State Wage Case 2010 [2010] NSWIRComm 183

State Wage Case 2010 [2010] NSWIRComm 183 - NSWIRComm 2010 case summary — Zoe

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1 The New South Wales Government decided in late 2009 to refer to the Commonwealth sufficient power to legislate a national industrial relations system for the private sector, based on s 51(37) of the Australian Constitution. 2 That decision was given effect by the Industrial Relations (Commonwealth Powers) Act 2009, which was assented to on 14 December 2009. The referral took effect on 1 January 2010 creating, for the first time, a national industrial relations system for the private sector. 3 The principal effect of referral was to remove most private sector employers and employees from the New South Wales industrial relations jurisdiction and make them subject to the provisions of the Fair Work Act 2009 (Cth). 4 As a result of the terms of the referral, the following classes of employees remain in the New South Wales industrial relations jurisdiction: · public sector employees and their employers, · local government sector employees and their employers, and · until September 2011, deemed employees, so classed as a result of the operation of s 5(3) and Schedule 1 of the Industrial Relations Act 1996 ('the IR Act'), who have been working for the same 'employer' since March 2006 (see s 7(1)(a) of the Independent Contractors Act 2006 (Cth) and s 35(4) of that Act as modified by Schedule 1 to the Independent Contractors Regulations 2007 (Cth)). 5 Other features of the New South Wales industrial relations system such as, for example, regulation of public vehicles and carriers by means of Chapter 6 of the IR Act, are unaffected by the referral and remain within the New South Wales jurisdiction. 6 New South Wales retains the power to legislate in relation to matters specifically not excluded by the Fair Work Act (Cth). Such matters include superannuation, occupational health and safety, matters relating to outworkers and child labour (see s 27 of the Fair Work Act (Cth)). 7 These legislative changes, removing as they did the private sector from the Commission's jurisdiction under the IR Act, necessitate a consideration of their implications for wage fixing in New South Wales. 8 Additionally, however, in Re State Wage Case 2009 [2009] NSWIRComm 120; (2009) 186 IR 277 the Full Bench stated: [157] The general consensus of the parties seemed to be that the Principles should be retained, mainly because they provide certainty and ensure consistency. It may be, however, that some or all of the Principles are unnecessary and anachronistic. We consider the question of whether the Principles have any future or should be replaced by more contemporary rules, needs to be further explored.

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[158] Accordingly, the President will convene a conference of the parties at 10.00 am on Tuesday 2 March 2010 to consider the question of whether the Principles have outlived their usefulness. Two weeks prior to the conference (16 February 2010) the parties will file and serve papers outlining their respective positions regarding the Principles. 9 These conferences were adjourned pending the decision on 3 June 2010 of Fair Work Australia ('FWA') Minimum Wage Panel in its inaugural Annual Wage Review 2009-10: [2010] FWAFB 4000; (2010) 193 IR 380. Its decision was to increase all modern award minimum wages by $26.00 per week (see [338]). That resulted in the National Minimum Wage being set at $569.90 per week (at [339]). 10 Pursuant to the provisions of Part 3 of the IR Act, on 18 June 2010, the Commission issued a Summons to Show Cause why it should not act on the FWA Annual Wage Review decision. This matter was joined with other issues being discussed at the conference convened by the President. Because of the significance of the issues, the discussions continued over a number of months thereby contributing to a delay to any State Wage Case hearing which has historically taken place mid-year. 11 Arising out of those conferences, the Minister for Industrial Relations helpfully identified five issues that required determination in the context of a State Wage Case hearing. The issues were identified as follows: (1) whether and to what extent the State Minimum Wage should be varied; (2) whether and to what extent changes should be made to minimum wages in State awards; (3) the future operation of minimum wage private sector State awards and the manner by which they are to be reviewed under s 19 of the IR Act; (4) the method by which any variations to State awards are to be made; and (5) the Wage Fixing Principles in respect of changes that are required to be made to them arising from the recent legislative changes. 12 No party demurred that these were the matters that required determination. In relation to the fifth matter, the legislative changes referred to are the introduction of the concept of non-operative awards into the IR Act (see ss 17, 19, 20A and 52) by the Industrial Relations Amendment (Non-operative Awards) Act 2010 and the passing of the Industrial Relations Advisory Council Act 2010, which provides for the establishment of an Industrial Relations Advisory Council the functions of which are (in s 7): (a) to assist the Minister in formulating, and to advise the Minister on implementing, policies affecting industrial relations and employment in the State,

