09 Nov 2010

The Fair Work Act - Modern Awards

Along with the National Employment Standards, modern awards form part of the minimum standards and conditions under the Fair Work Act. Graham Smith looks at what modern awards are, who is covered, and their content.

The Fair Work Act - Modern Awards
Graham Smith, Partner, Workplace Relations

Along with the National Employment Standards, modern awards form part of the minimum standards and conditions under the Fair Work Act.

Today I'll be looking at what modern awards are, who they will cover and what they may contain.

Modernising awards has turned out to be a huge task. Underlying award modernisation is the Government's desire to simplify and reduce the number of existing awards.

The Australian Industrial Relations Commission is currently reducing over 4,000 current awards down to about 75 modern awards.

This all must be finished by 31 December 2009, because the modern awards come into force on 1 January 2010.

The first major change is to the coverage of the award.

Historically, federal awards applied only to those employees whose employers were named as a respondent to a particular award, or were member of an employer organisation which was named as a respondent.

This will change under the Fair Work Act - the new Modern Awards will usually apply by reference to the kind of work the employee performs and industry in which they work.

The Australian Industrial Relations Commission is currently defining the boundaries of each industry and drafting modern awards for each of them.

However, a modern award does not apply to an employee if there is an enterprise agreement also applying to that employee.

Two other types of employees are excluded from modern awards.

The first is managerial employees, or employees who, because of the nature of their work or the seniority of their role, have not traditionally been considered award employees.

High income employees who have entered into a guarantee of annual earnings are also excluded from modern awards.

A high income employee is one who earns just over one hundred and eight thousand dollars per year, while a guaranteed rate is one that is pre-agreed.

You can't make your existing employees enter into a guarantee of annual earnings, but you can make an offer of employment to a new employee conditional on the prospective employee accepting a guarantee of annual earnings.

So that's who's covered.

What sorts of things are included in the modern awards?

As with enterprise agreements, the Fair Work Act sets out what terms must, may, and may not be included in modern awards.

The mandatory terms are coverage terms, a dispute settlement term, and terms providing for ordinary hours of work.

It must also include a flexibility term allowing an employer and an employee to enter into an individual flexibility arrangement.

This allows them to vary the effect of the award in relation to that employee and employer, to meet things such as their family commitments. Some things, such as minimum wages, type of employment, and superannuation, can't be changed through an Individual Flexibility Agreement.

Those are the terms that the modern awards must include.

The Fair Work Act lists just over ten items which modern awards may contain, which include minimum wages and penalty rates.

Then there are terms which modern awards cannot contain.

These include discriminatory terms, or terms dealing with right of entry or long service leave.

Because the modernisation process is still underway, you should review the modern awards or exposure drafts that relate to your business - you can find them on the Australian Industrial Relation Commission's website, Fair Work Online Website or seek advice.

That way, you can prepare for the start of modern awards on New Year's Day.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.