Legal Briefing No. 77

Number 77

31 May 2006

The Work Choices Act – how will it affect Commonwealth
employment?

Richard Harding

Richard Harding Senior General Counsel
T 02 6253 7026 F 02 6253 7304
richard.harding@ags.gov.au

The Workplace Relations Amendment (Work Choices)
Act 2005 (the Work Choices Act) was assented to
on 14 December 2005 and commenced in full on 27 March
2006. The Work Choices Act makes major amendments to
the Workplace Relations Act 1996 (the WR Act).

The Work Choices Act represents by far the biggest
change in Commonwealth industrial laws since the first
legislation was passed in 1904. That legislation was
the Commonwealth Conciliation and Arbitration Act
1904. The 1904 Act was a petite 22 pages, and it
was entirely based on s 51(xxxv) of the Constitution,
the conciliation and arbitration power.

Indeed, the long title of the 1904 Act is 'An Act
relating to Conciliation and Arbitration for the Prevention
and Settlement of Industrial Disputes extending beyond
the Limits of any one State'. The title picks up
the exact words of the constitutional head of power.

Professor George Williams has noted in his book Labour
Law and the Constitution, that the 'limited
nature of [the federal conciliation and arbitration power]
is its most striking feature'. 1

The limitations of the conciliation and arbitration power
in the Constitution are numerous. The most singular of
them is that the Commonwealth cannot, under the conciliation
and arbitration power, legislate to provide terms and
conditions of employment for employees – it can
only set up tribunals. And those tribunals can only use
particular mechanisms – conciliation and arbitration – for
certain purposes – prevention and settlement – of
particular types of disputes – being disputes that
are both 'industrial' and 'interstate'.

And, more problematically, when the tribunal does resolve
a dispute, the resolution – the award – cannot
have general application across an industry. It cannot
operate as a common rule. It cannot bind all of the employers
in an industry. Awards under the conciliation and arbitration
power can only bind identified parties.

The High Court decided this in Whybrow's case
in 1910. 2 Professor Ron McCallum has described
this decision as 'a blow from which the [federal
award mechanism] has never recovered'. It can be
argued that the dysfunction created by this decision has
led inexorably, if very slowly, to the abandonment of the
conciliation and arbitration power that the Work Choices
Act represents.

The limitations of the conciliation and arbitration power
in the Constitution have been recognised for a very long
time. In 1911, just seven years after the Conciliation
and Arbitration Act was passed, the first referendum to
fix s 51(xxxv) was held. Five more referendum attempts
were made – in 1913, 1919, 1926, 1944 and 1946. Some
got close. None were successful.

The limitations of the conciliation and arbitration power,
and High Court decisions in the early 1970s and early 1980s
which took the shackles off the corporations power in s
51(xx) and the external affairs power in s 51(xxix) of
the Constitution led successive federal governments, especially
in the 1990s, to look to other constitutional heads of
power for their industrial relations legislation.

The reforms in the 1990s saw a significantly increased
reliance for parts of the Industrial Relations Act, and
subsequently the Workplace Relations Act, on the external
affairs power and the corporations power. In 1996 the State
of Victoria referred powers over industrial relations to
the Commonwealth.

So the WR Act, as it stood before 27 March 2006, was based
on a patchwork of constitutional heads of power. The unfair
dismissal provisions familiar to so many HR managers are
based on an amalgam of the territories power, the corporations
power, the trade and commerce power and the Commonwealth's
power in respect of its own employees. The unlawful termination
provisions, by contrast, are primarily based on the external
affairs power, implementing international covenants Australia
has agreed to.

What is so momentous about the Work Choices Act?

The Work Choices Act makes a great many changes. But most
fundamentally, it does two things:

  • it moves the WR Act from one set of primary constitutional
    foundations –
    the conciliation and arbitration power – to a new
    set of primary constitutional foundations – the
    corporations power, and
  • although preserving agreement-making as the preferred
    method of industrial regulation, it legislates directly
    (and indirectly) for the terms and conditions of employment
    of employees of constitutional corporations.

