Four yearly review of modern awards [2015] FWCFB 4658 | Case summary

(#P58_646)

2. Drafting and technical issues

2.1 Commencement date

(#P664_60721)

Attachment A - Timetable

1. Introduction

[1] This decision arises from the 4 yearly review of modern awards (the Review) and deals with general issues arising in sub-groups 1A and 1B of the Award stage of the Review. This decision should be read in conjunction with earlier decisions and statements concerning the Review. This decision deals with a number of drafting and technical issues as well as some substantive general issues associated with ordinary hourly rates of pay and all purpose allowances.

[2] The outstanding award specific matters for the Group 1A and 1B awards will be the subject of a further decision of this Full Bench to be issued in late July or early August.

2. Drafting and technical issues

[3] On 23 December 2014 the Commission as presently constituted issued a decision (the December decision) 1 in relation to the review of the Group 1A and 1B awards. A number of general drafting and technical issues arose during the course of the review of the Group 1 awards and were dealt with in our December decision. In that decision we decided to vary the current awards rather than superseding them2 and also to re-insert the transitional provision insofar as it relates to take-home pay orders3.

[4] Following the December decision the Title and commencement clause as proposed is:

"1. Title and commencement

1.1 This award is the xx Award 2015.

1.2 A variation to this award does not affect any right, privilege, obligation or liability that a person acquired, accrued or incurred under the award as it existed prior to that variation.

1.3 Schedule H - Definitions sets out definitions that apply in this award.

1.4 The monetary obligations imposed on employers by this award may be absorbed into overaward payments. Nothing in this award requires an employer to maintain or increase any overaward payment.

1.5 Neither the making of this award nor the operation of any transitional arrangements is intended to result in a reduction in the take-home pay of employees covered by the award. On application by or on behalf of an employee who suffers a reduction in take-home pay as a result of the making of this award or the operation of any transitional arrangements, the Fair Work Commission may make any order it considers appropriate to remedy the situation."

[5] This decision deals with a range of additional drafting and technical issues, including the commencement date provision, issues associated with 'absorption clauses' in modern awards and a number of matters associated with ordinary hourly rates of pay and all purpose allowances.

[6] At the outset we would observe that the decision to redraft and modify the language used in modern awards was not taken lightly. This Full Bench has predominantly been dealing with technical and drafting matters, with claims to make substantive variations to modern awards being referred to other Full Benches to consider on their merits based on the evidence presented. Staff of the Fair Work Commission under guidance from the Full Bench have sought to simplify and standardise language across modern awards to remove ambiguity and make awards simpler and easier to understand, consistent with the statutory direction to take into account the "need to ensure a simple easy to understand stable and sustainable modern award system" (s.134(1)(g) of the Fair Work Act 2009 (the Act)).

[7] Some parties have resisted this process but the fact that there has been so much debate about the actual entitlements of an employee under various award provisions confirms the needs for such a review. An award should be able to be read by an employer or employee without needing a history lesson or paid advocate to interpret how it is to apply in the workplace.

2.1 Commencement date

[8] The decision to vary modern awards, rather than supersede them as outlined in paragraph 9 of the December decision, means the commencement provision needs to be re-inserted. A commencement clause will be inserted into all exposure drafts as follows:

2.2 This modern award, as varied, commenced operation on 1 January 2010.

2.2 Absorption clause

[9] The Australian Manufacturing Workers' Union (AMWU) raised an issue in relation to the 'absorption clause' during the review of the Manufacturing and Associated Industries and Occupations Award 2010 (the Manufacturing award). While the Manufacturing award is in Group 1C, this provision is found in all exposure drafts so the issue has broader application; accordingly we have decided to deal with it in this decision.

[10] In their submission 4 of 12 November 2014 the AMWU state:

"15**.** . . .The AMWU proposes that Clause 2.2 also be deleted or amended as it is a transitional provision included in the making of the award in the context of consolidating the pre-modern instruments. The current clause is located in Clause 2 "Commencement and Transitional" and is not suitably expressed for the ongoing application of the Award.

The meaning of "modern award wages" and the difference between "setting" and "varying" modern award minimum wages is identified in s.284(3)and (4). These provisions are relevant to the Commission's modern award review. The Commission is not generally setting minimum wages during this review. The current clause 2.2 was relevant at the time the modern awards were being made and the minimum wages set.
The Commission will however shortly commence the process of varying minimum, wages under Part 2-6, Division 3. A clause relevant to that context is now more appropriate than clause 2.2 which reflects the transitional context.

18. The AMWU proposes Clause 1.4 of the exposure draft be deleted and an absorption clause similar to ones contained in the pre-modern instruments is more relevant and suitable in the context of award variations to minimum wages , including annual and/or work value wage adjustments. The proposed clause would be located in Clause 16 Minimum Wages of the Exposure Draft and state:

'The minimum rates of pay in this clause reflect the decision of the 2015-16 Annual Wage Review. Any increase in minimum wages arising from the review may be offset against any equivalent amount in rates of pay received by employees whose wage rates are above the wage rates prescribed in Clause 16.'"

[11] The related provision found in the pre-reform Metal, Engineering and Associated Industries Award 1998 5 is reproduced below:

"5.1.1(d) Absorption of Safety Net Adjustments

The rates of pay in this award include the arbitrated safety net adjustment payable under the Safety Net Review - Wages June 2005 decision [PR002005]. This arbitrated safety net adjustment may be offset against any equivalent amount in rates of pay received by employees whose wages and conditions of employment are regulated by this award which are above the wage rates prescribed in the award. Such above-award payments include wages payable pursuant to certified agreements, currently operating enterprise flexibility agreements, Australian workplace agreements, award variations to give effect to enterprise agreements and overaward arrangements. Absorption which is contrary to the terms of an agreement is not required. [Extract from the Metal, Engineering and Associated Industries Award 1998]"

[12] During the Full Bench hearings on 17 November 2014 in relation to the Group 1C awards, the wording of the proposed absorption clause was raised in the context of the Manufacturing award 6 and the Pharmaceutical Industry Award 20107. The Full Bench directed the parties to consider the matter further and subsequently a number of parties made further submissions on this issue. The submissions can be summarised as follows:

Ai Group support the retention of the provision in the exposure drafts but suggest all employer and union parties have an opportunity to provide full written submissions (see submission 8 dated 24 November 2014);
APESMA seek to amend clause 2.2 in the exposure drafts to ensure it only applies to overaward payments and not be extended to annualised salaries (see submission 9 dated 25 February 2015 re Professional Employees Award 2010); and
the AMWU claim clause 2.2 of the current modern awards is a transitional provision and does not have application beyond the transitional period (being after 1 July 2014). Accordingly they seek to have clause 1.4 of the exposure drafts deleted.

