Earlier today, the federal government released the keenly-awaited report of the independent review of the Fair Work Act 2009.

In December 2011, the federal government announced that an independent review of the Fair Work Act 2009 (FW Act) would be conducted by a panel comprising economist John Edwards, labour law academic Ron McCallum and retired Federal Court judge Michael Moore.

The terms of reference for the review describe it as involving an ‘evidence based assessment of the operation of the Fair Work legislation, and the extent to which its effects have been consistent with the objects set out in section 3 of the Fair Work Act’.

The review panel’s report, entitled Towards More Productive Workplaces: An Evaluation of the Fair Work Legislation, has now been released: see www.deewr. gov.au/WorkplaceRelations/Policies/ FairWorkActReview.

The overall verdict is that ‘the current laws are working well and the system of enterprise bargaining underpinned by the national employment standards and modern awards is delivering fairness to employers and employees’ (p 3).

The review nonetheless puts forward 53 proposals for improving the Fair Work system, many of which would involve amendments to the legislation.

Some of these would address technical problems that have been identified, or (in a few cases) reverse contentious interpretations of the current Act. For the most part, however, the panel has emphasised the need to allow the newer aspects of the Fair Work regime to be fully tested, before rushing to intervene.

Among the more significant recommendations are that:

  • Fair Work Australia (FWA) should be renamed, and encouraged to take on a greater role in ‘actively encouraging more productive workplaces’ (p 19)
  • the right of employees to request flexible work arrangements should be extended to anyone with caring responsibilities
  • individual flexibility arrangements (IFAs) should be made more accessible, but also more transparent
  • FWA’s capacity to help resolve bargaining disputes should be extended, but only in limited respects (for example, in relation to greenfields agreements) – contrary to expectations, there is no proposal to lower the threshold for the compulsory arbitration of intractable disputes
  • the time limit for lodging an unfair dismissal claim should be extended to 21 days following termination, while the same period should apply for commencing a dismissal-related claim under the ‘general protections’ in Part 3-1 of the Act, and
  • employers (and other defendants) should be able to resist a general protections claim by relying on a honest belief that any ‘adverse action’ was taken for a non-prohibited reason.

While a number of the proposals will be welcomed by employers, there is nothing here that can be said to involve a radical change to the legislation. The panel has rejected the overwhelming majority of the changes that had been called for by those making submissions to the review, generally on the basis that the suggested reforms were not compatible with the objects of the legislation, or were not substantiated by the available evidence. That will obviously disappoint some business groups, though it will not come as any surprise to them.

In releasing the report, Workplace Relations Minister Bill Shorten has indicated that the government will be consulting with stakeholders over the review’s findings before announcing any response. There is no set timeframe for any legislation to be put before Parliament, though the Minister has expressed the hope that some less contentious reforms at least might be introduced and passed by the end of 2012.

Impact of the Fair Work Legislation

The review’s principal finding is that ‘the effects of the Fair Work legislation have been broadly consistent’ with the stated objects of the Act, and that it is ‘operating broadly as intended’ (p 18).

The panel also concludes, after an extensive review of economic data and other statistics, that since the introduction of the Fair Work regime in July 2009 ‘important outcomes such as wages growth, industrial disputation, the responsiveness of wages to supply and demand, the rate of employment growth and the flexibility of work patterns have been favourable to Australia’s continuing prosperity’ (p 19).

While productivity growth in Australia has been ‘disappointing ‘ over the past decade, the review notes that this has been the case under both the Fair Work system and the legislation that preceded it. In contrast to the widely expressed view by business leaders that the current laws are holding back economic performance, the panel finds nothing to suggest that the ‘productivity slowdown’ can be traced to changes in ‘the legislative framework for industrial relations’ (p 19).

The review likewise concludes that there has been no significant increase in the number of industrial disputes, and that there is no evidence to support claims that either minimum wage increases or the increased availability of unfair dismissal claims (compared to the Howard Government’s Work Choices regime) has had a discernible impact on levels of employment.

Consistent with that view, the report rejects proposals from employer groups for a return to ‘voluntary bargaining’, the reintroduction of statutory individual agreements, a relaxation of the ‘better off overall test’ for agreement-making, or a narrowing of the ‘transfer of business’ provisions. Nor does it accept that there should be any significant curtailment in the right of employees to complain of unfair dismissal or take industrial action, or the right of union officials to enter workplaces.

At the same time, the panel has proposed a number of changes that it envisages will assist in improving productivity. These relate in particular to FWA’s role and powers, as well as to the regulation of IFAs and greenfields agreements. Each of these are briefly outlined below.

Institutional Framework

The review expresses the view that the Fair Work Ombudsman (FWO) ‘has been successful in carrying out its education and enforcement activities, and has the right tools at its disposal to further enhance those activities’ (p 255). But it has rather more to say about the other main institution created to administer the Fair Work legislation, FWA.

Among the changes formally proposed in the report are two that have been championed by the new FWA president, Justice Iain Ross. One is to rename the agency, preferably as some form of ‘Commission’, but without the ‘Fair Work’ prefix that is so confusingly attached to other bodies, as well the Act itself.