The consequence of the constitutional re-basing is that
the reach of the new WR Act (assuming the challenges to
the constitutionality of the Work Choices Act are not successful)
will be far greater than the reach of the old WR Act under
the conciliation and arbitration power.

Estimates of the potential coverage of the new WR Act
range between about 70–85 per cent of employees in
Australia. This leaves the states in a position where they
may not have many workers, other than state government
employees, to regulate.

These are some of the reasons why the Work Choices Act
represents the most significant change in a century of
federal industrial relations legislation.

How will the Work Choices Act impact on Commonwealth
public sector employment?

There are many things that can said about the content
of the Work Choices Act. This briefing will only examine
a few aspects of the Act and the amendments it has made
to the WR Act. There are significant changes to the handling
of industrial disputes, to the right to strike, and to
right of entry, among other things, but these are outside
the scope of this briefing.

The Work Choices Act does much more than re-base the federal
workplace relations system. It introduces major change
to the setting of terms and conditions of employment. Some
of this change is related to a corporations power based
system. Some of it is unrelated to the constitutional change.

It is going to take quite some time to analyse and to
get to know the legislation. The rest of this briefing
will examine some key issues of relevance to Commonwealth
public sector employment, both in terms of new arrangements
and transitional arrangements.

New arrangements

Workplace agreements

Under the new WR Act, industrial agreements are known
generically as workplace agreements. The term 'workplace
agreement' covers individual agreements – still
known as 'Australian workplace agreements' (AWAs),
and collective agreements. Collective agreements are of
two types: union collective agreements and employee collective
agreements.

Collective agreements

Some significant changes have been made to the way collective
agreements are made. Perhaps the two most important differences
between the process for making certified agreements under
the old WR Act and the process for making collective agreements
under the new WR Act are that:

  • the no disadvantage test will no longer operate, and
  • there will be no process of certification by the Australian
    Industrial Relations Commission (the AIRC).

The no disadvantage test, at least as we have known it,
has vanished under the new WR Act.

However, it has been replaced by a legislative guarantee,
including for those who are working under workplace agreements,
of certain core conditions of employment.

The guaranteed core conditions of employment cover five
matters (see s 171):

  • basic rates of pay and casual loadings
  • maximum ordinary hours of work
  • annual leave
  • personal leave
  • parental leave and related entitlements.

This set of five minimum entitlements is known collectively
as the Australian Fair Pay and Conditions Standard (the
AFPC Standard).

One of the key provisions of the new WR Act is s 172.
That section provides that the AFPC Standard prevails over:

  • a workplace agreement, or
  • a contract of employment

that operates in relation to an employee, if the AFPC
Standard, in a particular respect, provides a more favourable
outcome for the employee.

This is perhaps the most obvious example of the Commonwealth
doing what it could not do under the conciliation and arbitration
power: legislating terms and conditions of employment.

What happens to federal award conditions?

Conceptually, then, one might say that the no disadvantage
test for certified agreements has been replaced not by
a process, but by an outcome. And the outcome is focused
on far fewer criteria – because it is concerned with
five subject matter areas, rather than the 20 allowable
award matters that could be covered by the awards against
which the no disadvantage test was formerly applied.

One can also note, however, that the application of the
AFPC Standard goes well beyond that of the no disadvantage
test, because the AFPC Standard will, ultimately, apply
to all employees covered by the Act, whereas previously
the no disadvantage test only came into play for employees
who were to be subject to a certified agreement or AWA.

In a paper issued by the federal Minister for Employment,
Workplace Relations and Small Business in 2000 it was estimated
that some 13.4 per cent of Australian non-farm employees
were award free – that is, not covered by a federal
or state industrial award or agreement. 3 It
was estimated at that time that the extended reach of a
federal system based on the corporations power would mean
that only 2.2 per cent of employees would be award free.
If the estimates in the paper are correct, then some 85
per cent of non-farm employees could ultimately be covered
by the AFPC Standard.

