The primary legislation regulating the employment relationship in Australia is the Fair Work Act 2009 (Cth) (the Fair Work Act). This legislation sets minimum terms and conditions of employment (as set out in the 10 National Employment Standards), provides statutory protection for job security and other employee protections, regulates unions and the collective bargaining process, provides for the setting of minimum terms and conditions for specific industries via the making of specific industrial instruments, sets out the role of the independent employment tribunal (Fair Work Commission) and deals with a range of other matters.
There are also State employment laws, which affect employers in relation to some issues (for example, long service leave, work health and safety and workers compensation). There are also laws covering superannuation, unlawful discrimination and other issues.
In this article, we will look at the main features of the Fair Work Act and also examine some particular issues for small and medium businesses.
The Fair Work Act applies to all businesses which are ‘national system employers’. A business will be a national system employer if it is an incorporated entity, such as a ‘Pty Ltd’ which is actually trading or if engaged in interstate trade of commerce.
As a result of legislation referring power to the Commonwealth, all private sector employers (including non-incorporated employers such as partnerships and sole traders) in all States and Territories except Western Australia are also covered.
National Employment Standards
A central feature of the new system is the 10 National Employment Standards set out in the Fair Work Act as minimum conditions for all employees, as follows:
- Ordinary Hours are set at a maximum of 38 per week for full time employees, plus ‘reasonable additional hours’.
- Employees have the right to request flexible working in certain circumstances, including if the employee has the responsibility of care for a school age child. This right can be exercised by certain categories of employees, including permanent employees with at least 12 months continuous service and long term casuals who have a reasonable expectation of continuing employment on a regular and systematic basis.
- Most employees are eligible to apply for up to 24 months of unpaid leave in relation to the birth or adoption of a child (for employees who have had a minimum period of 12 months service).
- Most employees are entitled to a minimum of 4 weeks annual leave per year. Shift workers are entitled to 5 weeks per year.
- Most employees are entitled to personal/carer’s leave, which includes sick leave and compassionate leave. The entitlement is 10 days paid leave per year, untaken leave is carried forward but not paid out on termination.
- Most employees are eligible for up to 10 community service leave days per year. This leave is unpaid except for jury service.
- Uniform Long Service Leave entitlements are to be agreed by all State and Territory governments – this has not happened yet and in the meantime existing State laws continue to apply.
- Certain public holidays are guaranteed – there is an entitlement for the employee to be absent on public holidays and to be paid for ordinary hours on those days.
- Termination and redundancy pay and notice entitlements apply to most employees – up to five weeks’ notice and up to sixteen additional weeks’ redundancy pay, based on age and length of continuous service.
- A Fair Work Information Statement to be provided to all new employees
Employers who breach the Standards face personal penalties of up to $12,600 for an individual and up to $63,000 for a corporation, in addition to paying compensation for the breach to the employee.
Under the Fair Work Act more than 4000 State and Federal Awards under the previous legislation were consolidated into the approximately 130 Modern Awards which now apply. The Modern Awards apply to employers in particular industries, rather than to named groups of employers or employer groups as applied previously, and build on the National Employment Standards, covering such additional matters as minimum wages, types and classification of employment and when work is performed, overtime and penalty rates, annualised salary arrangements and superannuation.
All Modern Awards contain provisions allowing employers and individual employees to enter into agreements varying the operation of the Award for the individual employee in relation to:
- the hours in which work is performed,
- overtime and penalty rates, and
- allowances and leave loadings.
These agreements are known as “Individual Flexibility Arrangements”. To be valid and enforceable, the agreement must be in writing, be made without coercion and result in the employee being “better off overall” compared to the award provisions. The agreement may be terminated by either party with four weeks’ notice in writing.
The Fair Work Act provides that a Modern Award will not apply to a “high income employee”, which means an employee whose guaranteed annual earnings exceed an indexed high income threshold, which is currently $148,700 per annum. Importantly, however, it is not enough that such an employee have a contractual entitlement to the relevant amount. For the Modern Award not to apply, the employer must give a formal, written guarantee and the employee must agree to accept that undertaking. This can also be agreed with prospective employees before they commence employment. Effectively, this is a means for contracting out of award for higher income employees.
Significant Issues for Small and Medium Business
- Modern Awards
With the introduction of the Fair Work Act, some sectors that were previously largely Award free, such as private training enterprises and colleges and information technology enterprises, were now covered by Modern Awards, and in some cases this required significant changes to work practices. Even now, many years after the introduction of Modern Awards, there are still compliance traps for small business employers, particularly around pay rates and annualised arrangements.
In some cases employers paying an annual salary to Modern Award covered employees have found that, despite paying a salary well above Award entitlements (based on hourly rates of pay specified in the Award, including overtime and other penalty rates), they are still liable to pay overtime and penalty rates in addition to the salary, because their employment contracts do not comply with requirements under some Modern Awards to be very specific about the Award entitlements that are covered by an annual salary.
- Unfair Dismissal
Under the Fair Work Act, an employee cannot make a claim for unfair dismissal in the first 12 months of employment against an employer with less than 15 employees (a small business employer). Where the employer has 15 or more employees, an employee cannot make a claim in the first six months.
