the FW Act and the extent to which its effects have been consistent with the objects set out in the FW Act. Yesterday, the Panel’s 294 page report was released, in which it made a total of 53 recommendations including suggesting material amendments to the FW Act.

The Government has yet to respond to the report, but Bill Shorten has indicated that he will now begin consultation with key stakeholders including the state and territory governments. In releasing the report, Shorten has also indicated that in relation to those amendments where key stakeholders can reach agreement, amendments to the FW Act could be laid before parliament in the upcoming spring session, with a second tranche of amendments taking longer to be introduced where no agreement can be reached.

We will have to await the results of the Government’s consultation process to see which of the Panel’s recommendations will ultimately become law.

General comments

The Panel stated in its report that in undertaking the review it has been guided by some key principles:

  • economic issues must rank high in the assessment of the operation of the FW Act, particularly given the stated objectives in the FW Act;
  • the Panel should not limit itself to evaluating the FW Act only through the lens of the legislation that had immediately preceded it, but rather it should undertake its review in light of the industrial relations legislative landscape over the last 20 years;
  • the interpretation of provisions in industrial relations legislation is often contested. In particular, the FW Act itself is not yet three years old and judicial interpretation of some of its provisions is still evolving as issues are brought before courts. As a result, the Panel was disinclined to recommend legislative changes where there was a reasonable prospect that judicial interpretation of existing provisions would resolve any issues; and
  • in evaluating submissions made to it, the Panel was disinclined to recommend changes that would advantage one party over another but not contribute to improving national prosperity, productivity or equity overall.

The Panel determined that the FW Act has broadly operated as intended. Having said that, the Panel has recommended a number of significant changes to the FW Act, which are intended to encourage productivity growth, enhance equity in the workplace, or are to correct anomalies that have been revealed in the operation of the FW Act or to remove defects in the machinery of the legislation.

The roles of Fair Work Australia and the Fair Work Ombudsman

The Panel recommended that the institutions created under the FW Act, namely Fair Work Australia (FWA) and the Fair Work Ombudsman (FWO), extend their role to include actively encouraging more productive workplaces, by promoting best practice in the productivity enhancing provisions of agreements, developing model productivity clauses for modern awards and agreements, and sponsoring training workshops for employers and employees on how to enhance workplace productivity. It is not considered necessary to amend the FW Act in order to implement this recommendation.

The Panel has also recommended that the FW Act be amended to change the name of Fair Work Australia to a title which more aptly denotes its functions, with the new title to contain the word “Commission” and no longer to contain the words “Fair Work”. This recommendation was no doubt made in response to recent criticism of the confusion arising from the similar names currently being used.

Flexible working arrangements

The Panel formed the view that, while the introduction of the right to request flexible working arrangements represented an important development in providing additional rights to certain types of working carers, the scope of the caring arrangements under the current provisions should be expanded to reflect a wider range of caring responsibilities.

After referring to various submissions on this issue, the Panel has recommended the right of employees to seek flexible work arrangements be extended to a wider range of caring and other circumstances, and that an employer be required to hold a meeting with the employee to discuss any such request (unless the employer has already agreed to the request). No real guidance has been provided as to what that wider range of circumstances may cover, although the applicable age limits for children requiring care were canvassed.

The Panel considered the question of whether a decision to refuse a request for flexible working arrangements should be appellable, but declined to recommend such a mechanism.

Enterprise bargaining and agreement making

Greater role of FWA in bargaining disputes

The Panel stated that although it was reluctant to expand compulsory arbitration, it considered that FWA could play a more proactive role in bargaining disputes to the benefit of both employees and employers.

Section 240 of the FW Act already provides FWA with considerable latitude to actively assist in a bargaining dispute, and under its general powers to deal with those disputes, FWA may take various steps including to mediate, conciliate, or make a recommendation. The Panel noted that the current process under section 240 of the FW Act was the most widely used of all the measures directed at facilitating bargaining and agreement making, but that at present, FWA only has the power to deal with a bargaining dispute under that provision if a party applies to FWA. Further, unless the dispute is about a single enterprise agreement or an agreement where a low-paid authorisation is in place, FWA can only deal with it if it has the agreement of all bargaining representatives.

As a result, the Panel took the view that the capacity for FWA to call parties in dispute before it and to exercise its dispute resolution function is a clear omission in the legislative scheme. The Panel has recommended that the FW Act be amended to include a new provision which expressly empowers FWA to intervene on its own motion where it considers that conciliation could assist in resolving a bargaining dispute, including in respect of a greenfields agreement.