At first glance it might seem that the AFPC Standard is
unlikely to have much impact on Commonwealth employment.
But there is a lot of detail in the Standard and agencies
will have to examine it carefully.

The AFPC Standard does not apply to employees who are
covered by pre-reform certified agreements and by pre-reform
AWAs (see clause 30 of Schedule 7), so there is no issue
for the time being if your employees are staying on their
pre-reform certified agreement or pre-reform AWAs.

But the AFPC Standard will apply to employees working
under new collective agreements or new AWAs. And the Standard
has some interesting features that may not line up with
all agencies' current certified agreements and AWAs,
if provisions in these agreements were to be carried over
to a new workplace agreement. For example, the Standard
puts a limit on cashing out annual leave so that in practice
no more than two weeks' leave will be able to be
cashed out per year (see s 233). And the Standard also
provides for an uncapped amount of paid compassionate leave,
if the circumstances arise (see s 257). There are many
other examples.

Not being consistent with the AFPC Standard will not affect
the validity of a workplace agreement. But providing a
less favourable outcome than the Standard will leave an
agency open to enforcement action under the WR Act (see
s 719).

How do you make a new collective agreement?

The process for making collective agreements is simplified
and abbreviated. Employees have to be given an information
statement at least seven days before a collective agreement
is made, and generally must be given ready access to the
agreement. Unlike the previous arrangements, there is no
requirement in the new WR Act for the employer to ensure
that the terms of the agreement are explained to employees
(cf subs 170LJ(3) and 170LK(7) of the old WR Act).

What is also new is that it is possible, if all employees
agree, for the seven-day period for ready access to the
agreement to be waived (see s 338).

Once a collective agreement is approved, it needs to be
lodged with the Employment Advocate within 14 days. There
is no process for third party scrutiny of the collective
agreement. The AIRC has no role in the making of a collective
agreement. And once the collective agreement has been lodged
with the Employment Advocate, it will come into operation – on
the same day (see sub 347(1)).

How do you make a new AWA?

The process for making a new AWA is virtually the same
as the process for making a collective agreement, except,
of course, that there is no scope for a union AWA, and
no voting on an AWA. Most of the process provisions in
the new WR Act apply to workplace agreements generally,
and do not distinguish between collective agreements and
AWAs.

This means that a new AWA does not need the approval of
the Employment Advocate, and is not subject to the no disadvantage
test.

Like a union collective agreement and an employee collective
agreement, an AWA will have to be lodged with the Employment
Advocate within 14 days of approval. And an AWA will commence
on the day it is lodged with the Employment Advocate.

Transition of a pre-form certified agreement that excludes award

How do new collective agreements and new AWAs operate?

Some of the rules about how collective agreements and
new AWAs operate are different from (and simpler than)
the rules that previously applied to certified agreements
and pre-reform AWAs. The main differences are as follows.

  • The nominal expiry date can be up to five years from
    the date the collective agreement or AWA was lodged (see
    s 352). (Previously there was a maximum of three years.)
  • Only one workplace agreement can have effect at a
    particular time in relation to a particular employee
    (see s 348).
  • This is a very significant change, as it removes the
    complex and sometimes confusing interaction between certified
    agreements and AWAs, and between overlapping certified
    agreements.

    This means the conundrum of having to sort out terms
    and conditions where one certified agreement prevails
    to the extent of any inconsistency with another certified
    agreement, or with an AWA, has been removed.

  • An AWA will operate to the entire exclusion of a collective
    agreement (s 348).
  • A workplace agreement will operate to the entire exclusion
    of an award (s 349).
  • So it will not be necessary to specify in a collective
    agreement or an AWA that it displaces the X, Y and Z
    awards (this was never necessary in a pre-reform AWA).