[13] In their further submission 10 on 21 November 2014 the AMWU state that such a clause "did not appear in pre-modern awards and was simply a product of the Part 10A modernisation process to facilitate transition to modern awards". In support of their claim, the AMWU cite a decision of Fair Work Australia arising from an application under s.160 by Ai Group to vary clause 2.2 in the Manufacturing award in which the Full Bench said "[the clause] does not have application beyond the transitional period". 11

[14] Clause 1.4 is in identical terms to clause 2.2 in all modern awards which is found in the Commencement and transitional clause as reproduced below:

"2. Commencement and transitional

2.1 This award commences on 1 January 2010.

2.2 The monetary obligations imposed on employers by this award may be absorbed into overaward payments. Nothing in this award requires an employer to maintain or increase any overaward payment.

2.3 This award contains transitional arrangements which specify when particular parts of the award come into effect. Some of the transitional arrangements are in clauses in the main part of the award. There are also transitional arrangements in Schedule A. The arrangements in Schedule A deal with:

● minimum wages and piecework rates

● casual or part-time loadings

● Saturday, Sunday, public holiday, evening or other penalties

● shift allowances/penalties.

2.4 Neither the making of this award nor the operation of any transitional arrangements is intended to result in a reduction in the take-home pay of employees covered by the award. On application by or on behalf of an employee who suffers a reduction in take-home pay as a result of the making of this award or the operation of any transitional arrangements, the Fair Work Commission may make any order it considers appropriate to remedy the situation.

2.5 The Fair Work Commission may review the transitional arrangements in this award and make a determination varying the award.

2.6 The Fair Work Commission may review the transitional arrangements:

(a) on its own initiative; or

(b) on application by an employer, employee, organisation or outworker entity covered by the modern award; or

(c) on application by an organisation that is entitled to represent the industrial interests of one or more employers or employees that are covered by the modern award; or

(d) in relation to outworker arrangements, on application by an organisation that is entitled to represent the industrial interests of one or more outworkers to whom the arrangements relate."

[15] The Full Bench decision upon which the AMWU relies states more fully:

"[19] The intent of the clause is that where monetary obligations increase as a result of the implementation of modern awards, employers should be able to absorb those increases into existing overaward payments. Nevertheless, the award clause adopted to reflect this intent is confined to the treatment of award obligations themselves, and does not extend to regulating any additional matters in contracts of employment. There may be some examples of contractual entitlements to overaward payments irrespective of the nature and extent of award obligations. However in the vast majority of cases, it is likely no such entitlement will exist. The wording of the clause is permissive, not mandatory, and does not modify the effect of any ongoing entitlement to overaward payments. Further, the clause is a transitional clause. It does not have application beyond the transitional period." 12 (emphasis added)

[16] The text in clauses 2.2 to 2.6 was inserted in all modern awards following the Transitional provisions decision of 2 September 2009. The relevant passages of that decision are:

"The model commencement and transitional clause

[19] We deal first with the issue of absorption. There was a range of views on the issue. Most employer representatives took the view that any increases resulting from a modern award should be capable of absorption into existing overaward payments. The Australian Council of Trade Unions (ACTU) and most unions took a contrary view. They argued that overaward payments should be maintained in all circumstances. Modern awards are concerned with minimum wages and conditions and not with overaward payments. It would not be appropriate, even on a transitional basis, to require an employer to maintain overaward payments. We have decided to provide for absorption. Of course the payments specifically regulated in the transitional provisions are not to be regarded as overaward payments. Those payments are referable to pre-modernisation obligations in award- or agreement-based transitional instruments. The model provisions will include the following:

"The monetary obligations imposed on employers by this award may be absorbed into overaward payments. Nothing in this award requires an employer to maintain or increase any overaward payment."

[20] We deal next with the possibility of reductions in take-home pay. The provisions of Part 3 of Schedule 5 to the Transitional Act are concerned with the maintenance of take-home pay. They deal with what happens when an employee suffers a reduction in take-home pay as a result of a modern award coming into operation. It is to be implied that the provisions do not apply to employees who commence employment after the modern award has come into operation. So while the provisions are concerned with what happens when the modern award comes into operation, they do not deal with the potential for reductions in take-home pay resulting from the operation of the transitional provisions. As will be seen, the model provisions permit a phased reduction in pre-modern award conditions if they were more beneficial for employees than the modern award. For that reason we think it is important to provide protection for new employees from reductions in take-home pay which otherwise might result from the operation of the transitional provisions. The model provision specifies that neither the making of the award nor the operation of the transitional provisions is intended to result in a reduction in take-home pay. It also indicates that Fair Work Australia may make an order to remedy a reduction in take-home pay. This provision will complement the power to make take-home pay orders in item 9 of Schedule 5 to the Transitional Act. The model provision reads:

"Neither the making of this award nor the operation of any transitional provision is intended to result in a reduction in the take-home pay of employees covered by the award. On application by or on behalf of an employee who suffers a reduction in take-home pay as a result of the making of this award or the operation of any transitional provision, Fair Work Australia may make any order it considers appropriate to remedy the situation." 13 (emphasis added)

[17] It appears that the issue of absorption and transitional arrangements may have been conflated. It is common ground that clauses 2.3 to 2.6 of the modern awards operated on a transitional basis. Clauses 2.3, 2.5 and 2.6 have been removed from all exposure drafts, while clause 2.4 has been retained on an interim basis in accordance with paragraphs 12 to 16 of the December decision. While the 2010 Full Bench stated that 'the clause' is a transitional clause, the Full Bench may be referring to clause 2 in its entirety or alternatively it may be contended that the intent of the Australian Industrial Relations Commission (AIRC) Full Bench was that clauses 2.1 and 2.2 were to continue operation beyond the transitional period, while the reminder of the clause (i.e. clauses 2.3-2.6) were transitional provisions only. Clause 2.2 was inserted to deal with the absorption issue outlined in paragraph 19 of their decision while clauses 2.3-2.6 were inserted in response to the issues of the transition to the new modern awards dealt with in clause 20.

