17 March 2010 Overview of Fair Work Act obligations for employers

By Richard Ottley, Partner

In Brief

Experience to date has shown that businesses are struggling to keep up with the dynamic industrial and workplace relations landscape generated by successive governments. The purpose of this article is to alert employers to changes of significance and to things which need to be addressed urgently by employers to comply with the Fair Work Act (the Act).

 What responsibilities do employers have to supply accurate information?

Employers have a significant responsibility to ensure that they supply information to employees and equally important, to avoid providing information which is misleading.

One of the provisions of the National Employment Standards (NES) is that every national system employer provide their employees with a ”Fair Work Information Statement" (Statement). This is a two page statement produced by the Fair Work Ombudsman summarising the NES and various employee rights.

From 1 January 2010, the Statement must be provided to all employees before or as soon as practicable after, the employee starts employment. On one view the obligation extends to persons who were employees before 1 January 2010.

Modern awards (in clause 5 generally) contain requirements for employers to ensure that copies of the relevant award and the NES are available to employees. Generally modern awards require that they must be available either on a noticeboard conveniently located at or near the workplace, or through electronic means, whichever makes them more accessible to staff. Failure to comply with this award obligation is a breach of the award and therefore a breach of the Act.

Employers that enter into a "guarantee of annual earnings" (see post) are required under the Act, to give formal notice to the employee of the consequences of entering into the guarantee.

An employer that has entered into an "individual flexibility arrangement" with their employee (see post) must give the employee a copy of any such agreement and ensure that the agreement contains the information specified under the award which relates to the agreement.

False or misleading representations

Employers must take care not to knowingly or recklessly make any false or misleading representations about what are termed as "workplace rights" of other persons. Such workplace rights include rights conferred under an award or enterprise agreement or other workplace instrument and rights conferred by the Act. These provisions apply to representations made to prospective employees (and supplement Trade Practices Act provisions relating to representations made by employers concerning proposed employment terms and conditions).

Employers also need to take care with the information they provide to persons who they are engaging or planning to engage as contractors. The Act makes it an offence to knowingly or recklessly propose a contractor relationship to a person when the relationship at law is that of employer and employee.

Employers must not make any statement that they know to be false to persuade an individual they have engaged as an employee, to perform the same or substantially the same work as a contractor.

The above provisions highlight the desirability of employers reviewing and updating their policies and employment agreements to ensure that only accurate and up to date information is provided to staff and that appropriate procedures are followed with respect to engaging staff.

Modern awards

From 1 January 2010 the introduction of the modern award system has required all national system employers across Australia to review their workforce and to identify what new modern award or awards may apply to their workplace. Failure to correctly identify and comply with applicable award provisions may expose employers to penalties under the Act (in addition to being faced with claims for back payment).

There are some categories of employee who may remain award free, but in general terms the introduction of the modern award system has resulted in significantly more employees being captured under the modern award system.

Phase in provisions

Employers should appreciate that new rates payable under modern awards may be phased in under transitional arrangements which appear in a schedule to the applicable award (although a small minority of modern awards do not have phasing in provisions).

Where phase in provisions apply and employers were previously required to pay lower wage rates than those introduced under an applicable modern award, the modern award will typically provide that from 1 July 2010 through to 1 July 2014 the employer will be required to pay new rates on an incremental basis so that after 1 July 2014 they are required to pay the award rates in full. These provisions may also relate to such things as loadings and penalty rates.

Provisions also exist which address the phasing in of, amongst other things, lower wage rates than those payable prior to 1 January 2010. The payroll offices of employers should carefully review these transitional provisions to see what impact they may have on the cashflow of the business.

Contracting out of the applicable award

Employers should be aware of the various methods of "contracting out" of the application of an applicable award.

Apart from entering into an enterprise agreement, there are three key methods of "contracting out" of the application of an applicable award. They are:

  • by employee accepting a guarantee of annual earnings;
  • pursuant to an annualisation provision of an applicable award;
  • under an individual flexibility arrangement under an applicable award.
Guarantee of annual earnings

A guarantee of annual earnings is only possible where an employee is guaranteed annual earnings (generally speaking salary excluding commission, bonuses and compulsory superannuation contributions) which exceeds the high income threshold (presently $108,300). If the employer and employee agree, and a guarantee of annual earnings is properly given, then an applicable award does not apply whilst the guarantee remains in force.