  • Collective agreements and AWAs will be taken to include
    any protected award conditions that would otherwise apply
    to the employee, unless the agreement or AWA expressly
    excludes or modifies those conditions.
  • Protected award conditions are provided for in s 354.
    They cover eight matters, which relate to:
    • rest breaks
    • bonuses
    • annual leave loadings
    • shift loadings
    • public holidays
    • some allowances
    • penalty rates
    • outworker conditions.

    There is provision for the regulations to specify additional
    matters as protected award conditions.

  • Unilateral termination of a workplace agreement by
    the employer or employee(s) will be available without
    any involvement of the AIRC, once the nominal expiry
    date of the agreement has passed, provided 90 days' notice
    of termination has been given (see s 393). Employers
    intending to terminate under this section will be able
    to give written undertakings about post-termination conditions.
  • The consequence of termination of a workplace agreement
    is that a workplace agreement, or an award (except for
    protected award conditions) that would otherwise apply
    to the employee from termination will not apply to the
    employee (see s 399). (This 'fallback' situation
    is discussed in more detail later in this briefing.)

  • Workplace agreements must not contain prohibited content
    (see s 357). And a term of a workplace agreement is void
    to the extent that it contains prohibited content (see
    s 358).

Regulations 8.5, 8.6 and 8.7 of Chapter 2 of the Workplace
Relations Regulations 2006 specify matters that are prohibited
content. Some 20 matters are specified, including deductions
for trade union dues, trade union training leave, automatic
union representation in dispute resolution, union right
of entry, annual leave cash out beyond the AFPC Standard,
the renegotiation of a workplace agreement, remedies for
unfair dismissal, restrictions on making AWAs, discrimination,
and matters that do not pertain to the employment relationship.
Agencies should study the prohibited content regulations
thoroughly.

It is worth mentioning that there has been some conjecture – apparently
caused by new subsection 400(6) – about whether the
new WR Act will allow an employer to require their existing employees
to sign AWAs. In our view the new subsection 400(6) merely
puts beyond doubt that requiring a new employee
to sign an AWA does not amount to duress for the purposes
of the Act, but does not have anything to say about existing
employees.

Transition of a pre-reform AWA

What changes have been made to unfair dismissal?

There are some changes to the unfair dismissal arrangements.

The three key changes are that:

  • the unfair dismissal provisions do not apply to organisations
    with fewer than 100 employees (including regular and
    systematic casual employees) (see sub 643(10))
  • the qualifying period in employment for access to
    the unfair dismissal jurisdiction has increased from
    a default of three months, to a default of six months
    (see sub 643(6))
  • 'genuine operational reasons', if they
    apply, will answer an unfair dismissal claim (see sub
    643(8)).

The small to medium business exemption from the unfair
dismissal provisions does not affect the Australian Public
Service or any part of it. All employees in the APS are
employed by the Commonwealth.

However, small to medium Commonwealth agencies that have
a legal personality separate from the Commonwealth (typically
because they are
established as a body corporate) and who employ staff on
their own account may be covered by this exemption.

The extension of the qualifying period in employment excludes
a larger class of employees from the unfair dismissal jurisdiction
than was previously excluded. Agencies may want to rethink
their probation arrangements, in order to give themselves
longer to assess employees without having to worry about
their termination of employment being subject to unfair
dismissal action.

Genuine operational reasons are defined in sub 643(9)
to be reasons of an economic, structural or similar nature
relating to the employer's undertaking, establishment,
service or business. It remains to be seen how the AIRC
and the Federal Court will interpret this new restriction
on the unfair dismissal jurisdiction.

What happens to transmission of business?

The transmission of business provisions, which quite frequently
affect Commonwealth agencies, are changed and simplified.

Transmitted collective agreements, AWAs and awards will
only apply to employees who transfer to the new business – and
not to new employees of the receiving employer who do not
come from the losing business. This resolves in the negative
the issue of whether transmitted instruments can affect
other parts of the receiving business.

The transmitted instruments will have a maximum period
of operation of 12 months.

