Will the Fair Work act re-write your work contracts?

The new Fair Work act comes into operation on 1 July 2009. OK, most employers know that, but why would they want to worry about it before then?

The answer is that the new act will enable employers and employees to reach agreement about a range of matters, which have until now only been able to be implemented by having a registered agreement, such as an Australian workplace agreement or an individual transitional employment agreement.

There are also some new entitlements that employers should ensure don’t result in an employee “double dipping”.

The starting point is to understand that, under the Fair Work act, employees will start, in basic terms, with two sources of legal entitlements. First, all employees – and that includes the CEO – will be entitled to the benefit of the national employment standards. I’ve covered these before in this column, but to recap they are:

Maximum weekly hours of work (38 hours plus “reasonable” additional hours).
The right to request flexible working arrangements.
Parental leave and related entitlements.
Annual leave.
Personal/carer’s leave and compassionate leave.
Community service leave.
Long service leave.
Public holidays.
Notice of termination and redundancy pay.
Provision of a fair work information statement, which will detail the rights and entitlements of employees under the new system and how to seek advice and assistance.

Most other major conditions of employment will, for many employees, be covered by modern award conditions. As a rule of thumb, it’s likely that modern awards, which come into operation on 1 January 2010, will cover pretty much all employees who are presently covered by awards.

Coverage will also extend into some areas where it has not previously been common, other than in Victoria, such as information technology. Award coverage may also extend to some lower levels of management not previously covered.

Having properly prepared employment contracts now will assist employers implement some flexibility in working arrangements with employees under the new system. The areas that could be subject to an agreement include:

Directions to take annual leave – for non-award-covered employees, it is often doubtful that an employer has the ability to direct that leave be taken. The new legislation specifically enables the parties to reach an agreement that leave be taken within a specified period of that leave being accrued, or if the employee has excessive leave accruals. Modern awards enable employers to require employees to take leave by giving notice. Agreements for non-award employees can also require that the employee give a minimum period of notice before taking leave.
Agreements to cash out annual leave for non-award employees – although a separate agreement would be necessary each time leave is cashed out, flagging the parties’ willingess to do so in an employment agreement may avoid disputes down the track. Modern awards made to date do not contain provisions allowing cashing out of annual leave, but this may be dealt with in enterprise agreements.

Modern awards allow individual agreement to be reached about a range of matters, some of which have only been variable by formal registered collective or individual agreement.

The key requirement is that the variation to the award condition must leave the employee better off overall.

Examples of these include – averaging of maximum working hours over a period of several weeks; overtime, penalty rates and leave loading; annualised salaries; arrangements for time off in lieu of overtime; arrangements for working ordinary hours.

These provisions allow employers to more easily implement “all in” hourly rates, annualised salaries and working arrangements that allow greater flexibility in the workplace. The main disadvantage of these provisions is that they can be unilaterally terminated by employer or employee on relatively short notice.

Where an employee is considered “high paid”, the employer can exclude the employee from award coverage by giving an undertaking guaranteeing that the employee’s total remuneration will exceed the limit set by the law, which is $100,000 a year. This figure will be indexed in August each year. In practice this provision will only apply to a limited number of award-covered employees.

Public holidays – Employers and employees can agree to substitute public holidays for an alternative day off for the employee;

Termination and redundancy – Although highly paid employees can be excluded from award coverage, the same is not the case in relation to the national employment standards. Therefore all employees are entitled to receive severance payments if their employment is terminated for reasons of redundancy. This includes everyone from the CEO down.

The scale of payments reflects the award standard and ranges up to 16 weeks pay, based on the employee’s length of service. For highly paid employees, whose termination benefits may exceed this scale, it is best to avoid the nasty surprise of a claim for statutory severance benefits in addition to any contractual entitlements.

This can be achieved by ensuring that contracts for senior employees are clear that termination benefits include statutory severance entitlements, payable in case of redundancy. The contract should also ensure that the employee cannot receive less than their legal entitlements.

The lessons for employers:

Make sure you are aware of those aspects of the new Fair Work regime which enable you to agree flexibilities with employees.
protect yourself by implementing agreements now which take the Fair Work act changes into account

Peter Vitale is the principal of CCI Victoria Legal