In the December 2009 issue of Employment Matters we outlined the legislative changes that have extended the operation of the Fair Work Act 2009 (FW Act) to cover all private sector employers, other than in Western Australia. We also looked at two key decisions by the Australian Industrial Relations Commission (AIRC) in relation to the new system of “modern awards”.

In the wake of those developments, the federal government has issued a number of new or amended regulations to complement the operation of both the amended Fair Work legislation and the modern award system.

Many of the changes are of a technical or consequential nature, although significant features include:

  • a confirmation of the various public sector or local government employers in New South Wales, Queensland and South Australia that will be excluded from the FW Act, even if they are otherwise corporations – see Fair Work (State Declarations – employers not to be national system employers) Endorsement 2009
  • a new model term on dispute resolution that will be included in all Division 2B State awards for “referred” employers – see Fair Work (Transitional Provisions and Consequential Amendments) Regulations 2009 (TPCA Regs) reg 3A.02, and
  • a power for Fair Work Australia (FWA) to deal with applications for the variation of modern awards originally made to the AIRC, but not finalised before I January 2010 – see TPCA Regs reg 3B.01.

In relation to this last provision, it is important to understand that there are many such applications still outstanding, and that each week new decisions are being issued by FWA. In some cases variations are being granted with retrospective effect.

It is vital to keep checking the FWA website (www.fwa.gov.au) for new developments, and in particular that any version of a modern award previously printed or downloaded remains current.

Applying the better off overall test where a modern award has transitional arrangements

One important change relates to the way in which enterprise agreements made under the FW Act are to be assessed against modern awards.

The Act requires a new agreement to leave each of the employees it will cover “better off overall” than they would have been under a modern award (or award-based transitional instrument) that would otherwise apply to them.

Under section 193, the comparison between award and agreement conditions required by the better off overall test (BOOT) is to be made as at the date the relevant agreement is lodged for approval by FWA.

However, the fact that most modern awards require a phased transition from old to new wage conditions that may extend over a five year period has necessitated the modification of this simple “point-in-time” approach.

Under a new Schedule 2.1 of the TPCA Regs, FWA is required to adopt a different approach, at least during a “transitional” period’ that finishes at the end of 2014.

In applying the BOOT, it will still only assess an agreement once. But it must have regard not only to the conditions set by the award at the date the agreement is lodged, but the conditions that will subsequently apply under the award as at 31 July in each year that falls within both the transitional period and the nominal period of the agreement. However, no account is to be taken of any possible variations to the award that may be made in the future – for example as a result of FWA’s annual wage reviews.

Suppose for instance that a three-year agreement is lodged in March 2010, and that it needs to be assessed against a modern award that contains wage rates, penalty rates or loadings that will be increasing as from 1 July 2010.

It would not be enough for the agreement to offer a set of conditions that were superior to the award as at its commencement. It would also be necessary to compare the conditions to be set by the agreement as at 31 July 2010 with the increased award rates at that date. Similar comparisons would need to be made between the two instruments as at 31 July 2011 and 31 July 2012. A failure to offer better conditions for all affected employees at just one of those dates would mean the agreement failing the BOOT.

Where an agreement has conditions that are well above the award safety net, this is unlikely to prove a problem in practice. But for some employers, the new regulations will complicate the process of determining what conditions to offer over the life of an agreement.

It will be important for those employers to obtain clear and accurate advice as to the operation of the transitional provisions in a modern award. This may require complex calculations – especially where some rates are going up and others in the same award are coming down over the transitional period.