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(f) The requirement that all offers put to unions be endorsed by the Budget Committee of Cabinet and all final agreements be endorsed by that Committee has led to delays in communication, negotiations and the settlement of areas of dispute, and has politicised the process. In some cases, the centralisation of the process has meant that unions have faced long delays in obtaining even a response to wages claims made when agreements have expired. It has also led, in conjunction with the general constraints of the Wages Policy, to frequent situations where the persons sent by various government department and agencies to negotiate with relevant unions representatives have turned out to have no real authority to negotiate anything. 17 Mr Lennon gave examples of the difficulties his affiliates had faced in negotiations involving the application of the Wages Policy and these included: Fire Brigade Employees Union, Police Association, Public Service Association, NSW Nurses Association and the Australian Workers' Union. 18 Mr Lennon's statement had annexed to it an 'Economic Report for State Wage Case 2010' that Unions NSW had commissioned from BIS Shrapnel Pty Limited. We shall refer to this later in the decision. Mr Lennon was not required for cross-examination either on his statement in chief or his reply statement. 19 Mr Remfrey made a reply to an affidavit of Glenn Bacic, Director, Industrial Relations of Public Sector Workforce, Public Sector Management Reform Division, Department of Premier and Cabinet. In his statement Mr Remfrey detailed the course of negotiations for a new Crown Employees (Police Officers) Award to replace the 2008 award. Mr Remfrey alleged that the government and Police representatives engaged in delay and 'backsliding' and failed to engage in good faith bargaining. Mr Remfrey said their conduct was 'disingenuous and provoked industrial action' because of their obsession with cost cutting consistent with the Wages Policy, which dominated the negotiations. Mr Remfrey was not required for cross-examination. 20 We have mentioned the affidavit of Mr Bacic. His evidence was in support of the DPE's position. Mr Bacic explained the main features of the Government's Wages Policy and sought to respond to the criticisms in Mr Lennon's statement. Mr Bacic was required for cross-examination. 21 The affidavit of Peter Horn, Senior Director, Fiscal Strategy with the NSW Treasury, was tendered by the DPE. Mr Horn gave evidence regarding wage movements in the public sector. Included in that evidence was the following: Wage Price Index data collected by the Australian Bureau of Statistics records wages movements in the NSW public sector going back to September 1997. According to this data, between September 1997 and June 2010 NSW State and Local Government employees have experienced wage increases averaging 4.2 per cent per annum. Over the same period Sydney inflation (excluding the introduction of the GST) has averaged 2.6 per cent per annum; therefore resulting in real wage increases averaging 1.5 per cent per annum or 21 per cent in total.

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30 There was general support for the proposition that the New South Wales State Minimum Wage should be increased to $569.90, being the same as the National Minimum Wage set by Fair Work Australia. This was the first such increase in the federal jurisdiction since October 2008. In contrast, the New South Wales State Minimum Wage was last increased on 30 July 2009 when the Commission set the State Minimum Wage at $568.20. 31 Consistent with s 50 of the IR Act, there is no good reason not to adopt the outcome of the Minimum Wage Panel's decision of 3 June 2010, namely a Minimum Wage of $569.90. To do so would be consistent with the policy underlying ss 48 and 50 of the IR Act for the National and State Minimum wages to be aligned. This means that the State Minimum Wage should be increased by $1.70 to $569.90. 32 The State Minimum Wage is currently referable to the Award Review Classification Rate ('ARCR'): see Principle 9 of the Wage Fixing Principles. The ARCR is the rate below which no full-time adult employee (excluding trainees, apprentices and employees on a supported wage or on a probationary rate) should be paid under the relevant award. To date, that rate has been set by reference to the C14 minimum rate of pay under the Metal, Engineering and Associated Industries (State) Award, which is a rate that has been considered an appropriate minimum rate of pay for award covered employees in New South Wales. 33 The approach that Unions NSW has taken to the changes it regards as necessary to the Wage Fixing Principles meant that it was unnecessary for that body to address the ARCR. This is perhaps because Unions NSW proposed an 'Economic Adjustment' principle whereby, on an annual basis or otherwise as may be appropriate, a State decision would set a standard economic adjustment to rates of pay in all State awards. We shall deal with this issue in more detail later in the discussion on replacement principles. 34 The Minister submitted that there was no good reason to change the manner by which the ARCR in Principle 9 is set. That is, it should continue to reflect the C14 minimum rate of pay under the Metal, Engineering and Associated Industries (State) Award. 35 The DPE supported the Minister's approach. The LGSA did not squarely address the issue, however, its proposed principles appear to follow the Minister's approach. Neither, AFEI nor the AHA addressed the issue. 36 We have decided to adopt the Minister's approach. The ARCR will be increased to reflect the C14 minimum rate of pay under the Metal, Engineering and Associated Industries (State) Award. Whether minimum wages in State awards should be adjusted