A transmitted collective agreement will, in relation to
the transferring employees, disapply any collective agreement
in the receiving business. And it will be possible to make
a new collective agreement for the transferred employees
which will operate even if the nominal expiry date of the
transmitted collective agreement has not passed.

It will not be possible to unilaterally terminate a transmitted
collective agreement or AWA.

What are the transitional arrangements for certified
agreements, AWAs and awards?

Pre-reform certified agreements

Certified agreements that were made before the commencement
of the main Work Choices amendments are known as 'pre-reform
certified agreements'. They continue to operate in
substantially the same way as they have done in the past.
Many of the current provisions of the old WR Act continue
to apply to them (see clause 2 of Schedule 7).

Broadly, a pre-reform certified agreement continues to
operate in relation to an employee, beyond its nominal
expiry date, until it is terminated, or until a collective
agreement or a new AWA comes into operation that applies
to the employee. (These new agreements will, however, be
able to come into operation whether or not the pre-reform
certified agreement has passed its nominal expiry date.)
The making of a new collective agreement or a new AWA will
effectively switch off the pre-reform certified agreement
forever (see clauses 3 and 7 of Schedule 7).

Termination arrangements for pre-reform certified agreements
are the same as they were under the old provisions (see
paragraph 2(1)(k) of Schedule 7).
Pre-reform certified agreements continue to prevail over
awards (other than awards made under s 170MX) to the extent
of any inconsistency.

And the relationship between pre-reform certified agreements
continues as it was under the old WR Act.

Operation of a new collective agreement

Operation of a new collective agreement

Pre-reform AWAs

Australian workplace agreements made before the commencement
of the main Work Choices amendments are known as 'pre-reform
AWAs' and continue to operate in much the same way
as they had in the past. Many of the provisions of the
old WR Act continue to apply to them (see clause 17 of
Schedule 7).

Broadly, a pre-reform AWA continues to operate in relation
to an employee, past its nominal expiry date, until it
is terminated, or until a new AWA comes into operation.
Once either of those things happens, the pre-reform AWA
can never operate again.

Termination arrangements for pre-reform AWAs remain the
same as they were under the old WR Act provisions (see
paragraph 17(1)(c) of Schedule 7). This means that unilateral
termination after nominal expiry date will only be able
to occur with the approval of the AIRC.

Importantly, pre-reform AWAs operate to the exclusion
of a new collective agreement (see clause 19, Schedule
7).

Pre-reform awards

There are two sets of arrangements here.

Employers who are not covered by the new system

There is a set of transitional arrangements (in Schedule
6) for employers who are not covered by the new federal
system. These arrangements will preserve awards for a transitional
period of five years. This briefing does not deal with
these arrangements further, because they are unlikely to
affect Commonwealth or Commonwealth authority employment.

Employers who are covered by the new system

The Commonwealth and Commonwealth authorities are covered
by the new system. They fall within the definition of 'employer' in
s 6. This means that the transitional arrangements in Schedule
4 of the Work Choices Act (not the WR Act) apply to them.

The transitional arrangements for employers within the
new system are that awards continue to operate, potentially
indefinitely. They are known as 'pre-reform awards'.
And they are 'awards' for the purposes of the
WR Act generally. But they have a modified operation.

First, they are generally confined in their operation
to the new list of 15 allowable award matters set out at
s 513. Generally, any matter in an award that is not an
allowable matter ceased to have effect on 27 March 2006
(see s 525). (This is similar to what happened after the
20 allowable award matters were introduced in 1996.) The
exception to this is in relation to preserved award terms
(see s 527). (Note that preserved award terms are entirely
different from protected award conditions, dealt with above.)
Preserved award terms are award terms that relate to:

  • annual leave
  • personal/carer's leave
  • parental leave, including maternity and adoption leave
  • long service leave
  • notice of termination
  • jury service
  • superannuation.

All of these terms will operate potentially indefinitely,
except for superannuation terms, which will cease to have
effect on 30 June 2008.

