The Fairness Test for Workplace Agreements

The Workplace Relations Amendment (A Stronger Safety Net) Act 2007 received Royal Assent on 28 June 2007.  This Act made important amendments to the agreement-making provisions of the Workplace Relations Act.  The Act’s most important feature is the “fairness test” which Australian Workplace Agreements (AWAs) and collective agreements must pass in order to be effective.

A.  Application of the fairness test.  The fairness test applies to an AWA:
* That is lodged on or after 7 May 2007;
* Where the employee’s annual salary is less than $75,000 ( this cap does not apply to collective agreements);
* If it eliminates or modifies any of the protected award conditions such as:

1. rest breaks
2. incentive based payments and bonuses
3. annual leave loadings
4. public holidays
5. monetary allowances
6. loadings for overtime work or shift work; and
7. penalty rates

* Where the affected employee:

1. works in an industry or occupation where a federal award usually applies; or
2. works in an industry or occupation where a state award would have applied prior to 27 March 2006; or
3. performs work that is specified in a federal award that is binding on the employer; or
4. was the subject of a Preserved State Agreement or a Notional Agreement Preserving a State Award immediately before the workplace agreement commenced operating.

B.  The Workplace Authority.  Formerly known as the Office of the Employment Advocate (OEA), the Workplace Authority is responsible for applying the fairness test to agreements submitted by the employers, approving agreements that pass the test, and reviewing pre-lodgment reviews of agreements.

C.  The fairness test.  A workplace agreement passes the fairness test if the Workplace Authority determines that the AWA or collective agreement provides fair compensation to the employee or employees.  In determining whether there is fair compensation, the Workplace Authority shall consider:

* both monetary and non-monetary compensation that the employee will receive under the agreement;
* the work obligations of the employee;
* the personal circumstances of the employee; and
* other factors such as the economic circumstances of the employer.

D.  Workplace agreement lodgment and approval procedures.

1. A workplace agreement will be lodged with the Workplace Authority.
2. Employers may also wish to submit an agreement or a modification of an existing agreement to a prior review known as pre-lodgment.
3. If the agreement passes the fairness test, the Workplace Authority will approve the agreement and the employer shall have 14 days within which to lodge the agreement.
4. If the Workplace Authority finds that an agreement or provision thereof does not pass the fairness test, the Workplace Authority shall send a notice to the employer and employee about the failure while citing the protected conditions that are missing or removed.
5. For agreements that fail the fairness test, the Workplace Authority may offer suggestions on how to make the agreement fair and advice that the payment of back-pay is necessary to rectify the error.
6. If the necessary changes are not made, the agreement will be void and the payment of back-pay may be required.
7. If an agreement is approved, the employer will be given 14 days within which to lodge the agreement.

Workplace Relations Minister Joe Hockey said that employers have no reason to fear the fairness test and “shouldn’t be confused, given the amount of information the Workplace Authority has distributed to companies.  The fact is that, overwhelmingly, most AWAs are passing the fairness test.”  Unfortunately, actual figures show that as at October 2007, only one-third of all agreements assessed by the Workplace Authority have passed the fairness test.

Expectedly, the low passing rate of agreements has drawn criticisms from pro-management individuals.  They also lament the high fines of up to $33,000 that are imposed on employers who do not comply with the Act.  But this should not discourage the proponents of the law promoting the fairness test.  A recent study conducted by the Australian Research Council showed that employees in low-skilled positions like child care workers and shop assistants were earning less under their AWAs as compared to their counterparts who are covered by collective agreements.  The application of the fairness test would correct this disparity for the benefit of the low-skilled worker.