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48 The Minister, supported by the DPE and the LGSA, proposed an increase of 3.5 per cent calculated by reference to an annual increase of 2.5 per cent to all minimum award rates from December 2010 (taking into account that by December 2010 it will be about 17 months since the last increase). 49 The Minister contended that an annual increase of 2.5 per cent was 'in line with the mid-point of the Reserve Bank's targeting range and is consistent with long-run inflation'. Reliance was placed on the evidence of Mr Horn, which we referred to earlier. 50 Unions NSW disagreed with the Minister's position regarding the quantum of increase. It was submitted in relation to the Minister's position: It does not appear to be a coincidence that the quantum of the increase and its rationale are the same as for the Wages Policy. It appears that the Minister is, indirectly, seeking Commission endorsement for the fundamental feature of the Wages Policy without any real regard to the current rate of inflation and changes to the cost of living. 51 Unions NSW submitted that the increase in award rates of pay should be 4.25 per cent. This was based on an annual adjustment of 3.0 per cent and again having regard to the 17 months gap since the last increase. 52 Unions NSW relied on a report it commissioned by BIS Shrapnel which showed that the Reserve Bank's forecast inflation rate for the 12 months from the time of the hearing of this matter (Consumer Price Index to December 2011) is 3.1 per cent, with BIS Shrapnel projecting a slightly lower 2.9 per cent in the same period and an average of 3.0 per cent for the two-year period to the end of financial year 2011-2012. This led BIS Shrapnel to conclude as follows: This means that a 2.5 per cent base increase in wages will not maintain real wages - it would lead to an erosion of real wages for NSW public sector employees of 0.5per cent per annum - and is therefore inconsistent with [the NSW Government's] own wages policy. (emphasis in original) 53 Senior counsel for Unions NSW submitted that: · The Minister's own economic material was at variance with its position that an increase of 2.5 per cent would maintain real wages. · The NSW Treasury's forecast for inflation as at the time of the NSW Budget was that inflation (as measured by the Sydney CPI) would be 2.75 per cent in the 2010-2011 and 2011-2012 financial years (with the Wage Price Index being 3.0 per cent over the same period). Thus the Minister was also effectively forecasting a reduction in real wages to any employees to whom its 2.5 per cent figure would apply. 54 The idea that wages should be adjusted in line with the arbitrarily fixed mid-point of the Reserve Bank's targeting range for inflation over the longer term, regardless of how much the rate of inflation might fluctuate from year to year, is a novel one, and one that we do not propose to adopt. 55 A proper case has been made out by Unions NSW for adjusting minimum wages on the basis of an annual increase of 3.0 per cent. The cost impact would be negligible given that it would not apply to awards in the public sector and would be subject to absorption in respect of the local government awards. According to the DPE it was estimated that only about 2,200 public sector workers, including some 1,500 employed under the State Training Wage Award, still rely on increases which occur based on State Wage Case decisions. 56 Accordingly, we propose to increase minimum award rates by 4.25 per cent from the date of this Decision. Method by which any variations to State award rates of pay are to be made

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57 The Minister submitted that any increase in State award rates of pay would best occur by the Commission exercising its power to make a General Order pursuant to s 52 of the IR Act. It was submitted that this approach was appropriate having regard to the limited application of New South Wales awards and the resources that would have to be expended by parties to adjust rates if they were to be adjusted on an award by award basis upon application. Unions NSW, the LGSA and the DPE supported the Minister's approach. 58 The only party to oppose this approach, consistent with its generally negative attitude to the issues required to be addressed, was the AFEI, which opposed any increase operating by way of a general order. The AFEI submitted that any increase in award rates should be undertaken by individual award applications by parties who hold an interest in the award. We agree with the Minister's position that: The AFEI submission is consistent with its view (contrary to the view of the Minister and other parties) that there is no need to maintain the relevance of common rule State awards, and its rejection of the submission that those awards continue to play an important role including as a benchmark for other State awards. In the Minister's submission, if the Commission accepts the submission that it is appropriate to maintain State awards at this stage then it follows that it would be appropriate to do so by way of a General Order. Certainly, no good reason is proffered as to why it is appropriate to require the parties to make individual applications in respect of each award. The only effect of that approach would be to make it less likely that awards be increased and delay increases in respect of many awards. It is not clear why either of those two outcomes would be seen to be preferable. 59 In the State Wage Case 2008, the Commission used its power under s 52 to set the State Minimum Wage. In that decision, the Commission said: [316] By s 52 the Commission has the power to make orders that would give effect to the State decision by the establishment of rates of pay or conditions of employment. As a matter of construction the expression "other orders" is not co-extensive with the expression "award". In our view, the reference to "orders" recognises that the Commission may alter the terms of employment of those in its jurisdiction other than by the making or varying of an award. This would ordinarily arise where the Commission has been minded to make a general order varying all awards, but nothing in the language of the section indicates that the Commission's powers are to be confined to an order of that character. 60 As that passage makes clear, the Commission has power to make a General Order varying all relevant New South Wales State award minimum rates of pay to give effect to any general wage increase it determines. We propose to make a General Order in relation to these proceedings. Section 19 review process