Use of protected industrial action

In its report, the Panel noted that while the industrial action provisions of the FW Act have not significantly changed from Work Choices, the addition of the good faith bargaining (GFB) provisions represented a significant change to the overall bargaining framework. The Panel received submissions from a number of employer groups suggesting that the industrial action provisions sit uncomfortably with the new bargaining rules, and for that reason a key question for the Panel was whether the GFB provisions resulted in, or should result in, changes to the way that the industrial action provisions operate.

In particular, submissions received by the Panel questioned whether industrial action should continue to be available as a legitimate means of persuading an unwilling employer to bargain, in light of the new capacity to require an employer to bargain through the use of a majority support determination. The Panel stated that the policy underpinning the FW Act about whether industrial action was intended to be available to persuade an unwilling employer to bargain was not clear and that there are no express statements to this effect.

After reviewing those submissions and recent case law, the Panel has recommended significant amendments to the FW Act which would result in unions not being able to use protected industrial action to force a reluctant employer to the bargaining table, but rather those unions would be required to seek a majority support determination first before taking such action. This adopts the position taken by the employer in the recent decision of JJ Richards & Sons Pty Ltd v Fair Work Australia [2012] FCAFC 53.

Stopping, suspending and terminating industrial action

Under the FW Act, FWA has the ability to suspend or terminate industrial action that is (or is threatening to) endanger the life, personal safety or health or welfare of the population or part of it, cause significant damage to the economy, or cause significant economic harm to the bargaining parties themselves. FWA also has the power to suspend protected industrial action for a cooling-off period where it is causing or threatening to cause significant harm to a third party.

The Panel stated that it was not persuaded that any case for change had been made out in relation to those provisions, and that in their view, those provisions strike the appropriate balance between facilitating a lawful right to strike for employees, and protecting the economic interests of employers, third parties and the public.

Under section 431 of the FW Act, the Minister may make a declaration terminating protected industrial action for a proposed enterprise agreement in certain circumstances. It was submitted to the Panel that this provision would allow inappropriate political intervention in disputes and that exercise of that power could be open to legal challenge. The Panel agreed with that submission and noted that in circumstances where the Minister is permitted to make an application to FWA to obtain the same outcome, but with the benefit of an independent decision maker hearing evidence and submissions from the parties, the exercise of this power would lack legitimacy. As a result, the Panel recommended that the FW Act no longer confer power on the Minister to terminate protected industrial action as it presently does.

Individual flexibility arrangements

The Panel recommended that the provisions in relation to individual flexibility arrangements be amended to make individual flexibility agreements (IFAs) easier to access and more attractive to both employers and employees. These proposed amendments should largely be welcomed by employer groups. Recommended amendments include:

  • a requirement that enterprise agreements include the model flexibility term as a minimum, meaning that there cannot be a reduction of areas that can be subject to an IFA to less than the model clause – this is a significant change when major unions consistently demand the areas be reduced to an ineffective rump of conditions;
  • clarification of the better off overall test (BOOT) to clearly include consideration of non-monetary benefits;
  • the extension of the minimum term of an IFA from 28 days to 90 days;
  • a requirement to notify the FWO of the existence of the IFA; and
  • a new defence for employers to any subsequent claim, on the basis that an employer believed on all reasonable grounds that the requirements for an IFA had been met.

However, the Panel has rejected the view that assent to an IFA could be required as a precondition to gaining employment.

Greenfields agreements

The Panel has recommended that the provisions be made consistent with the general enterprise bargaining stream by applying GFB rules (modified as necessary) to negotiations for proposed agreements.

Given the national significance of some greenfields projects and the need for assurance in project design and investment, the Panel also recommends a form of arbitration be available if the parties are unable to reach agreement within a suitable time frame. In particular, the Panel has recommended that the FW Act be amended to provide that, when negotiations for a greenfields agreement have reached an impasse, a specified time period has expired and FWA conciliation has failed, FWA may, on its own motion or on application by a party, conduct a limited form of arbitration, including ‘last offer’ arbitration, to determine the content of the agreement.

This last recommendation seems to have been made in response to employer group submissions that unions have in the past used delaying tactics when negotiating greenfields agreements to increase their industrial leverage in relation to major projects. However, it is questionable whether even these arrangements would successfully prevent prevarication and delay from affecting the industrial necessity to secure an acceptable enterprise agreement on an upcoming major project.

