The Workplace Relations (Employment Choices) Act 2005 (the ‘Act’) came into effect on 27 March 2006. The Act makes a number of radical changes to the existing State and Federal Industrial Relations Law.

The focus of this article will be on corporations established under the Corporations Act 2001 and their employees. If you are employed by such a corporation or if you own or manage such a corporation then the Act will impact on your day to day operations.

Exclusion of State Laws

The Act is radical on a number of fronts.One of these is the attempt to exclude the long established State jurisdictions in respect of industrial relations and to create a unified national industrial relations system (Section 7C).

The Act will succeed in this objective (subject to the outcome of pending High Court challenge) for employees of “constitutional corporations” including corporations established pursuant to the Corporations Act.

State law however will continue to apply to the employees of sole traders and partnerships as well as state public servants and employees of incorporated associations which are not constitutional corporations because their trading activities are “peripheral” (such as certain clubs and charities).

In particular, the Act will override the State unfair dismissal laws embodied in the Industrial Relations Act (NSW) 1996 and its equivalent in other States and the unfair contracts jurisdiction under section 106 of the Industrial Relations Act (NSW).

The Act, and workplace agreements and awards created pursuant to it, will also override State awards. The transitional provisions, which will be discussed below, preserve certain aspects of State awards and enterprise agreements for a period of three years from 27 March 2006. The preserved award terms are referred to in the Act as 'notional agreements'. A notional agreement however can always be overridden by a workplace agreement entered into in accordance with the Act (see below).

Certain State Law not Excluded

It is important to appreciate that some State laws relating to employment are expressly preserved in their operation (see Section 7C(3)). The most important of those laws are the following:

1. Laws relating to long service leave;
2. Law dealing with the prevention of discrimination or the promotion of equal employment opportunity (In NSW the Anti Discrimination Act); and
3. Laws that deal with “non excluded” matters such as:

1. Superannuation;
2. Workers Compensation;
3. Occupational Health and Safety;
4. Child labour;
5. Long Service Leave
6. Observance of Public Holidays
7. The method of payment of wages and salaries
8. The frequency of payment of wages and salaries;
9. Deductions of wages and salaries;
10. Matters relating to training of apprentices (other than rates of pay);
11. Industrial action effecting essential services;
12. Jury service; and
13. Regulations of associations of employees or employers.

Entitlements that exist by virtue of State awards or legislation will, absent agreement to the contrary, disappear at the end of the transition period and include redundancy pay, leave loading, penalty rates, overtime rates, study leave entitlements and scales of pay by way of reference to classification or grade.

Minimum Entitlements of Employees

Subject to the entitlements derived from non excluded State legislation, and subject to the preservation of state award entitlements for a period of three years, employees will have the following minimum entitlements (see section 89(2)):

1. Basic rates of pay and casual loadings (set by the Australian Fair Pay Commission);
2. Maximum ordinary hours of work being 38 hours per week (averaged over 12 months if agreed in writing) and reasonable additional hours (section 91(c));
3. 4 weeks annual leave; and
4. Personal (i.e. sick leave) and Parental leave and related entitlements.

Pay Rates

Minimum pay rates will be set by the AFPC but these will not include penalty rates or overtime.

Absent an agreement between employees and employers to the contrary penalty rates and overtime rates will disappear at the end of the transition period. It will presumably be open to employees to refuse to work more than maximum ordinary hours of work at ordinary pay rates but given the changes to the unfair dismissal laws (see below) and given that maximum hours are flexibly defined (they include 'reasonable' additional hours) it is not clear what this will mean in practice. Clearly it will be possible for an employer to negotiate an AWA that provides for a single pay rate regardless of time of day or hours worked without regard to the pre-reform “no disadvantage” test.

The interaction of section 7C (excluding State laws) section 89(2) (minimum entitlements) and Schedule 15 clause 38A (operation of a notional agreement preserving State awards), mean employers need to carefully consider why they would enter into any agreement with effect beyond the transition period. At the end of the transition period all employees not covered by a workplace agreement or award under the Act will, absent agreement, be employed under the 4 basic entitlements. Additional rights will only arise if the subject of a common law contract or a workplace agreement. While section 7D of the Act means that a workplace agreement under the Act prevails over a State Award and it therefore may be beneficial to enter into a workplace agreement during the transition period the term of any such agreement would need to be carefully considered.

Holidays

The rules relating to annual leave are different to those applying under the Annual Holiday Act (NSW) In particular, pursuant to section 92(H)(6) an employee can be effectively directed to take accrued leave in excess of 4 weeks. Up to 2 weeks annual leave may be cashed out by agreement.