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(v) A right of either party to seek the assistance of the Commission by way of the exercise of conciliation and arbitration powers, in order to facilitate an early and satisfactory conclusion to the process. Recent experience has demonstrated that the early involvement of the Commission in public sector wages/salaries negotiations, including through the "Bluescope" process, has tended to lead to both a better process and a better outcome. 68 No other party supported Unions NSW in its bid for a radical change to the Wage Fixing Principles. There was, however, support by other parties (that is, other than Unions NSW) for the Minister's proposals regarding modest amendments. These changes included amendments to facilitate how minimum wages in awards are varied in future State Wage Cases and the extension of the application of the NSW Minimum Wage to junior employees, employees to whom training arrangements apply and employees with a disability. The main changes proposed by the Minister affect Principle 8 - State Wage Case Adjustments and Principle 9A - Minimum Wage, which presently concerns the minimum wages for adult employees, who are employed in the jurisdiction of the Commission and whose employment is not subject to the terms of an industrial instrument. 69 The current Wage Fixing Principles have their origin in the State Wage Case 1983 (1983) 5 IR 1, which adopted in whole the principles taken up by the Australian Conciliation and Arbitration Commission in the National Wage Case - September 1983 (1983) 4 IR 429. As Unions NSW submitted, those principles were formulated in the context of the economic and industrial circumstances then prevailing, including the existence of a centralised wage fixing system, a recent wages 'breakout' followed by a wages freeze, a 'deep and prolonged international recession', relatively high rates of inflation, and the implementation by the incoming Commonwealth Government of a wages 'Accord' intended to deliver wage restraint in return for improvements to the 'social wage'. 70 The adoption of those principles in the New South Wales jurisdiction was predicated upon the existence of a major private sector industrial jurisdiction in NSW, variously estimated as covering 50-65 per cent of all employees in New South Wales. These employees were for the most part covered by minimum rates common rule awards. 71 The principles evolved during the course of the 1980s and early 1990s with developments such as the structural efficiency exercise, minimum rates adjustments and the introduction of enterprise arrangements. With some exceptions (such as with enterprise arrangements), as Unions NSW observed, the Commission generally modified the principles as far as possible in accordance with National decisions. However, with the introduction of the Workchoices legislation in 2006, the Commonwealth and New South Wales industrial relations systems began to diverge to the extent that applying National decisions to the New South Wales context became increasingly difficult: see State Wage Case 2006 (No 6) [2006] NSWIRComm 204; (2006) 153 IR 268. 72 Unions NSW submitted: These developments have reached the point where the Commonwealth and NSW systems are now entirely incompatible. The Commonwealth has abandoned the conciliation and arbitration model and has built a new system founded upon collective bargaining with limited statutory and award minimum conditions. In this context, wage fixing principles have been abandoned for many years. Insofar as NSW is concerned, the Commonwealth system now applies to the entirety of the private sector. By contrast, the NSW system remains one based upon conciliation and arbitration (albeit with an increasingly irrelevant enterprise bargaining facility attached), and applies almost entirely to the public and local government sectors.

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Thus the premises upon which the wage fixing principles were established - namely conformity with the principles that emerged from the Commonwealth arbitral system, and a NSW industrial jurisdiction which had significant application to the private sector - no longer exist. This calls for a "root and branch" reconsideration of the wage fixing principles in the context of the Commission's remaining public and local government industrial jurisdiction. 73 A focus of Unions NSW, in seeking to revise the Wage Fixing Principles, was the New South Wales Government's Wages Policy, vigorously attacked in the statements of Mr Lennon and Mr Remfrey. 74 It is true that for employees in the New South Wales public sector, State Wage Cases have been of little relevance for many years. This is because State Wage Case increases have been inapplicable to awards that have been the subject of pay increases other than safety net increases, State Wage Case adjustments or Minimum Rates Adjustments since 1991. Generally speaking, State Wage Cases have had little impact in the local government sector either because of the history of consent awards or the impact of Principle 8(g), which provides: The State Wage Case adjustment will only be available where the rates in the award have not been increased, other than by safety net or State Wage Case adjustments, or as a result of the Minimum Rates Adjustment principle, since 29 May 1991. 75 Unions NSW submitted that since September 2007, the main determinant of wages and salaries adjustments for public sector employees has been the Wages Policy. Under that Policy, there is a basic increase of 2.5 per cent per annum permitted which is intended to maintain the real value of wages. As we noted earlier, any increases above this must be funded by employee-related cost offsets and approved by the Budget Committee of Cabinet. The Wages Policy makes no provision for changes in work value, or for improvements in productivity and efficiency that are not productive of direct cost reductions. 76 Mr A Hatcher of senior counsel for Unions NSW submitted: With some minor exceptions, all wages/salaries adjustments for public sector employees in the NSW industrial relations jurisdiction in recent years have occurred within the parameters of the Wages Policy. The effect of the current Wage Fixing Principles (particularly Principle 8(g)) has been to force public sector unions either to seek a wages/salaries agreement under the terms of the Wages Policy, or to run a major industrial case under the Special Case and/or Work Value Principles. For the reasons set out in the statement of evidence of Mark Lennon, the Secretary of Unions NSW, this has proved to be an unsatisfactory situation. In particular:

