The Fair Work Act and Your Business

The Fair Work Act 2009 (FW Act) sets out a number of requirements that business, including small business, needs to be aware of.

Aspects of the FW Act commenced on 1 July 2009 including new unfair dismissal laws and the small business fair dismissal code, as well as requirements for employees and employers to bargain in good faith when making enterprise agreements. Other changes, such as the National Employment Standards (NES) and modern awards, commence from 1 January 2010. It is best practice to be aware of and prepare for all the changes.

In this article we will look at the key aspects of the FW Act including:

• the safety net of minimum employment conditions
• the obligation to bargain in good faith at the enterprise level
• obligations to keep records and provide pay slips
• unfair dismissal laws that apply to small business
• protections for employees and obligations of employers
• the functions of the Fair Work Ombudsman (FWO) and Fair Work Australia (FWA).

There is also a checklist to help your awareness of the FW Act.

The Fair Work Act

The FW Act commenced on 1 July 2009. The FW Act requires small business to comply with new:

• unfair and unlawful dismissal laws
• agreement making obligations
• transfer of business rules, and
• workplace rights specified in the FW Act.

From 1 January 2010, small business will need to comply with a new safety net of minimum employment conditions set out in the FW Act. This means that wages and conditions you provide to employees must at a minimum comply with:

• the National Employment Standard, and
• the minimum wage or wages in a modern award.

What are the National Employment Standards?

From 1 January 2010 all national system employers must provide 10 minimum entitlements to full-time and part-time employees. These minimum entitlements are called the National Employment Standards (NES).  Some of these entitlements do not apply to casual employees. Parental leave entitlements and rules about notice of termination apply to all employees (including those covered by state or territory industrial laws).

The NES will replace the five entitlements that currently make up the Australian Fair Pay and Condition Standard.

The key changes are:

• Maximum weekly hours of work - the maximum weekly hours of work will continue as 38 hours per week, plus reasonable additional hours. Unlike the Australian Fair Pay and Conditions Standard, the NES do not allow an employer and employee to agree on an applicable averaging period (although an averaging period may be specified in an award).
• Flexible working arrangements for parents - after 12 months' continuous service, employees caring for children under school age may request flexible working arrangements. Employers may refuse only on reasonable business grounds and must set out those grounds in a written response to the employee.
• Parental leave - after 12 months' continuous service, employees will continue to be entitled to 12 months' unpaid parental leave and can request an extension of up to another 12 months' leave. The employer may refuse this request only on reasonable business grounds.
• Cashing out leave - the ability to cash out leave is a matter that can be dealt with in modern awards only.
• Community service leave - employees engaging in community service activities, including jury service and voluntary emergency management activities, can take reasonable leave for the period of those activities, plus reasonable travel and rest time.
• Notice of termination and redundancy pay - the NES will introduce severance pay (to a maximum of 16 weeks' pay) for employees made redundant, except in small business (fewer than 15 full-time equivalent employees) or for probationary or casual employees.
• Fair Work Information Statement - employers will be required to give employees a statement (to be published by Fair Work Australia) either before, or as soon as practicable after, commencement of employment. 

What are modern awards?

'Modern awards' refer to the streamlined awards that are currently being made by the Australian Industrial Relations Commission. At present there are thousands of overlapping awards.

Modern awards will consolidate existing awards so that they are industry or occupation based and easier for employers and employees to use and understand. The award modernisation process is underway and by 1 January 2010 most industries will be subject to a modern award. Once the modern award system is established it will be administered by Fair Work Australia.

Many managers or higher income employees may not be covered by a modern award even if there is a relevant modern award for the industry in which they work. Further, while a modern award might cover a particular employee, it will not apply to those employees who have a written guarantee of annual earnings at or above $108,300 (indexed annually).

Modern awards will apply in addition to the National Employment Standards and may include conditions such as:

• minimum wages
• types of employment (for example, full-time, part-time or casual)
• overtime and penalty rates
• work arrangements (for example, rostering or variations to working hours)
• annualised wage or salary arrangements
• allowances (for example, travel allowances for employees who travel as part of their job)
• leave, leave loading and arrangement for taking leave
• superannuation
• procedures for consultation, representation and dispute settlement.

All modern awards will also contain a flexibility term which allows an employer and an individual employee to agree on an arrangement which varies the effect of certain terms of a modern award. These will be known as individual flexibility arrangements (IFAs).  IFAs can only be made in order to meet the genuine needs of the employer and that individual employee and any variations to the effect of a modern award must result in the employee being better off overall.

A modern award will not apply if the employer has an enterprise agreement that covers the employees that would otherwise be covered by the modern award. However, the base rate of pay in the enterprise agreement cannot be less than the modern award or the national minimum wage.

What are enterprise agreements?

