Award modernisation far from over

For many employers, particularly SMEs, the real spadework associated with award modernisation has only just begun. And even the Fair Work Australia’s job isn’t finished.

The anecdotal evidence strongly suggests that SMEs are only now coming to grips with the impact that Modern Awards will have on business. Fair Work Australia has so far received 33 applications to vary awards, so getting on top of the existing state of affairs won’t be enough either. There is also a transitional period for some increased conditions, during which any increases will be introduced in five annual stages starting on July 1. The transitional period will give employers some breathing space to sort themselves out. For some it is apparent what a big task this is. Compliance will also require constant monitoring.

A lot of people and organisations have put a lot of time and effort into the modernisation process, all within a timetable that cynics might argue was driven hard by politics. It is a credit to the Australian Industrial Relations Commission that it disposed of its work before the nominal December 31, 2010. It is no slight, but it is hardly a surprise, to find that anomalies are emerging.

They key starting point for employers is ensuring that employees within their business have been properly classified under the new award structure. Many employers face the problem of having been a “named” respondent to an old Federal Award, which wasn’t necessarily squarely fitted to their business. That might include businesses which serviced, or were adjunct to, the core industry covering the award. That of course was a consequence of awards being made in resolution of industrial “disputes”, often nothing more than a construct on paper.

Unions that were first in with a particular employer or group of employers were, very often, best dressed. Even then, which union, and consequently which award, were relevant to the employer was the subject of a later demarcation dispute.

The Modern Awards simply apply by force of law to any corporate employer that falls within their coverage, much like the way that State Awards applied to the residual of employees not covered by Federal Awards. Coverage is determined either by industry, that is all employers in an industry, such as manufacturing, or by occupation, that is all employers who have employees performing certain occupational tasks, such as clerical. So, employers that were previously covered by one award relevant to the industry they are in, might now find themselves covered by several awards according to the breadth of occupations that their employees are engaged in. And likewise an employer who previously had several awards to consider, might now find that only one or two are relevant.

The result is that plenty of employers have found that the rules have changed.

Most people would have read of the retail employer in country Victoria forced to terminate the employment of teenagers performing work after school. The new Modern Retail Award provided that those employees had to be paid for at least three hours work, when they might in fact work only for an hour and a half. One of the variation applications referred to earlier on is to reduce the three hour minimum to two hours. Leaving aside the emotive arguments and the politics, it’s a significant adjustment for the employer to have to make.

Many applications have been made by superannuation funds to ensure that they are listed as default funds in certain industries. Some applications have been made to iron out errors in pay rates. Other variation applications have been lodged by individual employers simply seeking some guidance or interpretation of how their obligations have changed. For many employers, a comprehensive process of matching old award classifications and employees position descriptions against a range of possible Modern Award candidates has been the norm.

The transition periods also add a layer of complexity. The AIRC had to find a way to soften the blow of increases or decreases in rates of pay and penalty rates that became applicable from January 1, 2010, in cases where the rate on December 31, 2009 was potentially substantially different. They opted for a scheme where the difference between the old and the new rates is phased in over five equal installments, beginning on July 1, 2010. Rates can be reduced as well as increased, but existing employees are able to seek a “take home pay” order to ensure that they are not disadvantaged. The prospect of engaging a new employee to do the same work as someone employed before January 1, but on a lower rate of pay won’t, for many employers, be worth the fallout in the workplace.

Many employers will want to consider offering individual flexibility agreements in order to legitimise existing arrangements with employees which were permissible under old awards, but may not be strictly compliant with Modern Awards. The transitional provisions will also impact on how employers make collective and individual flexibility agreements. They will need to ensure that for each year of operation the agreement meets the increasing minima, in order to pass the better off overall test.

The lessons for employers:

• Get on top of your new award obligations now. You may already be in breach without realising it. July 1 is not far away, the Fair Work Ombudsman will be on the job and the penalties for non-compliance are significant.
• If you aren’t sure about what Modern Award applies or how you should appropriately classify employees, get advice from an industry body or professional adviser.

Peter Vitale is the principal of CCI Lawyers.