In our first four publications of the Back-to-Basics Series, we looked at the factors that underpin the employment relationship, examined the different types of employment relationships, discussed the central role of the employment contract, and looked at the legislative foundations that underpin the industrial regime in Australia.
In our fifth publication of the ongoing series, we now examine the role of modern awards and enterprise agreements in the regulation of employment terms and conditions. Other than the NES, the Fair Work Act 2009 (Cth) (“Fair Work Act”) provides for a number of mechanisms to regulate basic terms and conditions of employment, the most important being modern awards and enterprise agreements.
Each of these industrial instruments are examined in more detail below.
Modern Awards
Modern awards (“Awards”) are legally binding instruments, made by the Fair Work Commission (“FWC”), which establish the minimum wages and working conditions that must be provided to employees in particular industries and occupations. Modern awards were implemented in January 2010 and replaced the various preceding State and Federal Awards. There are now over 120 Awards which apply across almost every industry. They also apply across Australia and no longer depend on relevant state jurisdiction.
Awards set out terms and conditions which apply in addition to the requirements set out by the National Employment Standards (“NES”). In particular, Awards set out minimum conditions of employment with respect to:
- minimum wages;
- penalty rates;
- overtime;
- leave;
- allowances (such as travel, accommodation, uniforms, etc);
- breaks (rest or meal breaks);
- rosters;
- hours of work; and,
other provisions such as, dispute resolution and consultation requirements including as they relate to redundancy and major workplace changes.
Modern awards cover a vast number of employees across almost all areas of work. Award coverage can either be based on industry or occupation. For example, Awards such as the Restaurant Industry Award and the Gas Industry Award cover employees based on the industry in which they are employed. Other employees for example, clerical employees, receptionists and call centre staff, fall under the Clerks Private Sector Award, an occupation-based Award. Similarly, engineers, technology professionals and scientists are covered by the Professional Employees Award.
Award coverage is further complicated by the different classifications and levels within an Award. For example, the Restaurant Industry Award includes classifications such as Kitchen Attendants, Cooks, and Food and Beverage Attendants. Each of these classifications are then split into multiple levels, or grades, which set out minimum wages for employees based on the skill level and responsibilities of an employee.
There are also limited circumstances where an employee will be ‘award-free’. Certain senior employees, typically employees with responsibilities and duties beyond the scope of the otherwise applicable modern award, may also be award free. However, the fact that an employee receives a remuneration in excess of Award minimums does not remove coverage of the Award, even if the employee’s salary is far in excess of the rate set by the Award.
To determine whether an employee is within the ambit or scope of a modern award, the employer must look at the coverage clause of the particular Award and firstly determine whether its enterprise fits within the coverage. This is particularly so for industry-based Awards. Once it has been determined that the Award does cover the business of the employer, then the roles performed by the relevant employees should be compared to the employee’s job description and their day-to-day duties and responsibilities. If the employee’s duties fall within one of the classifications of the Award, the Award will cover that employee regardless of what they earn. Employers can find a list of all of the current modern awards on the Fair Work Commission’s website.
It is extremely important for employers to ensure that they identify the correct Award, classification and level of an employee, because failing to do so can have significant ramifications for the business.
Some of the most common mistakes made by employers include:
- not applying an Award;
- applying the incorrect Award;
- not applying the Award correctly;
- failing to pay employees in accordance with Award requirements, including payment for overtime and penalties (weekends and overtime hours); and
- failing to ensure that employees’ breaks comply with the correct Award.
The failure to apply an Award, or applying an Award incorrectly, can result in what is known as wage theft. Wage theft explains a situation where an employer underpays their employees or fails to provide their employees with adequate entitlements. Although wage theft can often be unintentional, ignorance is no excuse and the Fair Work Ombudsman will nevertheless take a dim view of the employer, which may result the business being liable to pay large back payments and penalties.
More information about the implications of modern award coverage and the costs of getting it wrong can be found in our article ‘Why Every Employer Needs to Consider The Implications of Modern Award Coverage’.
Enterprise Agreements
Enterprise Agreements are collective agreements made between an employer (or employers) and the employees and/or unions that represent the employees within a business. Much like Awards, enterprise agreements also determine minimum requirements for employees regarding pay and conditions. However, while modern awards include minimums which are set out by industry, enterprise agreements are specific to an enterprise, a business, or a group of businesses.
Enterprise agreements negotiated between an employer and its employees allow the parties to agree terms that are more relevant to the particular business. This can significantly reduce the administrative burden imposed by compliance with complex modern awards. It also provides the flexibility for parties to agree to working conditions and remuneration that reduces the need for constant calculation of overtime, penalty rates and other financial imposts. This can significantly improve productivity and reduce administrative costs.
While employers and employees collectively determine the terms set out in an enterprise agreement, there are minimum requirements that must be met in order for the FWC to approve the creation of an enterprise agreement. For example, an enterprise agreement cannot provide for basic pay rates lower than those in the relevant modern award, and the terms of the enterprise agreement cannot be less advantageous for employees than the terms set out by the NES.
Once the enterprise agreement has been agreed upon by the employers, employees and/ or unions, the FWC applies what is known as the ‘Better Off Overall Test’ (“Boot Test”). The Boot Test requires employees to be better off overall under the enterprise agreement than they would be under the relevant Award. If an enterprise agreement passes the Boot Test, and satisfies all other legislative requirements, it will be approved by the FWC, will apply to the employees of a business and will take the place of the relevant modern awards that would otherwise cover and apply to those employees.
It is also possible for enterprise agreements to be negotiated by the employer and a union on behalf of employees. Union agreements are becoming more common in light of the recent change of government. In fact, there is now discussion and a Bill before Parliament seeking to create the possibility that unions can negotiate industry wide agreements that would apply to a number of businesses, without the need for the businesses themselves to be involved in the negotiations. This is a contentious point, and we will need to wait and see whether these types of agreements find their way into the proposed legislation.
More information about how employers can ensure that they are compliant with their enterprise agreements can be found in our article, ‘Enterprise Agreements: How Do They Operate and How Can They Be Terminated’.
Key Takeaways
The key learnings to keep top of mind in respect of this alert are the following:
- modern awards and enterprise agreements set out minimum requirements in relation to pay and conditions;
- modern awards apply to employees within an industry or specific occupation while enterprise agreements are specific to a business and are made between employers, employees and in some cases unions;
- employers need to ensure that they identify the relevant modern awards applicable to their business and employees, and ensure they are compliant; and
- failure to understand and abide by the requirements of these industrial instruments can result in significant backpayment issues, penalties and even prosecutions by the Fair Work Ombudsman.
Accordingly, and in light of the above, we recommend employers continually review whether they are complying with relevant applicable industrial instruments.
If you wish to discuss any aspect of this article or require our specialist advice or assistance in relation to an employment law matter, please do not hesitate to contact us.