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(c) the fact that the jurisdiction of the IRC is now largely confined to the public sector and local government is no basis for the substantial overhaul of the Principles that Unions NSW is seeking. For many years now the use of the IRC's arbitral powers to determine claims for wage increases has been largely confined to various groups within the public sector. The current Principles have generally served public sector employees well. 79 In responding to Unions NSW's attack on the Government's Wages Policy, the DPE submitted that the argument that public sector employees have their wages and salary adjustments 'unilaterally determined by their employer rather than under Wage Fixing Principles determined by the Commission' was untrue; the Government's Wages Policy provides for 2.5 per cent increases regardless of whether inflation falls above or below this rate. The objective of the policy was to maintain real wages over the long term. 80 It was submitted that since the introduction of the present policy in 2007, the Commission has approved more than 100 consent awards and enterprise agreements between the government and unions, which were negotiated under the terms of the NSW Government's Wages Policy. These awards and enterprise agreements also complied with existing Wage Fixing Principles. 81 The DPE referred in particular to the proposed Arbitrated Case Principle and Mr Lennon's assertion that parties should be able to negotiate or, to have arbitrated, additional increases based on work value, productivity, efficiency and other relevant considerations. The DPE submitted that the existing Principles and the objects of the IR Act already allow for this to occur. 82 Counsel for the DPE also referred to the proposed Negotiation Principle and Unions NSW's reasoning that the new Principle was necessary because the Government's Wages Policy has caused delays in negotiations. Mr Murphy of counsel submitted: This criticism by Unions NSW of the policy is unreasonable. The NSW Government operates as a Westminster model of government, which incorporates decision making by Cabinet and sub-committees of Cabinet, such as the Cabinet Standing Committee on the Budget (Budget Committee). Budget Committee or the Expenditure Review Committee has responsibility to approve of employment conditions bargaining parameters. Therefore, the maintenance of a Wages Policy by the Government and an appropriate decision making process are fundamental to the Government's ability to ultimately make agreements. The Government's Wages Policy has a similar role as Wage Fixing Principles. It guides Departments and other public sector agencies as to what constraints and processes apply to the making of employee agreements and instruments.