[18] Submissions made regarding this provision to date have only been made in relation to a limited number of exposure drafts. As any decision to remove or modify this provision will have application across all modern awards, we propose to give all interested persons an opportunity to make submissions. Those interested should lodge written submissions in relation to the continuing operation of the following clause in modern awards:

2.2 The monetary obligations imposed on employers by this award may be absorbed into overaward payments. Nothing in this award requires an employer to maintain or increase any overaward payment.

[19] Any further submissions should be emailed to amod@fwc.gov.au by 4.00 pm on Monday 3 August 2015. Any submissions in reply should be lodged by 4.00 pm on Monday 17 August 2015. A further hearing before the Full Bench will be listed at 10.00 am on Thursday 27 August 2015.

[20] Any submission filed should address whether the inclusion of the absorption clause is 'necessary' to achieve the modern awards objective or the minimum wages objective, within the meaning of s.138 of the Act. Such submission should also address the proposed clause advanced by the AMWU in their submission 14 of 12 November 2014 (see paragraph [10] above).

[21] We now turn to the substantive general issues associated with ordinary hourly rates of pay and all purpose allowances.

3. Ordinary hourly rate of pay

3.1 Inclusion of ordinary hourly rates for awards with an all purpose allowance

[22] As outlined in the December decision, the exposure drafts in Group 1 include the terms 'ordinary hourly rate of pay' in awards that provide one or more 'all purpose' allowances and/or a casual loading that applies for all purposes. The use of these terms was the subject of numerous submissions during the Group 1A and 1B award stage and has also been the subject of submissions for awards in later stages. The December decision stated that the matter required further consideration and it was called on for a further hearing on 24 March 2015. Following the hearing, a number of parties made further written submissions.

[23] The outstanding issues can broadly be broken into five categories:

(i) Part 10A award modernisation process

(ii) Definition of 'all purpose' and 'ordinary hourly rate of pay'

(iii) Inclusion of hourly rates in wages tables in body of award

(iv) Schedules summarising hourly rates of pay

(v) Casual loadings

(i) Part 10A award modernisation process

[24] The parties had different views as to the extent to which the AIRC considered the rate of pay while on leave and supplementation of the National Employment Standards (NES) during the Part 10A award modernisation process. At paragraphs 55-58 of their submission 15 of 11 March 2015, the Australian Manufacturing Workers' Union (AMWU) submit that the issue was not full considered.

[25] This matter was the subject of some submissions during proceedings on 24 March 2015 16 and following a request from the Full Bench, the employer and union parties made further submissions on this issue. In their submission17 of 26 March 2015 the AMWU confirmed their position, while Ai Group submitted18 that the matter had been properly considered.

[26] The timeline of variations to the Minister's award modernisation request and when the new modern awards were issued is outlined in the AMWU submissions and is not in dispute. The timeline shows that the Minister's request was varied on 7 May 2009 to include a more detailed reference to the supplementation of the NES as follows:

"Interaction with the National Employment Standards

...

32. Subject to paragraph 34 below, a modern award may supplement the NES where the Commission considers it necessary to do so to ensure the maintenance of a fair minimum safety net for employees covered by the modern award, having regard to the terms of this request and the existing award provisions (including under NAPSAs) for those employees, such as small business redundancy entitlements or the rate of pay at which various types of leave is taken. The Commission may only supplement the NES where the effect of these provisions is not detrimental to an employee in any respect, when compared to the NES." (emphasis added)

[27] A number of AIRC decisions are relevant to the determination of whether or not the AIRC gave consideration to the appropriate rate of pay when on leave and, in this context, supplementation of the NES, during the award modernisation process. In a decision on 20 June 2008, prior to the above variation to the Ministerial request the AIRC said:

"[172] The first point is that it is not clear what scope there will be for variation in the operation of the NES at the modern award level. Until the NES have been dealt with in the modern award concerned there will necessarily be uncertainty in relation to a number of aspects of their operation. It would not be prudent to make any provision for variation of NES terms at this stage. But there are other cogent reasons for caution. Clause 30 of the request provides that a modern award cannot exclude the NES or any provision of the NES. Clause 31 provides that a modern award may include industry specific detail about matters in the NES. Clause 32 provides that a modern award may supplement the NES in some circumstances. Clause 33 provides that particular types of provisions are able to be included in modern awards even though they might otherwise be inconsistent with the NES. It would seem to follow from these provisions that to the extent that modern awards will include terms about the NES those terms would deal directly with any flexibility issue in relation to the relevant NES entitlement." 19

[28] In a further Statement on 12 September 2008 the AIRC said:

"Annual Leave

[30] It has not been practical to develop a single model clause for annual leave. While the drafts generally provide for the employer to require that arrears of annual leave be taken the drafts are not uniform. It is not appropriate to supplement the annual leave entitlements provided for in the NES unless it is necessary to maintain the safety net [Consolidated request clause 32]. Depending upon the circumstances of the industry and the existing award arrangements provision may be required for a shift worker definition, annual close down, holiday pay, annual leave loading and payment on termination." 20

[29] Then, on 19 December 2008, the AIRC Award Modernisation Full Bench issued a decision in which it said:

"Annual leave

[95] As we noted in our statement of 12 September 2008, it has not been possible to develop a single model clause for annual leave. While some parties have sought greater uniformity in the area, there is a wide range of differing provisions in the awards and NAPSAs that we are dealing with. In many cases the provisions are more generous to employees than the provisions of the NES. Areas in which this can be observed are the quantum of holiday pay, leave loading and the definition of shift worker. In considering what should be included in the modern award on each of these matters we have attempted to identify or formulate a standard entitlement in the area covered by the modern award rather than preserving a range of differing entitlements. This involves a degree of rationalisation at the award level only and will not result in standard provisions across all awards." 21

[30] The Minister's Request was varied on 7 May 2009 and on 22 May 2009 the AIRC issued the following Statement 22:

"[5] We have taken the recent variation to the consolidated request into account in formulating the Stage 3 exposure drafts published with this statement. That variation dealt with principles of equal remuneration, award exemption clauses, individual flexibility terms, industry specific considerations, supplementation of the National Employment Standards (NES), franchisee awards and pieceworker base rates of pay.

