Transition to the new Fair Work system

As previously reported, the Fair Work Act (Cth) has passed through Parliament and will commence on 1 July 2009, with some aspects to commence 1 January 2010. To deal with the transition from the current system to the new, the Government has also tabled into Parliament the Fair Work (Transitional Provisions and Consequential Amendments) Bill 2009. The Bill has not yet passed through the Senate, and has been referred to a Senate committee for enquiry. In view of this, there could be changes made to the transitional legislation before it passes through the Senate. In this article, we answer some of the common questions about the likely effect of the transitional legislation on existing arrangements such as awards and agreements. We will keep you informed of developments.

What will happen to existing AWAs, ITEAs and collective agreements on 1 July 2009?

These agreements will continue in force unless terminated or replaced. We address termination further in this article.
 

What will happen to existing awards such as preserved state awards and federal awards?

On 1 January 2010, the various modern awards that are currently being prepared by the AIRC will commence. Once a modern award comes into operation in relation to an employee, the prior award (with the exception of an enterprise award) will cease to apply to that employee.

If an employee is covered by a preserved State award (NAPSA) but there is no modern award for that employee on 1 January 2010, the preserved State award will continue to apply to that employee until a modern award comes into operation, or until the sunset date of 1 January 2014, whichever occurs first.

What happens to enterprise awards?

Enterprise awards continue to operate after 1 January 2010. Modern awards will not apply to employees who are covered by an enterprise award, or employers in relation to those employees.

The Fair Work Act establishes an award modernisation process for enterprise awards. From 1 January 2010 until 31 December 2013, Fair Work Australia will have the power to make a modern enterprise award to replace a current enterprise award. These powers can be exercised on application. An application may be made by any person covered by the enterprise award. If no application is made, the enterprise award will continue but only until 31 December 2013.

How do AWAs, ITEAs, collective agreements interact with modern awards?

These agreements will apply to the employees and employers bound by them to the exclusion of any modern award. However, the base rates of pay set by modern awards represent the minimum safety net and this means that the employee will be entitled to receive at least the rate set by the modern award for the work that they do. For example, if the modern award sets a higher base rate than that set out in the employee’s AWA, the employer will be obliged to pay the modern award rate.

If an employer is bound by a collective agreement made prior to 27 March 2006, the collective agreement will prevail over a modern award to the extent of any inconsistency. This means that the employer will be required to satisfy the conditions set by a relevant modern award if those conditions are not inconsistent with the collective agreement.

How will enterprise agreements made under the Fair Work Act interact with existing awards?

Enterprise agreements made on or after 1 July 2009 will be made under the new Fair Work Act. When the enterprise agreement comes into operation, any existing award will cease to apply to the employer and the employees. To come into operation, each agreement will need to be made in compliance with the new Fair Work Act and, most importantly, the agreement will need to satisfy the relevant tests.
 

What will happen to minimum leave and work hours under the Australian Fair Pay and Conditions Standard?

Since 27 March 2006, the federal legislation has contained minimum standards regarding leave and hours of work. These are known as the Austalian Fair Pay and Conditions Standard. These continue to apply from 1 July 2009 until 31 December 2009. From 1 January 2010, the more comprehensive National Employment Standards will apply.
 

Will the National Employment Standards have any relevance to agreements or awards made before the commencement date of the Fair Work Act (i.e. 1 July 2009)?

Yes. From 1 January 2010, the National Employment Standards will represent the minimum employment standards. Employers will need to ensure compliance from that date, regardless of the fact that employees are covered by an agreement or award made before the commencement of the Fair Work Act.

For instance, if the agreement or award provides conditions less favourable than those set by the National Employment Standard, the National Employment Standard conditions will apply. However, if the conditions in the agreement or award are more favourable than the National Employment Standard, those conditions continue to apply.
 

Illustrative example

John is entitled to six weeks’ paid annual leave per year of service with the leave to be paid at John’s ordinary rate of pay (including overtime and allowances) under his current employment agreement. The amount of leave and payment provisions in the agreement would continue to operate, as they are more beneficial than the annual leave conditions in the National Employment Standard.
 

What could happen if a modern award provides a lower minimum rate than an existing award?

It is possible that a modern award could set a lower rate of pay for an employee than that set by the award which previously covered the employee. To deal with such a situation, the Fair Work Act gives the new industrial authority, Fair Work Australia, power make an order to require the employer to pay an amount of money to the employee to rectify the situation. These orders are known as ‘take home pay orders’.
 

Can existing agreements be terminated or varied? If so, how?

Applications to vary or extend pre-reform certified agreements and preserved collective State agreements can be made to Fair Work Australia up until 31 December 2009. Applications cannot be made after that date. Fair Work Australia will have the power to vary any of these agreements to resolve uncertainties or difficulties arising from their interaction with the National Employment Standards.

The Fair Work Act sets out rules for how these collective agreements can be terminated. For instance, they can be terminated either with the agreement of a majority of employees, or by Fair Work Australia on application after the expiry of the nominal period.

An employer and employee can terminate an AWA or ITEA by agreement, through signing a termination agreement and lodging it with Fair Work Australia. Termination will only take effect once approved by Fair Work Australia.

If an AWA or ITEA has passed its nominal expiry date, it can be terminated unilaterally by either party giving at least 14 days’ notice before applying to Fair Work Australia. If termination is approved, termination will be effective in 90 days.

Are there any provisions which allow an enterprise agreement to apply to an employee covered by an AWA or ITEA?

Yes, the legislation provides the means by which an enterprise agreement will apply to an employee who is covered by AWA or ITEA immediately before the enterprise agreement comes into operation. If the nominal expiry date of the AWA or ITEA has not passed, the employee and employer can enter into a written agreement known as a “conditional termination”. The conditional termination will terminate the AWA or ITEA when the enterprise agreement comes into operation. If the nominal expiry has passed, either the employer or employee can sign a conditional termination. If this occurs, the employee will be covered by the enterprise agreement when it comes into operation.

An employee covered by an AWA or ITEA can only participate in bargaining if the AWA or ITEA has passed its nominal expiry date. If the nominal expiry has not passed, the employee can participate only if a conditional termination has been made.

In effect, a conditional termination will be necessary to ensure that enterprise agreements apply to employees who have been covered by AWAs or ITEAs.
 

Illustrative example

Michelle is over 18 and is covered by an ITEA that has expired. Her employer signs a conditional termination and gives her a copy. Michelle can therefore participate in next week’s ballot for the employer’s proposed enterprise agreement, and will be covered by it once it is operative (as her ITEA will be terminated at that point).
 

Which rules apply if I am currently negotiating an agreement?

Agreements made prior to 1 July 2009 must meet the existing requirements relating to lodgment, prohibited content and the no-disadvantage test. This includes union collective agreements that have been finalised with the relevant union but not yet sent to employees for a vote.

Agreements made on or after 1 July 2009 will be dealt with under the new laws.

Should you require advice regarding this or any other workplace matter, please call Australian Business Lawyers & Advisors: 1300 565 846.