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87 We agree with the submission of the DPE that the Wage Fixing Principles have served the Commission and the parties well over long periods of time. The rationale underpinning the Principles has not fundamentally changed. The Principles provide a coherent set of rules that ensures consistency of approach by the wage fixing tribunal and certainty and predictability in respect of the fixation of wages and the setting of employment conditions. They also ensure that employment conditions are regulated in a way that is economically sustainable. 88 There is no doubt, however, that over the 27 years since the State Wage Case 1983 circumstances have changed and whilst no party sought the abandonment of the Principles it is clear to us that the Principles are in need of refinement. 89 The Principles have developed over time in the context of relevant economic, industrial and social circumstances. Any change to the existing Principles needs to continue to have regard to the relevant contemporary circumstances. 90 With the transfer of the private sector to the federal jurisdiction, the public sector now makes up the bulk of the Commission's jurisdiction. It is estimated that the number of public sector employees subject to the Commission's jurisdiction is in the order of 320,000. 91 In respect of those employees, the government has chosen to apply a Wages Policy. Although that Policy finds no favour with unions, indeed the unions have strongly condemned it and have submitted that it is a Policy that will be unworkable in any future wages round, it is a Policy the government is entitled to promulgate and pursue. In developing Wage Fixing Principles, the Policy is an important part of the industrial context that needs to be factored in. 92 A further context is the more favourable economic conditions that currently prevail, combined with public sector awards being of a substantially paid rates nature. If, of course, the context changes so may any wage fixing principles. 93 The other major sector subject to the Commission's jurisdiction is local government which consists of about 44,000 employees. Obviously, any new Principles have to be designed to cater for this important sector. The local government sector has an enviable record of consent awards stretching back to 1992. Nothing that is proposed should affect the arrangements in that industry that have benefited employers and employees alike over a long period of time. 94 With these considerations in mind, we have drafted a proposal for a new set of Wage Fixing Principles and, in doing so, have had regard to the submissions and proposals of Unions NSW, the Minister, the DPE and LGSA. The draft is for discussion purposes and the parties will be provided with the opportunity of considering it and expressing their views in relation to it early in 2011. Until they are replaced, the existing Principles, subject to the necessary amendments arising from this decision, will continue to apply. Those existing amended Principles are set out in Appendix A to the decision. The draft proposed Principles are set out in Appendix B. The present intention is that any new Principles will apply to claims made after 1 March 2011. 95 In relation to the draft proposed Principles in Appendix B. The Preamble replaces the preamble in the existing Principles, which lacks relevance. The new preamble sets out the four primary aims of the proposed Principles: 1.2.1 to provide a framework under which wages and employment conditions in the government and local government sectors of New South Wales remain fair and reasonable in accordance with the requirements of the Industrial Relations Act , and economically sustainable having regard to the obligation of the Commission to take into account the public interest and, in doing so, have regard to the objects of the Industrial Relations Act and to the state of the economy of New South Wales and the likely effect of the Commission's decisions on that economy; 1.2.2 to provide a framework that accommodates the interests of employers and employees and their representatives and ensures consistency of approach and certainty and predictability as to the principles that are to operate in respect of the fixation of wages and the setting of employment conditions; 1.2.3 to provide a framework in which all operative and non-operative awards within the Commission's jurisdiction are maintained up to date in respect of rates of pay and allowances; and 1.2.4 to protect the low paid. 96 The proposed Principle 2 deals with the circumstances when an award may be varied or another award made without the claim requiring consideration as an 'Arbitrated Case'. We will refer shortly to the new 'Arbitrated Case' Principle (proposed Principle 8). Proposed Principle 2 is in much the same terms as the existing Principle except it incorporates existing Principle 3 - Previous State Wage Case Increases. 97 Proposed Principle 3 adopts the language of the existing Principle 4 - Test Case Standards. Proposed Principle 4 - State Wage Case Adjustments adopts the Minister's proposed Principle, with minor changes. Proposed Principle 5 - Adjustment of Allowances and Service Increments, essentially retains the existing Principle 5 with the latest increase of 4.25 per cent being inserted. Proposed Principle 6 - Award Review Classification Rate, adopts the present Principle 9 except that the rate is $592.30. 98 Proposed Principle 7 - Minimum Wage for Award/Agreement Free Employees, is the Principle proposed by the Minister with some minor changes. Proposed Principle 8 - Arbitrated Case, addresses those claims for increases in wages and salaries, or changes in conditions in awards, other than those allowed elsewhere in the Principles. Such claims are to be processed as an Arbitrated Case by a Full Bench of the Commission unless otherwise allocated by the President. Claims under this proposed Principle may be made on the basis of a change in work value, productivity and efficiency improvements and on the basis of a special case. Whilst the DPE accepted that claims based on productivity and efficiency improvements were already permissible under the existing Special Case Principle, we think it is important to make it clear just what the criteria are for such claims and to ensure that claims brought on that basis do not need to be made out as a special case (such claims being treated in a similar manner to work value claims). 99 Claims that are based substantially on comparative wage justice, attraction and retention or community standards will not be countenanced except as provided in Re Public Hospital Nurses (State) Award (No 3) [2002] NSWIRComm 325; (2002) 121 IR 28 and Re Health Employees Pharmacists (State) Award [2003] NSWIRComm 453; (2003) 132 IR 244. 100 We have also included proposed Principle 9 - Negotiating Principles. We consider there is merit in Unions NSW's proposal, although we have not wholly embraced that body's proposed Principle. It was the Commission's experience that considerable and unreasonable delay was caused by those representing some government departments and agencies in the 2008 and 2009 negotiations. This was most evident in the police negotiations. A reasonable set of rules guiding the parties in their approach to negotiations should avoid a repeat of some of the problems that plagued previous negotiating rounds. 101 Proposed Principle 10 - Enterprise Arrangements, adopts the existing Principle, as does Principle 11 - Superannuation, Principle 12 - Equal Remuneration and Other Conditions, and Principle 13 - Economic Incapacity. Proposed Principle 14 - Current Awards not Affected, provides that the proposed Principles will not apply to awards that are still within their nominal term on the date the Principles commence to operate. In such cases the earlier Principles will apply. 102 The proposed draft Principles do not include a Standard Hours Principle or a First Award Principle as these appear to be obsolete. We also have some reservations about the utility of retaining the Superannuation Principle. 103 The Full Bench will reconvene at 10.00 am on Thursday, 17 February 2011 to hear the parties' response to the draft proposed Principles. The parties will each provide a written outline of their response at least seven days prior to the hearing. These proceedings will be concerned only with constructive observations. 104 The general orders have been fashioned so as to conform with the Principles stipulated in Appendix A because of the timing of the making of the orders. After the operation of the new Principles the form of the general orders may require variation. ORDERS