...

[7] Another more general issue arises in connection with the recent variation to the consolidated request. It is likely that the variation will have some significance in relation to modern awards made in the priority stage and in Stage 2. We do not intend, however, to initiate a review of those awards as that course would lead to considerable delay in completing modernisation. A party covered by a modern award who wishes to challenge terms in that award based on the variation to the consolidated request should make an appropriate application."

[31] While the Priority and Stage 2 awards were made prior to the 9 May 2009 amendment to the Ministerial request, the Full Bench gave parties an opportunity to apply to vary any affected provision. 23 Apart from a very small number of applications (three in total24) the parties did not choose to include additional supplementary provisions. The AIRC could have chosen to vary awards in the Priority and Stage 2 tranches if they considered that any changes were necessary, as they did for transitional provisions.25

[32] The timeline, wording of the 22 May 2009 Statement and the fact that a number of awards made in each stage of the Part 10A process provide for the supplementation of the NES provisions, including providing for a higher rate of pay while on annual leave, leads us to conclude that this issue was considered by the AIRC Full Bench in the Part 10A process. Accordingly and as stated in the Preliminary Jurisdictional Issues decision 26, we consider that each award "achieved the modern awards objective at the time that it was made". Further, any party seeking to vary a modern award in the context of the Review must advance a merit argument in support of the proposed variation. The extent of the merit argument required will depend on the variations sought.27

[33] Any interested party seeking to vary the terms of a modern award in relation to the rate of pay while on annual leave should file a variation application and it will be considered during the award phase of the Review. We return to this issue at paragraph [93].

[34] We turn now to each of the remaining issues.

(ii) Definitions of all purpose and ordinary hourly rate of pay

[35] A definition of 'all purpose' has been inserted in all exposure drafts containing such payments along the following lines:

all purposes means the payment will be included in the rate of pay of an employee who is entitled to the allowance, when calculating any penalties or loadings or payment while they are on leave

[36] The identification of a particular allowance or loading as being for all purposes in the exposure drafts is intended to reflect the existing position in each of the current modern awards.

[37] The AMWU and other unions parties support the inclusion of this definition while the Ai Group support the need for a definition but oppose the inclusion of the words "or payment while they are on leave".

[38] We examine the rate of pay while on leave at paragraph [73].

[39] In the Part 10A award modernisation process, all purpose allowances were retained in modern awards as separately identifiable entitlements. 28 However in the decision in relation to Transitional Provisions, it was clear that the Full Bench considered the interaction between all purpose allowances and wages.29

[40] Allowances and, less commonly, casual loadings, have been defined as applying 'for all purposes' in awards for many years. The payments were so identified during the Structural Efficiency process 30, following the disaggregation of allowances such as industry allowances that compensated for the disabilities associated with working in a particular industry, from properly fixed minimum rates of pay. These payments have historically been treated as part of an employee's wages for the purpose of calculating penalties and loadings.

[41] Despite the longstanding practice whereby all purpose allowances have been included in wage rates when calculating penalties and overtime, some issues have arisen concerning the methodology used in the exposure drafts. For example, in their submission in relation to the Textile, Clothing, Footwear and Associated Industries Award 2014 exposure draft Ai Group have submitted 31 that the shift penalties should be calculated on the minimum rate of pay, not the ordinary rate of pay (including all purpose allowances). The Textile, Clothing and Footwear Union of Australia (TCFUA) submit32 that the overtime, casual and penalty rates should be based on the ordinary hourly rate.

[42] Definitions of ordinary rate of pay have been inserted in the exposure drafts that include an allowance or loading that is payable for "all purposes" along the following lines (depending on the application of the all purpose allowances):

All purpose provisions

Ordinary hourly rate definition

Only all purpose allowance is an industry allowance applying to all employees

ordinary hourly rate means the hourly rate for an employee's classification specified in clause X.1, inclusive of the industry allowance

All purpose allowance(s) only applying to some employees

ordinary hourly rate means the hourly rate for the employee's classification specified in clause X, plus any allowances specified as being included in the employee's ordinary hourly rate or payable for all purposes

Industry allowance applying to all employees for all purposes and other all purpose allowance(s) only applying to some employees

ordinary hourly rate means the hourly rate for an employee's classification specified in clause X, inclusive of the industry allowance. Where an employee is entitled to an additional all purpose allowance, this allowance forms part of that employee's ordinary hourly rate

[43] The term 'ordinary hourly rate' has been used in contrast to 'minimum hourly rate' in affected awards to make it clear that all purpose allowances must be added to the minimum rate of pay before calculating any penalty rate.

[44] In affected awards, penalties and loadings are expressed as a percentage of the ordinary hourly rate, for example "overtime is paid at 150% of the ordinary hourly rate" to make it clear that an all purpose allowance to which an employee is entitled must be added to the minimum rate before calculating the loaded rate, that is, there is a compounding effect.

[45] Ai Group submit 33 that the use of the term 'ordinary hourly rate' could be "confusing"34 and is concerned that it could "extend existing entitlements"35. Ai Group submit that all purpose allowances should not necessarily be added to a minimum rate of pay before calculating any penalty or loading. In some cases due to the wording of the current award, Ai Group submit that the allowance should be added after the loading is applied to the minimum rate, that is there should be a cumulative rather than a compounding effect.