The other is to extend FWA’s activities in actively encouraging more productive and co-operative workplace relations. This might be done, for instance, by ‘identifying best-practice productivity enhancing provisions in agreements and making them more widely known to employers and unions, encouraging the development and adoption of model workplace productivity enhancing provisions in agreements, and disseminating information on workplace productivity enhancement through conferences and workshops’ (p 21).

The report also encourages ‘further consideration’ for the idea of separating FWA’s functions ‘as a tribunal and as an administrator overseeing registered organisations’ (p 250), though without recommending that as such.

The Safety Net

There are relatively few changes proposed to the safety net of minimum employment conditions established by the FW Act.

In relation to the modern award system, the review notes that many issues raised in submissions were in fact better regarded as falling within the scope of the periodical reviews which the legislation requires FWA to conduct. The panel acknowledges ‘the difficulties imposed on employers with the complex phase-in arrangements for modern awards’, but nonetheless expresses the view that the end result of the modernisation process will be ‘a complete, stable and easy-toapply set of modern awards’ (p 280).

As far as the National Employment Standards (NES) in Part 2-2 of the Act are concerned, the most significant changes proposed by the review relate to the right of employees to request flexible work arrangements. At present this is limited to parents of pre-school or disabled children, and not (for example) those caring for elderly relatives or adults with disabilities. The panel recommends that the right be ‘expanded to reflect a wider range of caring responsibilities’ (p 98).

It is also proposed that employers not be able to reject requests without meeting the employee, and there is a similar recommendation in relation to requests to extend parental leave. But the panel has resisted calls to give employees a right to appeal against rejections of either type of request.

The review has also recommended that the process of harmonising State and Territory long service laws should be expedited; and that the government consider whether to limit to 11 the number of public holidays for which penalty rates can become payable.

Two more specific changes to the NES proposed in the review will be welcomed by employers. These are to preclude injured employees from accruing annual leave while absent on workers compensation; and to provide that an annual leave loading is not payable on termination of employment, unless an award or enterprise agreement says otherwise.

Individual Flexibility Arrangements

The review has recommended a number of significant changes to the provisions regarding ‘flexibility terms; in industrial instruments. But it is unclear whether these will in practice have much effect in encouraging the use of IFAs.

To meet employer concerns that unions are effectively negating the use of IFAs under enterprise agreements, it is proposed that agreements will, as a minimum, have to permit individual employees to negotiate arrangements as to the full range of matters covered by the model flexibility term in Schedule 2.2 of the Fair Work Regulations 2009: that is, the times at which can be performed, overtime or penalty rates, allowances and leave loadings.

Further changes are proposed ‘to make IFAs easier to access and more attractive to both employers and employees’ (p 19), whether under awards or enterprise agreements. These include:

  • lengthening the period of notice to be given to terminate an IFA from 28 to 90 days (unless a shorter period is agreed)
  • making it clear that the betteroff overall test can be satisfied by providing non-monetary benefits in lieu of monetary entitlements, and
  • providing that an employer may defend an action for breaching a flexibility term by showing that it followed the required procedures and reasonably believed that the requirements for a valid IFA were satisfied.  

At the same time, the review rejects any suggestion of employers being able to make an employment offer conditional on the signing of an IFA. It also recommends that whenever an IFA is made, certain details must be reported to the FWO, including the name of the employee. This may well have the effect of dissuading certain employers from using IFAs at all, given the greater scrutiny that such a requirement might well be expected to invite.

Enterprise Bargaining and Agreement-Making

There is a strong emphasis in the report on allowing the new enterprise bargaining system to settle down and be fully tested before FWA and the courts, before rushing to make any changes. Hence, for example, no great changes are recommended in this area, other than:

  • allowing a bargaining order to be sought where bargaining for a new agreement commences more than 90 days before the expiry of an existing agreement
  • extending the good faith bargaining requirements to apply to both greenfields agreements and proposed variations to an agreement  
  • requiring representation notices issued by employers to be lodged with FWA and made publicly available
  • precluding a union official from acting as an individual bargaining representative for an employee over whom the relevant union has no coverage, and
  •  prohibiting individual ‘opt-out’ clauses in agreements.

Many other proposed changes have been rejected, including suggestions that the permissible content for enterprise agreements should be either significantly expanded, or conversely narrowed (as it had been under Work Choices).

There is to be an expanded role for FWA in two other respects. One is to permit it to intervene in a bargaining dispute and compel the parties to participate in conciliation, even if none of those parties has requested such assistance.

The other relates to greenfields agreements, where the review acknowledges employer concerns about the capacity of unions to ‘frustrate’ the making of an appropriate agreement for a new worksite, with potentially adverse consequences for investment in major projects (p 171). Although rejecting any notion of returning to the Work Choices regime, under which employers could bypass unions and make an ‘agreement’ with themselves, the review proposes increased powers for FWA to intervene to resolve deadlocks.

In particular, it is envisaged that where negotiations for a greenfields agreement have reached an impasse, and any conciliation has failed, FWA may ‘conduct a limited form of arbitration, including “last offer” arbitration, to determine the content of the agreement’ (p 24).