Sick Leave

Section 93F provides that an employee accrues sick leave (personal/carers leave) at the rate of 1/26 of the number of normal hours worked by the employee during each continuous 4 week period of service. This represents an increase in sick leave over many State awards. The Act introduces a number of new provisions in relation to sick leave including requirement of medical certificates for each period of sick leave.

The prohibition on terminating employee due to temporary absence due to illness however remains (see section 170CK(2)(a)).

The Transitional Provisions

Federal Awards and Certified Agreements

Federal awards and certified agreements continue in operation but in modified form. Pre reform AWAs (Australian Workplace Agreements) continue to operate according to their terms. Federal award rates of pay will however be effectively preserved unless changed by the AFPC. Employees and employers may still enter into Federal awards but the matters that may be included in those awards are limited (see section 116). Certain matters are not permitted to be the subject of a Federal award (See section 116B). These include:

1. Right of a union to represent employees in a dispute other than at the request of a party to the dispute;
2. Conversion from casual to another type of an employment;
3. Maximum or minimum hours of work for regular part time employees;
4. Restriction on the range or duration of training arrangements; and
5. Restriction on engagement of independent contractors.

State Awards

Discussion on the ultimate effect of the Act has been considerably complicated by the transitional provisions which have the effect of preserving certain state award conditions for a period of three years from the Act's commencement.

Preserved State awards are referred to in the Act as “notional agreements” and have a maximum continuing life of 3 years from 27 March 2006. The terms which will be preserved during the transition period absent agreement to the contrary are described below. Notional agreements cannot be amended effectively but can be replaced by workplace agreements made under the Act (see below). For certain employers it would be attractive to consider entering into workplace agreements with effect during the transition period. After the transition period State awards will cease to have effect on employers or employees covered by the Act.

Termination of Employment

By virtue of the provisions relating to exclusion of State law the Act now effectively regulates the law relating to termination of employment in Australia for employees of corporations. The drafting of the provisions relating to termination of employment are somewhat convoluted. Section 170CE(1) provides that an employee whose employment has been terminated by the employer may apply to the Commission for relief on grounds that termination was:

1. Harsh, unjust and unreasonable (‘unfair dismissal’); or
2. The ground of an alleged contravention of sections 170CK, 170CL, 170CM (unlawful terminations); or
3. On a combination of the above grounds.

This does not mean what it appears to mean however because:

1. An application for an “unfair” dismissal must not be made unless the employee has completed the qualifying period of employment. In the absence of agreement that period is 6 months.
2. An application for “unfair” dismissal must not be made if the employee’s employment was terminated for genuine operational reasons or for reasons that include genuine operational reasons (see section 170CE(5)(c)). There are supplementary machinery provisions that require the Commission to hold a hearing on this aspect before considering any other aspect of the termination and to dismiss the application if it relates to a termination which at least in part is for a genuine operational reason.

170CE(5)D provides that for the purposes of subsection 5C operational reasons are reasons of an economic, technological, structural or similar nature relating to the employer’s undertaking, establishment, service or business, or to part of the employer’s undertaking, establishment, service or business.

1. By virtue of section 170CE(5)(e) an application for “unfair” dismissal must not be made if at the relevant time, the employer employed 100 employees or less including the terminated employee and any casual employee who has been engaged on a regular or systematic basis for at least 12 months.

In this regard however section 170CE(5A) provides that related bodies corporate within the meaning of Section 50 of the Corporations Act 2001 are taken to be one entity. Section 50 of the Corporations Act provides that a holding company and a subsidiary and subsidiaries of a common holding company are related bodies corporate.

For employers with more than 100 employees therefore it will be important to document in admissible form (i.e. contemporaneously) the reasons for termination of any given employee. If however this were done it is difficult to imagine (blatant exercises in unlawful discrimination excepted) a termination which at least in part, would not be for a valid operational reason. Proving that the termination was partly for an unlawful reason (see below) will as a practical matter be difficult.

Pursuant to sections 170CEA(5) and (6) an application for relief from unfair termination may be dismissed without a hearing if the application for dismissal is made before the matter is referred to conciliation and if the Commission is satisfied that an application for unfair dismissal is excluded by virtue of an application being:

1. By an excluded employee under Section 170CBA (Employee/employed for a specified period of time); or
2. By an employee on a period of probation by virtue of Section 170CE(5a)); or
3. By an employee of a corporation with 100 employees or fewer.

The prohibition of “unlawful” termination remains. “Unlawful” termination may be pursued before the Commission as under the pre reform laws. Examples of “unlawful” terminations include terminations carried out for reasons including one or more of the following:

1. Temporary absence from work because of illness;
2. Trade union membership;
3. Non membership of a trade union;
4. Seeking to act as a representative of an employees;
5. Filing of a complaint against an employer relating to a breach of a law or a regulation;
6. Race, colour, sex, sexual preference, age, physical or mental disability, marital status, family responsibilities, pregnancy, religion, political opinion, nation extraction or social origin;
7. Refusing to negotiate in connection with or sign a workplace agreement;
8. Absence from work during maternity leave or other parental leave; and
9. Temporary absence from work because of the carrying out of a voluntary emergence management activity which is reasonable in all the circumstances.