[46] The AMWU, AWU and ACTU support the approach used in the exposure drafts as they say it reflects current and historical usage of the term 'all purpose' and that any calculations should operate on a compounding basis. 36

[47] We are not persuaded to depart from established practice in relation to the operation of all purpose payments and how they interact with an employee's rate of pay. Definitions of 'all purpose' and 'ordinary hourly rate of pay' will be inserted into all affected awards based on the wording in paragraphs [35] and [91]. Any issues as to whether a particular payment is payable for all purposes, and, in particular, whether an allowance should be added to a minimum rate before calculating a penalty or loading, will be dealt with on an award-by-award basis. Ultimately the resolution of these issues will turn on the construction of the relevant award and the context in which it was made.

(iii) Inclusion of hourly rates in wages tables in body of award

[48] Most exposure drafts have included hourly rates of pay in the wages tables in the body of the award where the award previously only provided weekly and/or annual rates. These rates are expressed as applying to "ordinary hours".

[49] When an all purpose allowance is payable to all employees in all circumstances, that amount has been added to the minimum rate in the wage rates clause and expressed as the ordinary hourly rate (see for example the industry allowance payable to all employees in the draft Premixed Concrete Award 2014 reproduced in paragraph [51]). However many all purpose allowances are only payable to certain employees in certain qualifying circumstances so the amount cannot be included as a 'universal' ordinary hourly rate. In these exposure drafts, a note has been inserted to the effect that the "Ordinary hourly rate is the minimum hourly rate of pay for an employee plus any allowance payable for all purposes to which the employee is entitled" (see for example the leading hand allowance payable to certain employees in the draft Poultry Industry Award 2014).

[50] The current wages table for Premixed Concrete Award 2010 provides as follows:

14. Minimum wages

14.1 A full-time employee must be paid a minimum weekly rate for their classification as set out in the table below:

Classification

Minimum weekly rate

Level 1

675.60

Level 2

681.60

Level 3

705.90

Level 4

725.90

Level 5

764.90

[51] Proposed wages table in exposure draft for Premixed Concrete Award 2014:

10. Minimum wages

10.1 An employer must pay employees the following minimum wages for ordinary hours worked by the employee:

Employee classification

Minimum weekly rate

Minimum hourly rate

Ordinary hourly rate1

Casual

hourly rate1

Level 1

675.60

17.78

18.36

22.95

Level 2

681.60

17.94

18.52

23.15

Level 3

705.90

18.58

19.16

23.95

Level 4

725.90

19.10

19.68

24.60

Level 5

764.90

20.13

20.71

25.89

1 This rate includes the industry allowance payable to all employees for all purposes. Other all purpose allowances may also be payable, see clause 11.2.

[52] In their submission 37 of 26 September 2014, AFEI submitted that the wages tables in the body of the award should only include minimum rates of pay while the more detailed schedules can contain ordinary rates of pay incorporating all purpose allowances. Ai Group supported this approach in their submission. Ai Group further submitted incorporating any all purpose allowances payable to all employees in the body of the award could cause confusion and an employer may mistakenly pay the ordinary hourly rate plus the all purpose allowance.

[53] In 2014 research was commissioned into the usability of modern award documents for small business owners as part of the 4 yearly review of modern awards. The purpose of the research was to elicit practical insights from small businesses (1 to 19 employees) that are end-users of modern awards. A report was published detailing the findings of focus groups and in depth interviews undertaken with small business owners. The report states:

"Providing actual dollar rates was seen by participants as a clear improvement as the document finally delivered a clear answer that did not require any effort on their part - it did the work for them and gave them the level of certainty they were seeking." 38

[54] In our view, the inclusion of hourly rates of pay in the body of the award is appropriate to ensure that awards are simple and easy to understand. The body of the award will contain the weekly rate of pay along with the minimum hourly rate. Where employees are entitled to other payments, these will be included in the schedule to the award. For example, if an award contains an all purpose allowance, the minimum rate will be included in the body of the award, with the ordinary hourly rate outlined in the schedule to the award.

[55] It should be noted that Regulations 3.33(3) and 3.46(1)(g) of the Fair Work Regulations 2009 state that an employer must separately identify an allowance. Regulation 3.33(3) provides as follows:

"3.33 Records - pay

(3) If the employee is entitled to be paid:

(a) an incentive-based payment; or

(b) a bonus; or

(d) a penalty rate; or

(e) another monetary allowance or separately identifiable entitlement;

the record must set out details of the payment, bonus, loading, rate, allowance or entitlement."

[56] Regulation 3.46(1) provides as follows:

"3.46 Pay slips - content

(1) For paragraph 536(2)(b) of the Act, a pay slip must specify:

(a) the employer's name; and

(b) the employee's name; and

(d) the date on which the payment to which the pay slip relates was made; and

(e) the gross amount of the payment; and

(f) the net amount of the payment; and

(g) any amount paid to the employee that is a bonus, loading, allowance, penalty rate, incentive-based payment or other separately identifiable entitlement; and

(h) on and after 1 January 2010 - the Australian Business Number (if any) of the employer"

[57] To ensure that employers are meeting their obligations under these Regulations, a note will be inserted into the exposure drafts drawing attention to these Regulations and to the fact that employers must separately identify any allowance on a pay record.

(iv) Schedules summarising hourly rate of pay

[58] Most exposure drafts contain detailed schedules of hourly rates of pay incorporating penalty rates and loadings as per the example below:

Extract from exposure draft based on Premixed Concrete Award 2010

A.1.4 Full-time and part-time shiftworkers - ordinary and penalty rates

Day work

Afternoon

Night

Permanent night shift

Public holiday

% of ordinary hourly rate

100%

115%

130%

250%

Level 1

18.36

21.11

23.87

45.90

Level 2

18.52

21.30

24.08

46.30

Level 3

19.16

22.03

24.91

47.90

Level 4

19.68

22.63

25.58

49.20

Level 5

20.71

23.82

26.92

51.78

[59] Where an award contains an all purpose allowance that applies to all employees, only the ordinary rates (not the minimum hourly rates), have been included in the schedules as these are the rates that are payable.