Other changes

In order to increase workplace equity or remove current inequities, the Panel has also recommended that:

  • the FW Act be amended to prohibit enterprise agreement clauses that permit employees to opt out of the agreement and to prohibit the making of an enterprise agreement with one employee;
  • GFB orders be available when bargaining for a new agreement commences 90 days before the expiry of an existing agreement (preventing employers from ‘going early’ on renegotiation of agreements without exposure to GFB orders being made), and extending GFB obligations to apply to variations of agreements;
  • the protected action ballot processes be improved, including by allowing electronic voting, requiring FWA to act expeditiously, and allowing eligible union members and employee bargaining representatives at the time of a protected action ballot to vote in the ballot;
  • employers be required to continue to provide accommodation even when employees are taking protected industrial action (prohibiting remote resource sector work camps from denying striking workers the only readily available accommodation); and
  • FWA be given greater power to equitably resolve disputes over the right of union officials to make workplace visits.

Leave entitlements

The Panel has made a number of recommendations in relation to leave entitlements including:

  • where an employee requests additional unpaid parental leave (up to a further 12 month period), their employer must hold a meeting with the employee to discuss the request, unless the employer has already agreed to the request;
  • employees should not accrue annual leave while absent from work and in receipt of accident/workers’ compensation payments; and
  • the Panel has recommended that the Commonwealth, state and territory governments should expedite the development of a national long service leave standard with a view to introducing it by 1 January 2015, noting the complexities which can arise in determining an employee’s entitlement to long service leave (particularly where cross-border issues arise).

Unfair dismissal and general protections claims

The Panel has recommended that the time limits for lodging unfair dismissal applications and for general protections claims (involving dismissal) be amended to align them both to 21 days (being an increase from 14 days for unfair dismissals and a decrease from 60 days for relevant general protection claims).

The Panel has also suggested that FWA:

  • be given the power to dismiss unfair dismissal applications in certain circumstances;
  • be able to deal with applications by way of a hearing process that is informal, inquisitorial and determinative; and
  • should have the power to make costs orders against a party if, during the conduct of the case, it becomes clear that it should be settled or discontinued, but the party unreasonably pursues a proceeding (costs orders are currently limited to circumstances in which a person unreasonably commences a proceeding).

In relation to general protections claims, the Panel noted that a significant numbers of employers submitted concerns with the general protections, especially the level of uncertainty that remains over the operation of the provisions and the relative ease with which unmeritorious claims proceed through to conciliation and hearing. In addition, The Panel noted that nearly every party who made a submission about the operation of the general protections referred to the Full Federal Court decision in Barclay v The Board of Bendigo Regional Institute of Technical and Further Education [2011] FCAFC 14, a matter currently on appeal to the High Court of Australia.

In that case, the majority overturned the first instance decision finding that the employer had contravened the “industrial activities” protection when it took action against the employee after he emailed union members in his capacity as a union delegate. In determining what motivated the dismissal, the majority stated that while the state of mind or subjective intention of the employer is centrally relevant, it does not conclusively determine whether the employer acted for a prohibited reason. What is determinative is the “real reason” behind the employer’s conduct, not what the employer thinks was the reason. The majority held that the real reason may be conscious or unconscious, and where unconscious or not appreciated or understood, adverse action will not be excused simply because its perpetrator held a benevolent intent.

The Panel stated that it preferred the approach taken by the minority in that case. The Panel noted that if the High Court adopted the minority view, employers would have access to the defence that their belief about the lawfulness of their actions was honestly held and reasonable considering all of the circumstances.

However, the Panel stated that if the High Court adopts the majority view, it recommends the Government give employers a broader defence and that the FW Act be amended to provide that the central consideration as to the reason for adverse action is the subjective intention or intentions of the person or persons taking the alleged adverse action. This amendment would be strongly welcomed by employers.

Submissions not accepted by the Panel

The Panel rejected some submissions as diminishing fairness or otherwise being contrary to the objects of the FW Act, or as unreasonably favouring one party over another. In particular, the Panel did not accept that:

  • the FW Act should be amended to permit easier access to arbitration in the case of long running disputes, or where employees lack industrial strength;
  • the FW Act should be amended to further permit FWA to terminate prolonged industrial action;
  • the permitted matters for negotiation in enterprise agreements should be restricted to those permitted in the Work Choices framework – strong submissions were made on this issue by employer groups particularly in relation to restrictions on the engagement of contractors and labour hire workers; or
  • the Commonwealth should permit individual agreements with provisions that undercut modern award provisions.