Termination will not become a lawful termination if it is made for a prohibited reason even if there is also a valid operational reason for the termination.

Further section 170CM provides that an employer must not terminate an employee without giving the required period of notice or pay in lieu. The required period of notice ranges from 1 week for an employee with not more than 1 year continuous service to 4 weeks for an employee with more than 5 years. Notice increases by a week for employees over 45 with more than 2 years continuous service.

The Act does not exclude the common law (and therefore the general law of contract) or the provisions of the Trade Practices Act. Nor does it exclude state anti discrimination laws. It is clear that there is scope for employees to seek to rely on a contract of employment derived from documents produced and circulated by employers relating to terms and conditions of employment. This would include various manuals and policies circulated in workplaces.

Having regard to the very limited rights of employees entailed in the legislation employers seriously need to consider whether such policies continue to serve a purpose.

As a practical matter, an application for unfair dismissal could still be brought in the Commission against an employer with more than 100 employees where termination was in breach of a published policy of the employer (and therefore harsh unjust or unreasonable) It may difficult for an employer to argue that the termination was for valid operational reasons where those operational reasons conflict with a publicly announced policy of the employer.

Alternatively, employees will still be free to bring claims in common law in the State courts for breach of contract. In this regard there will be scope for development of the concept of a duty of “mutual trust and confidence”, which has been found to be an implied term in employment contracts in certain British employment cases.

Alternatively, there will also be scope for use of the Trade Practices Act by employees who can allege misleading or deceptive conduct in the course of trade (section 52 Trade Practices Act) and/or unconscionable conduct (section 51AC).

Presently, the consensus is that Trade Practices Act remedies will not apply to conduct within the employer/employee relationships because such conduct has been found not to be “in trade or commerce”. That authority does not however relate to the recruitment situation and the consensus also is that on the current state of the authorities conduct may be in trade or commerce in an employment situation where it is concerned with the making or variation of employment relationships.

When considering whether existing employment contracts should be changed, employers need to have in mind that a variation of existing contracts of employment cannot be unilateral.

It would however appear to be open to an employer to offer new contracts of employment which exclude previously existing provisions and to terminate employees who decline to take up the new contracts if the reason for doing so is a valid operational reason.

Workplace Agreements

Under the Act an individual employee may enter into an Australian Workplace Agreement (AWA) by agreement in writing. Alternatively an employer may make an “employees collective agreement” with a number of employees of a single business or a “union collective agreement” with an organisation of employees. Special collective agreements may be created relating to new businesses and multiple businesses. The following comments apply to AWAs. An AWA is created by:

1. The employers and employee signing a written agreement before a witness or witnesses; and
2. The lodging of the agreement with the Employment Advocate within 14 days of its execution.

An AWA comes into effect on the day it is lodged (section 100(1)).

The effect of an AWA will be to replace any other applicable State or Federal award (section 100B). The required content of an AWA include:

1. A nominal expiry date; and
2. Dispute settlement procedures.

The AWA will not displace ‘protected award conditions’ unless it does so expressly. Protected award conditions (other than for outworkers) can however be displaced or modified by express agreement subject only to the four minimum standards ‘Protected award conditions’ means the following matters:

1. Rest breaks;
2. Bonuses;
3. Leave loading;
4. State public holidays;
5. Allowances
6. Loadings;
7. Penalty rates;
8. Outworker conditions; and
9. Matters specified in the regulations.

Other award conditions however, such as redundancy pay, study leave, pay by classification can be excluded implicitly.

After the transition period however, conditions imposed by State awards (including ‘protected’ conditions) will simply cease to have effect and will cease to be relevant.

Further, an employer must not lodge an AWA containing ‘prohibited content’. Such content is void. Prohibited content includes:

1. Rights to union participation in dispute resolutions;
2. Conversion from casual to permanent employment;
3. Limits on proportions of part time employees;
4. Restrictions on engagement of independent contractors; and
5. Union picnic days.

Conclusion

Employers need to consider the following matters:

1. If they are not a constitutional corporation should they become one? This will be of particular relevance to firms of accountants and solicitors where professional staff are often still employed by the partnership not a service company.
2. What constitutes their common law contract of employment? Do circulated policies and manuals continue to serve any useful purpose?
3. Should the employer seek to move onto a form of workplace agreement and if so should its term be limited to the transition period?

Employees on the other hand need to consider whether their conditions of employment need to be recorded in a common law contract or AWA.

For further information regarding changes to workplace laws, please contact Grant Hansen.