[60] As outlined in our decision of 23 December 2014 39 one of the objectives of this Review is to make information about entitlements and obligations under modern awards more accessible. In the Citizen Co-design process, small business owners supported the inclusion of schedules of hourly rates of pay including penalties and loadings in modern awards. Further the Fair Work Ombudsman (FWO) encouraged the Commission to include detailed schedules in all awards.40

[61] In submissions to the Review, a number of parties have raised general and specific issues about the inclusion of such detailed schedules. In their submission 41 of 6 March 2015, Ai Group supports the inclusion of such schedules but states that the Commission's approach must be considered on an award-by-award basis and "be guided by the submissions of the parties and outcomes of the conferencing process"42.While most parties support the inclusion of schedules of hourly rates, there is concern about adopting a 'one size fits all' approach. While rates including penalties and loadings can be clearly summarised in some awards, others are more complex due to the inter-relationship between loadings or the incidence of all purpose allowances payable to only some employees.

[62] The Full Bench supports the inclusion of detailed schedules of hourly rates in modern awards but we agree that it is prudent to not adopt a 'one size fits all' approach and to develop rates tables in consultation with the interested parties. The complexities of rates in some awards (e.g. Vehicle Manufacturing, Repair, Services and Retail Award 2010 43 do not lend themselves to being accurately and efficiently summarised in such a schedule. Further, the views of interested parties in awards such as the Manufacturing and Associated Industries and Occupations Award 201044 (the Manufacturing award) has led to a tailored schedule that relies on the interaction of the schedule with the more detailed provisions governing when a penalty or loading is payable, rather than inserting a complex and lengthy series of tables. Parties are encouraged to review the schedules and make submissions about the accuracy and utility of such schedules during the award stage for Groups 2, 3 and 4.

[63] While some employer and employee parties support the inclusion of both the minimum and ordinary hourly rates of pay in the wages schedules, to reduce the complexity of the tables, only the ordinary hourly rate of pay (not the minimum hourly rate) will be included in the schedules appended to awards where all employees receive an all purpose allowance. As noted at paragraph [54] above, the body of the award will contain the weekly rate of pay along with the minimum hourly rate. Where employees are entitled to other all purpose payments, these will be included in the schedule to the award. Contrary to Ai Group's submission 45 the schedules of hourly rates appended to most modern awards will be legally enforceable and a note will be inserted into the schedules stating that 'employers who meet their obligations under this schedule are meeting the obligations under the award'.

Awards that currently contain only annual rates

[64] When an award contains only annual rates, parties are encouraged to consider including the method for converting the annual rate to a weekly and/or hourly rate to ensure transparency in adjusting rates of pay in the event that a future Annual Wage Review decision provides for a flat dollar monetary increase based on weekly rates (rather than a percentage increase).

(v) Casual loadings

[65] Casual employment provisions in exposure drafts have been drafted along the following lines 46:

Casual employees

(a) A casual employee is an employee who is engaged and paid as a casual employee.

(b) For each engagement, a casual employee must be paid for a minimum of three hours.

(i) For each ordinary hour worked, a casual employee must be paid:

• the minimum hourly rate; and

• a loading of 25% of the minimum hourly rate,

for the classification in which they are employed.

(ii) …

(iii) The casual loading is paid instead of annual leave, paid personal/carer's leave, notice of termination, redundancy benefits and other entitlements of full-time or part-time employment.

[66] An employee's casual loading is calculated based on either the minimum hourly rate or ordinary hourly rate depending on what basis is used in the current modern award and whether the award contains any all purpose payments.

[67] In the exposure drafts published for Group 1 awards parties have identified that the terminology used for calculating the rate of pay is inconsistent. We agree with those observations. The drafting process was "not intended to incorporate any substantive changes".

[68] Where an award previously stated a casual employee was to be paid 1/38th of the minimum weekly rate plus 25% of that amount, in awards providing for an all purpose allowance, the exposure draft expresses the casual rate as the "ordinary hourly rate plus 25% of the ordinary hourly rate" i.e. including any all purpose allowance which the employee is entitled to receive.

[69] Some employer parties (e.g. Ai Group pp.12-13 re Cotton Ginning Award 2010 and more generally, pp.17-18) have submitted that where the current modern award states that the loading is calculated on "1/38th of the weekly award wage" or "1/38th of the minimum weekly rate", the casual loading should not be calculated based on the ordinary hourly rate that is they do not consider the all purpose allowance should be added to the minimum rate before the 25% is calculated. They submit that the casual loading is 25% of the minimum rate and added to the minimum hourly rate, then the all purpose allowance is added after that.

[70] In our view it is desirable that there be a consistent rule relating to the calculation of a casual loading which should apply across all awards. Our provisional view is that the position of certain employer parties outlined above at paragraph [69] is the preferred option that should be adopted across all awards. That is, the casual loading will not be calculated based on the ordinary hourly rate. The casual loading will be calculated as 25% of the minimum rate, with any all purpose allowance being added after that.

[71] Some parties submit that the Commission should examine the pre-reform instruments to determine the correct basis for such calculations. The proposition that the Commission refer to 'the pre-reform instrument' for guidance is not straightforward. The modern awards were made to replace more than one, and in some cases several hundred pre-reform instruments, many with diverse terms. As stated in the Award Modernisation decision of 2 September 2009:

"The creation of modern awards which will constitute the award elements of the safety net necessarily involves striking a balance as to appropriate safety net terms and conditions in light of diverse award arrangements that currently apply." 47

[72] Parties will be given further opportunity to address this issue on an award-by-award basis through the award stage. Further, interested parties will be provided with an opportunity to comment on the rule proposed in paragraph [70] applying across all awards (with an all purpose allowance). Submissions should be emailed to amod@fwc.gov.au by 4.00 pm on Monday 3 August. Any submissions in reply should be lodged by 4.00 pm on Monday 17 August 2015. A further hearing before the Full Bench will be listed at 10.00 am on Thursday 27 August 2015.

(vi) Rate of pay while on leave

[73] The issue of what rate is payable when an employee is on leave was the subject of numerous submissions. As outlined in paragraph [35] , the exposure drafts that contain an all purpose payment include the following definition:

"all purposes means the payment will be included in the rate of pay of an employee who is entitled to the allowance, when calculating any penalties or loadings or payment while they are on leave" (emphasis added)

[74] As stated in the December decision "it is important that the rate of pay to be paid to an employee while on a period of paid leave is clearly identified in the relevant modern award". 48

[75] In their submission 49 of 15 October 2014, the ACTU outlines the historical basis for the payment of all purpose allowances on annual leave:

"22. All purpose allowances have historically been paid to employees for all purposes of the award. Prior to the implementation of the FW Act, leave entitlements were prescribed by awards. Consequently, all purpose allowances were generally paid in respect of annual leave, personal/carers leave, bereavement leave, leave for the purpose of attending jury service and public holidays.