By contrast, the review does not support calls to lower the threshold for compulsory arbitration by FWA in other contexts: for example in long-running disputes (such as that at Cochlear) where an employer has staunchly resisted negotiating a first agreement; or where damaging industrial action is not considered sufficiently ‘significant’ (ie, exceptional) to warrant the action being terminated.

Given the support from both unions and employers for easier recourse to arbitration, albeit in different situations, it may well be that this is one area of the review where the government might be persuaded to take a different approach.

Industrial Action

Among the relatively few changes envisaged to the industrial action regime is a recommendation to reverse the effect of the much discussed JJ Richards ruling. In that case, it was held that a union can organise protected industrial action against an employer that is refusing to bargain, without first having to seek a majority support determination.

Such a right had clearly existed under the Howard Government’s Workplace Relations Act. But given that the FW Act had ‘sought to codify the circumstances in which an employer can be positively required to bargain’, the review panel considers it ‘incongruous for industrial action to be available to bring pressure to bear on an employer to bargain outside of those circumstances’ (p 177).

Accordingly it is recommended that a protected action ballot order can only be sought where bargaining for a proposed agreement has actually commenced, either voluntarily or because of the issue of a majority support determination.

It is also proposed to remove the Minister’s power to terminate protected industrial action that is threatening public safety or the economy. Such an application would have to be made to FWA instead – which has always been the case in practice.

Union Rights of Entry

Again, very few significant changes are proposed to the right of entry provisions, other than to clarify and expand FWA’s power to resolve disputes over ‘unjustified excessive visits’ to a workplace, or the location of interviews or discussions.

Transfer of Business

With one exception, employer complaints about the ‘transfer of business’ provisions in the FW Act have been dismissed by the panel, which sees the new regime as creating greater certainty, as well as more appropriate protection for employees whose jobs are moved from one organisation to another.

The exception concerns the question of employees transferring between related entities in a corporate group – an issue specifically raised by Qantas. It is proposed that where an employee seeks on their own initiative to make such a move, they will be covered by any award or agreement that applies to the new employer, rather than their old employer’s instrument moving with them.

Unfair Dismissal

Although recognising that the new unfair dismissal system is generally working well, the review recommends a number of changes.

One of these will give dismissed employees 21 days in which to lodge an unfair dismissal claim under Part 3-2 of the FW Act, compared to 14 under the present regime. Importantly, however, the same time limit is to apply to ‘dismissalrelated general protections’ claims under Part 3-1, which at the moment are permitted within 60 days following a dismissal.

The effect of this proposal, if implemented, will be to deny dismissed employees and their representatives the option of pursuing an ‘adverse action’ claim in the event that they miss the unfair dismissal time limit: it will have to be one or the other.

Other recommendations effectively involve giving FWA greater power to reject or deter unmeritorious claims. For example, FWA is to be specifically permitted to dismiss an application ‘where the parties have concluded a settlement agreement, or where an applicant fails to attend a proceeding relating to the application, or where the applicant fails to comply with FWA directions or orders relating to the application’ (p 26).

There is also to be an expanded power to award costs ‘against a party that has unreasonably failed to discontinue a proceeding, or that has unreasonably failed to agree to terms of settlement that could have lead to discontinuing the application, or that has through an unreasonable act or omission caused the other party to incur costs’ (p 26).

General Protections

Many of the complaints levelled in employer groups submissions against the new general protections are dismissed by the review as being without foundation, or at least as being premature (given that the meaning of the new provisions is still to be fully explored or settled by the courts).

But aside from the change noted above to the time limit for dismissal-related claims, employers will undoubtedly welcome the recommendation that if the High Court fails to overturn the Full Federal Court’s decision in Barclay v Bendigo TAFE, the legislation should be amended to clarify that ‘the central consideration about the reason for adverse action is the subjective intention of the person taking the alleged adverse action’ (p 26).

In effect, this would allow employers (and other defendants) to escape liability for taking what would otherwise constitute adverse action, on the basis that they genuinely believed they were taking the action for a reason other than those prohibited by Part 3-1. This had been generally understood to be the position prior to Barclay – and may well still be if, as many expect, the High Court allows the appeal in that case. A decision is expected sometime in the next few months.

A further recommendation relates to the ‘sham contracting’ provisions, and in particular the prohibition in s 357 on misrepresenting an employment relationship as a contract for services. At present, an employer that mistakenly treats an employee as an independent contractor can escape liability by showing that it did not the true nature of the relationship, and was not reckless as to that matter. The review recommends that the defence be changed so that the employer must show that it could not reasonably have been expected to know the worker was an employee.

What Happens Next?

As noted earlier, the government will now engage in a consultation process that may well result in some changes to what the review has proposed. But given the general tenor of the report, and its strong endorsement of the Fair Work legislation, it would seem likely that any departures will be kept to a minimum. The main focus of the consultation is likely to be over matters of detail and drafting, not so much content.

Given the fact that an election is due next year, the government will be keen to move as quickly as possible to draft the necessary amendments and have them passed by Parliament. Of course, whether the Greens and independents who hold the balance of power will be prepared to co-operate is another matter entirely.