Some employers and employees prefer to create their own enterprise agreements that will cover the wages and conditions which apply to their business. An enterprise agreement can offer significant benefits to a small business because it is tailored to that workplace's needs.

The FW Act requires that employers and employees bargain in good faith when making enterprise agreements. Enterprise agreements must result in employees being better off overall.

Your obligations to keep records and provide pay slips

You need to keep records in respect of each employee containing certain information, including:

• your business name
• the employee's name
• whether the employee's employment is full-time or part-time
• whether the employee's employment is permanent, temporary or casual
• the date on which the employee's employment began
• on and after 1 January 2010 - your Australian Business Number (if any).

You also need to provide your employees with pay slips within one working day of paying them. The Fair Work Regulations 2009 specify what records must be kept and what information must be contained on pay slips. 

Employers that do not comply with these obligations can liable for penalties. 

What are the unfair dismissal laws?

New unfair dismissal laws commenced on 1 July 2009.

Employers cannot dismiss their employees in circumstances that are "harsh, unjust or un reasonable". What is harsh, unjust or unreasonable will depend on the circumstances of each case. However, it is important to be fair to employees particularly when it comes to termination of employment. They should be given reasons for dismissal and an opportunity to respond to those reasons. 

Importantly, until 1 January 2011, employers that employ fewer than 15 full-time employees (or the equivalent) will be covered by special dismissal arrangements which are different to those that apply to larger businesses. Generally, the number of full-time equivalent employees can be calculated by dividing the number of hours worked by all employees over the four weeks preceding the dismissal by 152.

The special arrangements that apply to employers with fewer than 15 full-time employees (or there equivalent) are:

• employees will need to have worked for the business for 12 months in order to be eligible to make a claim for unfair dismissal, and
• if a small business employer strictly follows the Small Business Fair Dismissal Code and the dismissal of their employee is not harsh, unjust or unreasonable, then the dismissal will be deemed to be fair. It is best practice to follow the code and fill out the Small Business Fair Dismissal Code Checklist at the time an employee is dismissed and you should keep the checklist with your records as it will assist you if an employe makes an unfair dismissal claim. A copy of the checklist is available at our website.

After 1 January 2011 the special arrangements will only apply to employers with a headcount of less than 15 employees. 

You should also ensure that you provide the employee with their entitlements such as notice any any annual leave that they have accrued. 

Other obligations

Employees are protected against unlawful dismissal under the FW Act.  There are no exemptions for small business in this area. Examples of unlawful dismissal include dismissing someone because of their race, sex, colour, sexual preference, age, physical or mental disability, marital status, family or carer's responsibilities, pregnancy, religion, political opinion, national extraction or social origin. It is also unlawful to terminate an employee's employment if they are temporarily absent from work because of illness or injury, because of union involvement or non-involvement or because of absence from work during parental leave.

The FW Act also provides that an employer cannot take adverse action against an employee because they exercised a workplace right or engaged in industrial activity. Examples of adverse action include dismissing an employee, injuring or altering the employee's employment, discriminating between one employee and others or refusing to hire a prospective employee. Employers can be liable for penalties if they subject their employees to adverse action.

What is the Fair Work Ombudsman and Fair Work Australia?

The Fair Work Ombudsman and Fair Work Australia (FWO and FWA) perform many of the functions previously performed by several government bodies, including the Australian Industrial Relations Commission, the Workplace Authority and the Workplace Ombudsman.

FWA is responsible for helping employers and employees resolve their workplace disputes. It also has the power to create and vary awards, make minimum wage orders, as well as orders about good faith bargaining and industrial action. FWA will determine unfair dismissal claims.

FWO is responsible for educating employers and employees. FWO is also responsible for ensuring compliance with the new laws and can bring court proceedings against employers, employees and/or their representatives that breach the new laws.

Best practice checklist

• Have you found out which award your business is currently covered by and which modern award you will be covered by after 1 January 2010?
• Have you looked at the minimum conditions of the award and the minimum wage rates for each classification and checked that you are either above or below them. You then need to look at the transitional arrangements for moving wages and conditions up or down (i.e. 1.25% every 1 July to 2014).
• Are arrangements in place so that your business will comply with the National Employment Standards when they come info force on 1 January 2010?
• Are you keeping the required records and giving employees pay slips?
• Are you aware of your options for making an enterprise agreement with employees?
• Do you understand how to bargain in good faith if you want to make an enterprise agreement with employees?
• Is your business equipped to prevent unlawful dismissals or adverse action matters from arising?
• You will need to get copies of the Fair Work Information sheet (FWIS). The FWIS must be given to all new employees, who commence employment after 1 January 2010. it does not need to be provided to any existing employees.
• If you have a HR or staff policy manual, you will need to adjust this to reflect the new conditions etc.