23. The NES currently provides that leave entitlements are payable at the base rate. A number of modern awards supplement the base rate by providing that all purpose allowances are payable while an employee is on annual leave.

24. The ACTU submits that it is appropriate for modern awards to supplement the base rate with respect to leave entitlements, including but not limited to annual leave, to take into account all purpose allowances. We submit that this is necessary to provide a fair and relevant safety net." 50

[76] Historically awards have provided that an employee will continue to receive their ordinary rate of pay while on leave. A Full Bench decision in 24 January 2006 51 stated:

"[35] ... We refer in particular to the Commission's principles concerning holiday pay as formulated in the Annual Leave Cases 1971 [(1972) 144 CAR 528.]. In an announcement made on 7 June 1972 the Commonwealth Conciliation and Arbitration Commission confirmed the view it had earlier expressed that "an employee taking annual leave…shall be paid the amount of wages (or salary) as he would have received in respect of the ordinary time he would have worked had he not been on leave" [Ibid]. The Bench went on to say that in the general run of cases overaward payments for ordinary hours of work, shift work premiums and industry allowances, among other things, should be included in holiday pay[Ibid].

[36] The industry disability allowance is paid for every hour worked in the industry but not when a driver is on annual leave. In light of the authority referred to it is difficult to resist the conclusion that the disability allowance should be included in holiday pay." 52

[77] The 1971 Annual Leave Cases decision 53 sets out a list of items which the Commission felt should be paid to employees while on annual leave. The Commission stated:

" ... The items which we think should in the general run of cases be included in payment for Annual Leave are as follows:

...

Industry Allowances.

Climatic, Regional etc. Allowances.

Leading Hand Allowances.

First Aid Allowances.

Tool Allowances.

Qualification Allowances.

Service Grants." 54

[78] While these decisions were made prior to the implementation of the Work Choices Amendment, in the Part 10A award modernisation process the Full Bench retained an employee's entitlement to payment while on annual leave as being at the ordinary rate of pay rather than the base rate of pay as provided in the NES, if this was an existing entitlement. 55 For example applications by Master Builders Australia Ltd to reduce the payment on annual leave in the Building and Construction General On-site Award 201056 and Joinery and Building Trades Award 201057 awards were rejected by the Full Bench. In the Joinery award decision the Full Bench inserted a provision as follows:

"... the wages to be paid must be worked out on the basis of what the employee would have been paid under this award for working ordinary hours during the period of annual leave, including applicable allowances, loadings and penalties paid for all purposes of the award, first aid allowance, if applicable, and any other wages payable under the employee's contract of employment including any overaward payment." 58

[79] In their submissions of 26 September 2014 59 and 6 March 201560 Ai Group state that the use of the words "payment while they are on leave" in the definition of all purpose could be interpreted to mean that this payment must be paid when an employee takes any type of leave under the NES, not just the leave supplemented by the award.

[80] Ai Group propose modifying the definition, as follows:

"all purposes means the payment will be included in the rate of pay of an employee who is entitled to the allowance when calculating any payments under this award, unless otherwise stated in a particular clause."

[81] They submit that use of the term "payments under this award" clarifies that this higher rate only applies to the leave supplemented by the award, not leave taken under the NES.

[82] Section 90 of the Act provides that an employee will be paid their 'base rate of pay' while on paid annual leave. Similar provisions provide that paid personal/carer's leave, compassionate leave and community service leave are paid at an employee's base rate of pay.

[83] Section 16 of the Act provides a definition of base rate of pay as follows:

(1) The base rate of pay of a national system employee is the rate of pay payable to the employee for his or her ordinary hours of work, but not including any of the following:

(a) incentive-based payments and bonuses;

(b) loadings;

(d) overtime or penalty rates;

(e) any other separately identifiable amounts.

[84] Section 55(4) of the Act permits a modern award to supplement the National Employment Standards (NES) by providing that the rate payable to an employee while on annual leave (and other forms of leave) may be higher that the base rate.

[85] The union parties claim that all purpose payments have historically been payable while on periods of paid annual leave and, under some awards, personal/carer's leave. They consider the definition inserted by the Commission accurately reflect the status quo. Ai Group argues that the legislature deliberately included s.16 and specified the rate payable on paid leave. They submit that while modern awards may supplement the NES, it cannot be assumed that the inclusion of an all purpose allowance automatically results in payment on leave at the higher base rate unless the modern award expressly includes such a provision.

[86] Further, in their submission of 6 March 2015 61 Ai Group identified that in some circumstances an employee's base rate of pay as defined under s.16 of the FW Act may be higher than the minimum rate of pay due to the operation of overaward payments. While a modern award must only provide a safety net of minimum entitlements, the Full Bench acknowledges the anomaly must be addressed. Section 55 of the FW Act states that a modern award must not provide a lesser entitlement than that provided under the NES while s.90 provides that an employee must be paid (not less than) the employee's base rate of pay while on annual leave.

[87] In the ACTU submission 62 of 15 October 2014 and supported by the AWU submission63 of 7 March 2015, the union parties submit that the words "unless otherwise stated in a particular clause" in the definition proposed by Ai Group will cause further uncertainty.

[88] Ai Group is concerned that the wording "while they are on leave" could be extended to all other forms of leave including long service leave and have proposed the words "when calculating any payment under this award" to limit the inclusion of all purpose payments to leave provisions that are expressly supplemented in the award. 64

[89] The rate of pay on personal/carer's leave and other forms of leave has not been the subject of submissions. Unlike annual leave, most modern awards do not provide for the rate of pay while on personal/carer's or other forms of leave.

[90] The payment of all purpose allowances when on leave should generally be limited to annual leave and such other leave payments which are supplemented under the award. This reflects the long standing approach taken to the payment of all purpose allowances while on annual leave. When an award does not specify the amount payable on other forms of leave an employee is entitled to be paid the base rate of pay as defined in s.16 of the FW Act.