Annualisation provision

Some but not all awards, contain an annualisation provision which enables the employer to annualise the entitlements of an employee with respect to such things as: minimum weekly wages, allowances, overtime and penalty rates and annual leave loading, and to pay an annual salary in satisfaction of these entitlements. Whilst the employer has to monitor the situation to make sure that they are suitably compensating the employee, as long as a valid annualisation statement remains in force, the employer will not have to worry about these particular aspects of an applicable award.

Individual flexibility arrangements

A similar but slightly different concept is the award flexibility provisions which appear in all awards which enable employers and employees to agree to varying the application of provisions in an award under an individual flexibility arrangement. (A recent decision of Fair Work Australia "regarding Trimas Corporation Pty Ltd - 23 February 2010", has cast some doubt on the scope of individual flexibility agreements).

Clause 7 of modern awards permits employers to make individual flexibility arrangements with their employees pursuant to which they can vary the application of an award in relation to:

  • arrangements for when work is performed;
  • overtime rates;
  • penalty rates;
  • allowances; and
  • leave loading.

The key features of such an arrangement are:

  • it must be made without coercion or duress;
  • it must be in writing and signed by both employer and employee;
  • it must state each term of the award that is to be varied (limited to those issues referred to above);
  • detail how each term is being varied;
  • it must leave the employee better off overall and must detail how it leaves the employee better off overall;
  • state the date the agreement is to commence.

It will be necessary if employers wish to take advantage of this arrangement, to carefully assess whether or not the employee will be better off overall under it. It will also be necessary to discuss any proposed arrangement carefully with the employee to make sure they are comfortable with it and understand that the employer is not seeking to disadvantage them financially. A formal agreement should be prepared in order to meet the requirements of the Act and any applicable award.

General Protection Provisions of the Fair Work Act

General protection provisions cover, amongst other things, the following employee rights:

  • Workplace rights of the employee (see below).
  • The rights of employees to participate in industrial activities (known as "freedom of association" rights).
  • Rights protecting the employee from discrimination in the workplace.
  • Rights protecting the employee from entering into sham contractor arrangements.
Adverse action

A person must not take adverse action against another person because the other person:

  • has a workplace right;
  • has or has not, exercised a workplace right; or
  • proposes or proposes not to or has at any time proposed or proposed not to, exercise a workplace right.

A person must not take adverse action against another person:

  1. to prevent the exercise of a workplace right by the other person.
Workplace right

A workplace right is broadly defined, and includes where a person:

  • is entitled to the benefit or has a role or responsibility under a workplace instrument (such as an award or enterprise agreement) or an order made by an industrial body.
  • is able to initiate or participate in a process or proceedings under a workplace law or workplace instrument.
  • is able to make a complaint or enquiry
    • to a person or body under a workplace law to seek compliance with that workplace law or workplace instrument (ie the Fair Work Ombudsman)
    • if the person is an employee, in relation to their employment.

Therefore, an employee who has been dismissed can make a claim under these provisions against an employer, amongst other things, if that employee has exercised their right to make a complaint to their employer in relation to their employment prior to their dismissal (on the basis that the employer has taken adverse action against the employee by dismissing the employee). Also the employee can make a claim if the employee has been terminated following a complaint they made, for example, to the Workplace Ombudsman, regarding their employer's alleged failure to comply with a workplace law.

Definition of adverse action

Adverse action in the above context includes:

  • dismissing an employee;
  • injuring an employee in their employment;
  • altering the position of the employee to their prejudice; or
  • discriminating between the employee and other employees of the employer.

The Act prohibits a person (an employer) from taking or threatening to take any action against their employee with intent to coerce the employee to exercise or not exercise a workplace right.

Undue influence

An employer must not exert undue influence on an employee in relation to a decision by the employee to, amongst other things:

  • agree to or terminate an individual flexibility agreement;
  • accept a guarantee of annual earnings (but note contravention will not occur if a prospective employer makes an offer of employment conditional on a prospective employee accepting a guarantee of annual earnings).
  • agree or not to agree to a deduction from amounts payable to the employee in relation to work
  • make or not make an arrangement under the NES.

Additionally (as noted above) a person must not knowingly or recklessly make any false or misleading representation about:

  • the workplace rights of another person; or
  • the exercise or the effect of the exercise of a workplace right by another person.

Employees who engage in lawful industrial activity are protected from discrimination. Protection from discrimination also is conferred in relation to similar grounds to those referred to in the unlawful termination provisions. Discrimination on the grounds of temporary absence from work is also prohibited.