The number of employees is determined by a head count of all full-time and part-time employees. Casual employees employed on a regular and systematic basis are also included in the count. The employees that are to be counted include the employee who is being dismissed or whose employment is being terminated, and any other employee of the employer who is also being dismissed or whose employment is also being terminated.
Small business employers can also prevent unfair dismissal claims by complying with the practices set out in the Small Business Fair Dismissal Code (the Code), a document available from the Fair Work Commission and available on its website at https://www.fwc.gov.au/about-us/legislation-regulations/small-business-fair-dismissal-code. If an employer complies with the Code when dismissing an employee, the dismissal will not be found unfair and the employee will be unsuccessful in any claim for unfair dismissal. The Code comes with a checklist and it is recommended that employers complete the checklist to note that they have completed each step to comply with the Code, and keep the checklist as a record. Whilst this will not guarantee that the employer will not be liable for unfair dismissal, in the event of a claim, it is likely to be of assistance to demonstrate that the employer has complied with the Code.
Previously, it was impossible for an employee on a fixed term, fixed task or seasonal contract to claim for unfair dismissal. This is no longer the case, however if such employees are not rehired at the end of their engagement they will not have been “dismissed” and cannot make a claim, irrespective of the circumstances.
Previously, it was not possible for an employee to make a claim for unfair dismissal if the dismissal was for “genuine operational reasons”. This is no longer the case, however if the dismissal was a case of “genuine redundancy” then an unfair dismissal claim cannot be made. To establish that a “genuine redundancy” occurred, the employer must show that it has complied with any consultation requirements in any applicable Award or Enterprise Agreement prior to dismissal for redundancy and that there was no reasonable opportunity for the employee to be redeployed within the employer’s business or that of any associated entity. Whilst the scope of this exception is narrower than under the system before the Fair Work Act, it seems that an employee still cannot make an unfair dismissal claim on the basis that they were unfairly selected for redundancy.
Employees claiming unfair dismissal must file an application with the Fair Work Commission within 21 days of dismissal, although an extension of time may be granted in certain circumstances by the Commission.
- Enterprise Agreements
An Enterprise Agreement is the name given to the document setting out the terms and conditions of employment at a particular workplace which has been negotiated between employers, employees and their bargaining representatives via the collective bargaining process.
The Fair Work Act changed many of the rules relating to Enterprise Agreement making and compliance with the rules is essential for a valid Enterprise Agreement. Employers should note the following:
- Enterprise Agreements must comply with the National Employment Standards and employers should check proposed Enterprise Agreements carefully to ensure they are complying with the National Employment Standards. In a recent case a proposed Enterprise Agreement was successfully challenged by a union on the basis that the proposed terms did not comply with the National Employment Standards regarding personal leave entitlements.
- Under the Fair Work system employees and employers are entitled to be represented by a ‘bargaining representative’ during the negotiation of a new Enterprise Agreement. The representative may be any eligible person appointed in writing. Employers are required to negotiate with employees’ bargaining representatives in ‘good faith’ and must inform employees of their right to appoint a bargaining representative.
- All new Enterprise Agreements must be approved by the Fair Work Commission before they can commence operation and there are detailed rules about terms that Enterprise Agreements must and must not include.
It is recommended that employers in small to medium businesses seek legal advice before seeking to implement a new Enterprise Agreement for their business.
The Fair Work Act introduced for the first time a general legislative entitlement to redundancy pay for employees of national system employers with 15 or more employees. Casual employees and employees on fixed term contracts are not entitled.
- Requests for Flexible Working Arrangements
The Fair Work Act created a new right for certain employees with at least 12 months service to request flexible working hours. These include parents or carers of children who are school ages or younger, other carers, people with disabilities, people aged 55 or older, victims of domestic violence and carers for such victims. Requests must be made in writing and employers must have “reasonable business grounds” to refuse the request. These grounds include but are not limited to the cost of providing flexibility, the employer’s ability to reorganise rosters and the effect on customer service of the requested arrangement. The employer must provide a response in writing within 21 days of the employee’s request setting out the reasons for any refusal, and provided it does so the Fair Work Act provides no remedy for an employee wishing to challenge a refusal. Employers should bear in mind, however, that an employee may be able to make a claim in relation to a refusal by an employer to accommodate such a request under anti-discrimination legislation.
- Record Keeping
To comply with the Fair Work Act, employers must keep accurate, up-to-date time and wages records for all employees. Employer’s records must include:
- basic employment details, such as nature of employment (part-time, casual etc) and the employee’s commencement date;
- rates of pay;
- overtime hours worked;
- averaging arrangements – that is, any arrangement made between employer and the employee to ‘average’ the hours the employee works over a period of time to take into account significant fluctuations from week to week;
- leave entitlements;
- superannuation contributions made;
- termination of employment details (where applicable);
- details of any Individual Flexibility Arrangements which have been made and any guarantees of annual earnings; and
- the employer’s Australian Business Number
Employers must also continue to provide employees with access to their employment records.
In conclusion, it is critical that all businesses with employees understand the requirements under the Fair Work Act. If you have any questions about compliance, or need assistance to understand the application of the new system to your business, please contact us.