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Test case standards established and/or revised by a Full Bench of the Commission may be incorporated into an award in accordance with the Act. Where disagreement exists as to whether a claim involves a test case standard, those asserting that it does must make an application for a special case. 4. State Wage Case Adjustments 4.1 Following the completion of an Annual Wage Review by Fair Work Australia, the Commission shall issue a notice to show cause why that decision should not be flowed on to relevant New South Wales awards (as per 4.3(c) of this Principle) in the New South Wales industrial jurisdiction. 4.2 Subject to s 50(1) of the Act, if there are no written objections from any of the parties to the flow on of the Fair Work Australia decision then the Commission may issue a general order 'on the papers' for that decision to apply to all relevant New South Wales awards. 4.3 Unless the Commission determines otherwise, all relevant New South Wales awards will be varied to include a State Wage Case adjustment by the making of a general order of the Commission pursuant to s 52 of the Act, subject to the following: (a) At the time when the award is to be varied to insert the State Wage Case adjustment (or a proportionate amount in the cases of part-time and casual employees, juniors, trainees, apprentices, employees on a probationary rate, employees on a supported wage or with permits under s 125 of the Act), the following clause will be inserted in the award: 'The rates of pay in this award include the adjustments payable under the State Wage Case 2010 . These adjustments may be offset against: (i) any equivalent overaward payments, and/or (ii) award wage increases other than State Wage Case adjustments.' The above clause will replace the offsetting clause inserted into awards pursuant to the Principles determined in the State Wage Case 2009 decision. (b) By consent of all parties to an award, where the minimum rates adjustment has been completed, award rates may be expressed as hourly rates as well as weekly rates. In the absence of consent, a claim that award rates be so expressed may be determined by arbitration. (c) The State Wage Case adjustment will only be made in respect of rates in awards which have not been increased, other than by State Wage Case adjustments.

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Adjustment of Allowances and Service Increments 5.1 Existing allowances which constitute a reimbursement of expenses incurred may be adjusted from time to time where appropriate to reflect relevant changes in the level of such expenses. 5.2 Existing allowances which relate to work or conditions which have not changed, including shift allowances expressed as monetary amounts and service increments, may be increased by 4.25 per cent for the State Wage Case 2010 adjustment. 5.3 Existing allowances for which an increase is claimed because of changes in the work or conditions will be determined in accordance with the relevant provisions of the Arbitrated Case Principle if there is no consent. 5.4 New allowances to compensate for the reimbursement of expenses incurred may be awarded where appropriate having regard to such expenses. 5.5 Where changes in the work have occurred or new work and conditions have arisen, the question of a new allowance, if any, will be determined in accordance with the Arbitrated Case Principle. 5.6 New service increments may only be awarded to compensate for changes in the work and/or conditions and will be determined in accordance with the relevant provisions of the Arbitrated Case Principle.
Award Review Classification Rate 6.1 The Award Review Classification Rate of $592.30 shall be the rate below which no full-time adult employee (excluding trainees, apprentices and employees on a supported wage or on a probationary rate) should be paid under the relevant award. 6.2 Where a classification in an award is below the Award Review Classification Rate the following process will apply on application: (a) The award will be listed for a mention at which the parties will report as to: (i) how the Award Review Classification Rate will be achieved, or (ii) whether the award is obsolete. The Commission may direct the parties to confer in order to set a program for an updating of the award to reflect the Award Review Classification Rate. (b) If the parties to the award do not appear at this mention, the Commission shall request the parties to the award to show cause why the award should not be considered obsolete and rescinded under s 17(3) of the Act.