[91] We have decided that the definition of all purposes currently in the exposure drafts will be amended to read as follows:

[92] The above clause is clearer than the proposition advanced by Ai Group and, as a general proposition, limits the supplementation to payments while on annual leave. This limitation also avoids a problem with the previous formulation namely that it could potentially apply to long service leave contrary to s.155 of the Act. 65

[93] If a dispute arises about particular payments applying to an employee while on annual leave, including all purpose allowances, this will be dealt with during the award stage of the Review. In this regard we accept Ai Group's contention that regard must be had to the relevant context, including all of the terms of the relevant award, when determining whether any particular allowance or payments are to be included in the calculation of a particular entitlement. If an award does provide for payment while on a period of personal leave (or any other type of paid leave), a reference will be added into the exposure draft on an award-by-award basis. This issue may also be dealt with on an award basis during the award stage of the Review.

[94] We accept the possibility that where an employee is receiving an overaward payment, their base rate of pay as defined in s.16 of the Act may be higher than the ordinary rate. This possibility may be addressed by including a note in all modern awards drawing attention to s.16 and s.90 of the Act. The note will explain that when the base rate of pay is higher than the ordinary rate in the award, the higher rate must be paid to an employee while on leave.

(vii) Double time versus 200%

[95] The AMWU and TCFUA, supported by a number of other unions submitted that replacing terms such as 'time and a half' and 'double time' with '150% of the minimum hourly rate' or '200% of the minimum hourly rate' (or '200% of the ordinary hourly rate' in awards where there is an all purpose payment) reduces an employee's entitlements under the award. They argue that where an employee is receiving an overaward payment, it is the higher rate that should be multiplied to calculate the amount payable. 66

[96] Modern awards provide a safety net of minimum entitlements. The modern award prescribes the minimum rate an employer must pay an employee in given circumstances. Overaward payments, while permissible, are not mandatory. Further, if an employer chooses to pay an employee more than the minimum amount payable for ordinary hours worked, the employer is not required to use that higher rate when calculating penalties or loadings. We are not persuaded by the submissions advanced by union parties and do not propose to replace the terms 150% and 200% with time and a half or double time, etc.

4. Next steps

[97] The exposure drafts for all groups will be redrafted to reflect the changes outlined above. In summary, these changes are as follows:

A commencement clause will be inserted into all exposure drafts as outlined at paragraph [8] of this decision.
Interested parties are provided an opportunity to make further submissions in relation to the continued operation of absorption clauses in modern awards. Any further submissions should be emailed to amod@fwc.gov.au by 4.00 pm on Monday 3 August 2015. Any submissions in reply should be lodged by 4.00 pm on Monday 17 August 2015_._
Definitions of 'all purpose' and 'ordinary hourly rate of pay' will be inserted into all affected awards based on the wording in paragraphs [35] and [91]. Any issues as to whether a particular payment is payable for all purposes, and, in particular, whether an allowance should be added to a minimum rate before calculating a penalty or loading, will be dealt with on an award-by-award basis.
The body of the award will contain the minimum hourly rates of pay along with the weekly and/or annual rates of pay that are currently in the award. Where employees are entitled to other all purpose payments, these will be included in the schedule to the award.
A note will be inserted into the schedules of awards stating that 'employers who meet their obligations under this schedule are meeting the obligations under the award'.
It is desirable that there is a consistent method of calculating the casual loading for awards with all purpose allowances across all awards. Our provisional view is that the casual loading be calculated as 25% of the minimum rate and then the all purpose allowance added after that. Interested parties are provided with a further opportunity to comment on the proposed rule applying across all awards (with an all purpose allowance). Submissions should be emailed to amod@fwc.gov.au by 4.00 pm on Monday 3 August 2015. Any submissions in reply should be lodged by 4.00 pm on Monday 17 August 2015.
A note will be inserted into all exposure drafts drawing attention to s.16 and s.90 of the Act.
Exposure drafts will continue to express terms as '150% of the minimum hourly rate' or '200% of the minimum hourly rate', rather than expressing them as 'time and a half' or 'double time'.

[98] As mentioned above, parties are required to file further submissions relating to the issue of absorption clauses in modern awards and the method of calculating casual loading for awards with an all purpose allowance. The Full Bench has not reached a concluded view on either of these issues and will not do so until it has considered all of the further submissions made. Parties are to file written submission in line with the dates noted above and the attached timeline. A further hearing on these issues will be held at 10.00 am on Thursday 27 August 2015.

PRESIDENT

Appearances:

B Ferguson for the Australian Industry Group.

W Chesterman and N Horvat for the Victorian Automobile Chamber of Commerce.

A Thomas for the Construction, Forestry, Mining and Energy Union (Mining and Energy Division).

S Taylor and A Moussa for the "Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union" known as the Australian Manufacturing Workers' Union (AMWU).

S Crawford for The Australian Workers' Union.

K Scott for Australian Business Industrial and the New South Wales Business Chamber.

J Light for the Australian Federation of Employers and Industry.

A Baumgartner for the Motor Traders' Association of New South Wales.

S Ball for United Voice and the Health Services Union of Australia.

M Sheehan and R Taylor for The Motor Trade Association of South Australia.

K Van Gogh and D Harris for Business SA.

Hearing details:

Melbourne: (with video links to Sydney, Adelaide and Canberra)

March 24.

ATTACHMENT A - TIMETABLE

EVENT

DATE

Absorption clauses in modern awards (see paragraphs [18]-[20])

Closing date - submissions

3 August 2015

Closing date - submissions in reply

17 August 2015

Full Bench Hearing

27 August 2015

Calculation of casual loading for awards with all purpose allowance

(see paragraphs [70]-[72])

Closing date - submissions

3 August 2015

Closing date - submissions in reply

17 August 2015

Full Bench Hearing

27 August 2015

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Four yearly review of modern awards [2015] FWCFB 4658 (13 July 2015)

At a glance

Court

Decision date

Source

Judgment (66 paragraphs)

Legislation Cited (2)