Employment relationships are set to change with the introduction of the Fair Work Act 2009. From 1 January 2010 the National Employment Standards contained in the Fair Work Act, and a new system of between 100 and 150 modern awards will take effect. Employers and employees alike need to know how the new system will affect their rights and obligations.

The Australian Industrial Relations Commission (AIRC) is finalising its development of a system of modern awards, set to come into operation on 1 January 2010.  Two phases of award arbitration are complete, with 44 modern awards handed down to date of a likely total of between 100 and 150 awards covering industries and occupations.  A third group of awards have been released for public comment, and the fourth group is scheduled to be issued in September and finalised in December 2009.

Very few, if any, non-managerial employees will not be covered by a modern award - given that the AIRC has indicated that it will prepare an industrial award for all industries and occupations.

All modern awards are required to contain a model flexibility clause, which can be used by employers to tailor flexible arrangements to individual employees’ needs and industry specific arrangements.

Modern Awards are read in conjunction with the National Employment Standards (NES) contained in the Fair Work Act 2009 (Cth), which also come into operation on 1 January 2010. In some instances, Modern Awards will modify the NES to be industry specific - for example, to take into account rostered days off, or loading payable on annual leave.

Common law contracts that provide for above-award payments no longer necessarily insulate employers from award obligations to pay penalty and overtime rates, allowances and annual leave loading. To achieve this, the contract must contain a carefully worded set-off and application clause tailored for the employee and the modern award and referring to particular entitlements. 

Given the award will include a “flexibility clause”, it will also be possible to update a contract to include the flexibility provision, so that an annualised salary amount paid at a level that incorporates particular award entitlements could guarantee enforceability of the above-award arrangement.

The difficulty with flexibility clauses, however, is that they cannot be a pre-condition of employment, and they may be revoked at the behest of the employee on 28 days’ notice. Accordingly, such arrangements must be treated carefully.

Steps for Employers

Employers should update their understanding of the impact modern awards will have on their organisation and manage compliance via a thorough audit of award coverage and the terms of applicable modern awards.

Employers should:

  • carefully assess which modern awards will apply to them. It may be the case that employers that have traditionally not been subject to award coverage will now be covered by modern awards e.g. the real estate industry in Victoria.
  • determine whether it is still viable to require employees to work after-hours and on weekends, if they have traditionally used contractual arrangements to pay over-award rates of remuneration but not otherwise pay overtime rates and weekend penalty rates. They may no longer be able to do so unless the model flexibility mechanisms are used - and if the new arrangements are used, the employer may face increased labour costs and administrative costs.
  • consider whether any traits particular to their workplace will make it difficult to use the model flexibility clause - noting that employees can give 28 days’ notice that they no longer wish the individual flexibility agreement to apply.
  • consider mechanisms to “insulate” themselves from the force of modern awards, such as an enterprise bargaining agreement, if it appears modern awards would not be a preferred form of industrial regulation for their workplace.
  • be mindful of the new “adverse action” and “workplace rights” provisions of the Fair Work Act 2009 (Cth) in determining how to manage the liability – e.g. do not subject an employee to a detriment or some form of discrimination because he or she will now have the benefit of a modern award.