Award rationalisation will not affect preserved award
terms. But an award (and this includes a pre-reform award)
has no effect in relation to an employee while a workplace
agreement operates in relation to the employee (s 349).

If we take the Australian Public Service Award 1998 as
an example, then, some of its terms fall within the new
list of 15 allowable award matters, and continue to operate,
but are subject to award rationalisation; some of its terms
are preserved award terms, and continue to operate and
are not subject to award rationalisation; and those matters
that are neither preserved award terms nor allowable matters
ceased to operate after commencement. But the whole operation
of a pre-reform award is suspended by a new collective
agreement or a new AWA (and continues to be excluded by
a pre-reform AWA, and by a pre-reform certified agreement
if it provides for this).

It is particularly worth noting that awards no longer
deal with wages, as wages is not one of the 15 allowable
matters, nor is it a preserved award term. Wages are now
the province of the AFPC Standard.

New AWAs

Fallback arrangements

A number of agencies have asked what will happen to an
employee's terms and conditions if they are working
under a particular agreement and it ceases to apply to
them.

This briefing will only look at two permutations: what
happens if a new collective agreement is terminated, and
what happens if a new AWA is terminated. Termination of
pre-reform certified agreements and termination of pre-reform
AWAs have not been common occurrences. But the new unilateral
termination provisions for collective agreements and new
AWAs may well mean they are commonly terminated.

Where a new collective agreement or a new AWA is terminated,
s 399 will switch off the operation of another new workplace
agreement – a collective agreement or an AWA – and
it will switch off the operation of an award, except to
the extent that the award contains protected award conditions.
And those instruments will respectively remain switched
off, and partially switched off, until another workplace
agreement starts operating in relation to the employee.

To give an example: if, under the new arrangements an
employee was covered by a collective agreement and some
months later entered into an AWA, and that AWA was terminated,
then the employee would not fall back to the collective
agreement, or to a successor to that collective agreement
that was operating before the termination. In the absence
of any undertakings from the employer, they would fall
back to the AFPC Standard and to any protected award conditions
in any award that applied to them. In the Commonwealth
public sector, this could be quite a long way to fall.

A second example: if an employee was covered by a pre-reform
certified agreement and moved onto a new AWA, and if that
AWA was terminated, then the employee would not fall back
to the pre-reform certified agreement. As in the previous
example, they would fall back to the AFPC Standard and
to any protected award conditions in any award that applied
to them. This result is produced by clause 7 of Schedule
7 of the WR Act.

Richard Harding specialises in employment
and workplace relations matters. He has drafted or revised
numerous Australian workplace agreements and certified
agreements for departments and agencies, and has assisted
in interpreting existing agreements.

Notes

  1. G Williams, Labour Law and the Constitution,
    The Federation Press, Sydney, 1998, p 43.
  2. The Australian Boot Trade Employés' Federation
    v Whybrow & Co (1910) 11 CLR 311.
  3. Breaking the Gridlock: Towards a Simpler National
    Workplace Relations System, Discussion Paper 1 – The
    Case for Change, October 2000, p 63 <http://www.simplerwrsystem.gov.au/discussion/pdf/changecase.pdf>.

AGS contacts

This briefing was prepared by Richard Harding of our Canberra
office with the assistance of Jenny Burnett and Caroline
McGregor. For further information please contact Richard
on tel 02 6253 7026, email richard.harding@ags.gov.au or
any of the following lawyers:

Canberra

Leah Edwards

02 6253 7090

Sydney

Jim Heard

02 9581 7477

Melbourne

Craig Rawson

03 9242 1248

Brisbane

Maurice Swan

07 3360 5702

Perth

Wendy Endebrock-Brown

08 9268 1113

Adelaide

Sarah Court

08 8205 4211

Hobart

Peter Bowen

03 6220 5474

Darwin

Jude Lee

08 8943 1405

ISSN 1448-4803 (Print)
ISSN 2204-6283 (Online)

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