The government is proposing amendments to the Fair Work Act, including to the operation of “individual flexibility arrangements” (IFAs). The amendments are attracting a lot of attention, including from unions, some of whom claim they will make IFAs like the Australian Workplace Agreements (AWAs) that were prominent in the WorkChoices period and that famously cut overtime pay, penalty rates and other “protected” award conditions.
The Government claims it is just implementing recommendations of the Review of the Fair Work Act that was commissioned by the previous Labor government, as per its election commitment.
So will IFAs be the new AWAs? Or is this just the benign fulfilment of an election commitment?
What are IFAs?
The Fair Work Act abolished AWAs and required that all awards include a standard “flexibility term”. This provision enables the establishment of IFAs between individual employees and an employer, identifies which terms of a modern award may be varied by an IFA, specifies that the employee and the employer must genuinely agree and that the agreement must satisfy a “better off overall test” (BOOT) for the employee, along with various other procedural requirements.
Enterprise agreements must also contain a flexibility term, but unlike awards the flexibility term may be negotiated between the parties.
IFAs are not lodged with any agency, but can be inspected on site by the Fair Work Ombudsman (FWO). If the IFA is below the legislative standard, the employer is then liable at law.
How are IFAs used at the moment?
The best source of information on IFAs is a survey undertaken by Fair Work Australia in 2011. The key things we learnt from that are:
Very few employers (about one in nine) use IFAs, because most say they don’t need them. Less than 1% think the provisions are too inflexible. Overall, probably fewer employees are on them than were on AWAs at their peak.
Most IFAs were initiated by employers, not employees. So the flexibility is predominantly for the benefit, in the first instance, of the employer.
Many employees on them were required to sign as a condition of getting or keeping their job – this was the case in half the employers who used IFAs. This appears a frequent breach of section 344[c] of the Fair Work Act.
Many IFAs (three quarters) are used to formalise what were previously informal and, by implication, illegal practices.
Many employees (about four fifths) believe they are better off as a result of an IFA, but we cannot objectively tell, and over a quarter of employers don’t scrutinise them against the BOOT test.
So, many IFAs operate to formalise previously illegal practices and many are then formalised illegally. We have to think about IFAs in the context of the overall problem with compliance with the minimum wages and conditions in awards.
AWAs were routinely scrutinised by a government agency, the “Employment Advocate”. Scrutiny was sometimes weak, but it was a constraint on badly designed AWAs.
IFAs are not routinely scrutinised by anybody. They are held in the payroll office of the employer. If the FWO comes around to inspect the wage records, and an IFA is below standard, then the employer is in breach of the award.
But this only happens if they are found out. Either the employee has to know to make a complaint (and if they knew they were being ripped off, they might not have signed) or the FWO has to know to do an inspection of that workplace.
There is little doubt that compliance with industrial law has improved since 2005, through both the Workplace Ombudsman and the FWO, and FWO focuses its efforts on the industries where workers are more likely to be vulnerable. But it can’t be everywhere.
Why are the changes controversial?
The changes that get a lot of press from the government are extending full IFAs to enterprise agreements (EAs) whether unions agree or not. About half of EAs have unrestricted IFAs, the other half have some restriction on them. But even if they have no formal role, unions in workplaces with agreements will be keen to ensure that any new IFAs do genuinely satisfy the BOOT test. It’s the IFAs in workplaces that don’t have unions – especially where pay is set mostly by awards – that are a concern anyway.
The bigger issues are two lightly heralded changes to IFAs. The government claims these are implementing the recommendations of the Review of the Fair Work Act that occurred under Labor, but this is not quite the case.
One amendment makes it easier for employers to avoid prosecution for IFAs that are sub-standard.
This is done by requiring employer and employee to sign a “genuine needs” statement indicating both agree the employee will be better off. This is then prima facie evidence that the parties genuinely believed the IFA met the BOOT test and typically prevents the employer from being prosecuted if it is sub-standard.
No doubt, the consultants that advise employers on making agreements will advise them that, if they get their employees to sign this, employers will be safe, no matter what is in the agreement.
The Fair Work Review recommended that employers have some improved defences against alleged breaches but that, importantly, this should only occur where employers have notified the FWO they have signed IFAs with employees, how many and with whom.
There is no such employee protection in the new Bill and this condition is not mentioned in the explanatory memorandum. Yet the Coalition’s pre-election policy promised to implement the recommendation that contained this condition.
The Review team thought long and hard about making its recommendations here, and regarded all of them to be necessary to prevent exploitation. Cherry-picking parts of a recommendation while ignoring other parts is a recipe for heightened exploitation.
The second major change is allowing non-monetary benefits to be taken into account in assessing whether workers are better off. Although done by a “legislative note” rather than a substantive amendment, it’s led to claims that employees could be paid in pizza.
The Fair Work Review dealt with this issue, but it recommended that in such circumstances “the value of the monetary benefit foregone is specified in writing and is relatively insignificant”. No such limitation appears in the legislative note.
Will IFAs be the same as AWAs?
IFAs cannot be too like AWAs because that would be politically too risky for a Government keen to avoid any mention of WorkChoices. But nor do the changes simply implement an election promise or Labor’s Fair Work Review. The government is keenly committed to industrial relations reform and seeks another mechanism for individual contracting.
So if you hear someone saying that the government is reintroducing the WorkChoices AWAs, it’s not really. Instead it is are doing something quite different, something that focuses much more on vulnerable workers’ lack of knowledge of their rights and entitlements under industrial law, and the difficulty that enforcement agencies, unions and others have in reaching, advising or protecting them.
It is something that will make exploitation of vulnerable workers through underpayment easier to undertake than at present, while being much harder to research and detect than it was with AWAs.
The proposed amendments involve heightened risk for vulnerable workers.