Sham contractor arrangements

Employers should be careful to ensure that they take care to understand whether or not they are able to offer a person a contractor arrangement as opposed to an employee contract. Penalties exist for employers who offer sham contractor arrangements.

Onus of proof

Where a breach of these provisions is alleged, the onus is on employers to prove that they did not act for a particular reason or with the particular intent (that constitutes the contravention).

Applications under the General Protection Provisions are made to Fair Work Australia (FWA). If the application concerns a dismissal then the application must be made within 60 days from dismissal.

The Unfair Dismissal Regime

Generally speaking employees of small business employers can access the unfair dismissal regime after they have been with their employer for 12 months or more (small business employers are presently employers with less than 15 full-time equivalent employees at the time of dismissal).

Generally speaking employees of larger businesses will be able to access the unfair dismissal regime after six months of employment.

Claims must be brought within 14 days of termination although FWA may extend time in some circumstances.

Exclusion from unfair dismissal claims

The following types of employee will be excluded from bringing a claim for unfair dismissal:

  • Where the dismissal was a case of genuine redundancy
  • Where the employee is not covered by an award or enterprise agreement and their annual rate of earnings exceeds the high income threshold (presently $108,300.00).
  • The employee was under a contract of employment for a specified period of time, for a specified task or for the duration of a specified season.
  • The employee was under a training arrangement for a specified period.
  • Certain casual employees.
Definition of unfair dismissal

A person has been unfairly dismissed if dismissal was:

  • harsh, unjust or unreasonable; and
  • not a case of genuine redundancy; and
  • not consistent with the Small Business Fair Dismissal Code (in circumstances where that Code applies).

The Small Business Fair Dismissal Code is a code which if followed by small business employers, provides a defence to an action for unfair dismissal.

The Code may be accessed on the website of Fair Work Australia. The Code does not apply to other businesses (being employers with 15 or more full time equivalent staff).

Fair Work Australia may order:

  • reinstatement of the employee to their job (or a job of an associated entity) together with an order for remuneration lost during the period out of work;
  • compensation up to 26 weeks' pay (with a current cap of $54,150.00).
Unlawful termination

Apart from unfair dismissal, an employee may access a separate remedy for "unlawful termination" if their employment is terminated, amongst other things, for one or more of the following reasons:

  • Temporary absence from work due to illness or injury;
  • Filing of a complaint or participation in proceedings against an employer involving alleged violation of laws;
  • Race, colour, sex, sexual preference, age, physical or mental disability, family or carers responsibilities, pregnancy, religion, political opinion;
  • Absence from work during maternity leave or other parental leave.

Claims for unlawful termination must be brought within 60 days. If the matter is not resolved it can be referred to the Federal Magistrates Court where remedies include reinstatement and compensation.

Small business employers wishing to terminate an employee should examine the Code and ensure that as a minimum they comply with it. It should be noted that the Code itself has a checklist which the employer should complete at the time of making any decision to terminate the employment of one of its staff.

Larger employers

For larger employers, it is highly desirable to have established a dedicated and comprehensive performance management and disciplinary process, which may be included in an employee handbook or in a discrete policy. In defending any claim for unfair dismissal, an employer may, in addition to proving that termination was justified, also need to be able to establish that its processes were fair and that it followed them in terminating the employee's employment.

A recent decision of Fair Work Australia has suggested that employers may need to take into account, amongst other things, prior service record and the individual personal and financial circumstances of an employee prior to making a decision in relation to termination. These factors were recently held to be relevant to a finding that a dismissal was harsh.


To conclude, employers need to review their obligations under the Act, and in particular:

  • ascertain which modern award or awards apply to their workplace;
  • ensure that they are meeting any new award requirements for their staff;
  • consider taking advantage of any "phasing in" provisions which may apply to the modern awards covering their workforce;
  • consider whether or not they wish to contract out of the provisions of any modern awards which may apply to their workplace;
  • if they do wish to contract out, ensure that they have appropriate templates in place;
  • consider whether an enterprise agreement may suit their workplace;
  • ensure that they have processes in place for providing every new employee with a Fair Work Information Statement; ·
  • familiarise themselves with the NES;
  • review their employment contracts, policies and procedures in light of the NES to take into account new provisions relating to, amongst other things, parental leave (including extended parental leave), flexible working arrangements upon return from parental leave, community service leave and new safety net provisions relating to severance payments;
  • review disciplinary processes and procedures in light of the new unfair dismissal provisions.

For further information please contact:

Richard Ottley, Partner  |  Phone: +61 2 9233 5544  |  Email:

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This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

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