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7.2 The minimum weekly rate of pay payable to an adult employee (as defined in s 5 of the Act) engaged on a full-time basis whose employment is not subject to the terms of an industrial instrument (as defined in s 8 of the Act) shall be the rate of pay equal to the National Minimum Wage, as varied from time to time by the Commission. 7.3 The minimum hourly rate of pay payable to an adult employee (as defined in s 5 of the Act) engaged on a part-time basis whose employment is not subject to the terms of an industrial instrument (as defined in s 8 of the Act) shall be the rate of pay equal to the National Minimum Wage, as varied from time to time by the Commission divided by 38. 7.4 Unless the Commission otherwise determines, the minimum weekly rate of pay for junior employees, employees to whom training arrangements apply and employees with a disability (as defined by s 12 of the Fair Work Act 2009 (Cth)) engaged on a full-time basis whose employment is not subject to the terms of an industrial instrument (as defined in s 8 of the Act) shall be the rate of pay equal to the special National Minimum Wage as per s 294(1)(b) of the Fair Work Act 2009 (Cth), as varied from time to time by the Commission. 7.5 Unless the Commission otherwise determines, the minimum hourly rate of pay for junior employees, employees to whom training arrangements apply and employees with a disability (as defined by s 12 of the Fair Work Act 2009 (Cth)) engaged on a part time basis whose employment is not subject to the terms of an industrial instrument (as defined in s 8 of the Act) shall be the rate of pay equal to the special National Minimum Wage as per s 294(1)(b) of the Fair Work Act 2009 (Cth), as varied from time to time by the Commission divided by 38. 7.6 Casual loadings (if applicable) for adult employees, junior employees, employees to whom training arrangements apply and employees with a disability who are award or agreement free will be adjusted in line with s 294(1)(c) of the Fair Work Act 2009 (Cth), as varied from time to time by the Commission. 8. Arbitrated Case 8.1 General Any claim for increases in wages and salaries, or changes in conditions in awards, other than those allowed elsewhere in the Principles, will be processed as an Arbitrated Case by a Full Bench of the Commission unless otherwise allocated by the President. In determining such an application, the Commission shall, subject to the relevant provisions of the Act, do so in accordance with the following criteria: 8.2 Work Value Considerations (a) Changes in work value may arise from changes in the nature of the work, skill and responsibility required or the conditions under which work is performed. Changes in work by themselves may not lead to a change in wage rates. The strict test for an alteration in wage rates is that the change in the nature of the work should constitute such a significant net addition to work requirements as to warrant the creation of a new classification or upgrading to a higher classification. (b) In addition to meeting the test in (a), a party making a work value application will need to justify any change to wage relativities that might result not only within the relevant internal award structure but also against any external classification to which that structure is related. There must be no likelihood of wage leapfrogging arising out of changes in relative position. (c) The foregoing circumstances are the only ones in which rates may be altered on the ground of work value and the altered rates may be applied only to employees whose work has changed in accordance with this Principle. (d) In applying the Work Value Changes Principle, the Commission will have regard to the need for any alterations to wage relativities between awards to be based on skill, responsibility and the conditions under which work is performed. (e) Where new or changed work justifying a higher rate is performed only from time to time by persons covered by a particular classification, or where it is performed only by some of the persons covered by the classification, such new or changed work should be compensated by a special allowance which is payable only when the new or changed work is performed by a particular employee and not by increasing the rate for the classification as a whole. (f) The time from which work value changes in an award should be measured is the date of operation of the second structural efficiency adjustment allowable under the State Wage Case 1989 (1989) 30 IR 107 or the last work value inquiry, whichever is the later. (g) Care should be exercised to ensure that changes which were, or should have been, taken into account in any previous work value adjustments or in a structural efficiency exercise are not included in any work evaluation under this Principle. (h) Where the tests specified in (a) are met, an assessment will have to be made as to how that alteration should be measured in money terms. Such assessment will normally be based on the previous work requirements, the wage previously fixed for the work and the nature and extent of the change in work. (i) The expression ' the conditions under which the work is performed ' relates to the environment in which the work is done. (j) The Commission will guard against contrived classifications and over-classification of jobs. (k) Any changes in the nature of the work, skill and responsibility required or the conditions under which the work is performed, taken into account in assessing an increase under any other Principle of these Principles, will not be taken into account under this Principle. (l) In arbitrating an application made under this Principle, the Commission is required to determine whether or not future State Wage Case general increases will apply to the award. 8.3 Productivity and Efficiency Considerations Productivity and efficiency measures that have delivered substantial costs savings and/or productivity or efficiency improvements or which have made a substantial contribution towards the attainment of the objectives of the employer (including departments and agencies of the Crown) in seeking to become more competitive and/or efficient, to which employees have made a significant contribution, may constitute the basis for increases to wages and salaries or improvements in employment conditions without the requirement to make out a special case, provided that such measures, savings or improvements have not already been taken into account in previous wage adjustments. 8.4 Special Case Considerations 8.4.1 A claim for increases in wages and salaries, or changes in conditions in awards, other than those allowed elsewhere in the Principles, and which is not based on work value and/or productivity and efficiency pursuant to this Principle, will be processed as a special case in accordance with the principles laid down in Re Operational Ambulance Officers (State) Award [2001] NSWIRComm 331; (2001) 113 IR 384 and the cases referred to therein at [165]-[168]. 8.4.2 All special cases shall be tested against the public interest. 8.5 Exclusions 8.5.1 Claims that are based substantially on comparative wage justice, attraction and retention or community standards will not be countenanced except as provided in Re Public Hospital Nurses (State) Award (No 3) [2002] NSWIRComm 325; (2002) 121 IR 28 and Re Health Employees Pharmacists (State) Award [2003] NSWIRComm 453; (2003) 132 IR 244. 8.5.2 There shall be no double counting, provided, however, that an Arbitrated Case claim may rely upon a cumulation of the factors referred to in this Principle.

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Equal Remuneration and Other Conditions 12.1 Claims may be made in accordance with the requirements of this Principle for an alteration in wage rates or other conditions of employment on the basis that the work, skill and responsibility required, or the conditions under which the work is performed, have been undervalued on a gender basis. 12.2 The assessment of the work, skill and responsibility required under this Principle is to be approached on a gender neutral basis and in the absence of assumptions based on gender. 12.3 Where the under-valuation is sought to be demonstrated by reference to any comparator awards or classifications, the assessment is not to have regard to factors incorporated in the rates of such other awards which do not reflect the value of work, such as labour market attraction or retention rates or productivity factors. 12.4 The application of any formula, which is inconsistent with proper consideration of the value of the work performed, is inappropriate to the implementation of this Principle. 12.5 The assessment of wage rates and other conditions of employment under this Principle is to have regard to the history of the award concerned. 12.6 Any change in wage relativities which may result from any adjustments under this Principle, not only within the award in question but also against external classifications to which the award structure is related, must occur in such a way as to ensure there is no likelihood of wage leapfrogging arising out of changes in relative positions. 12.7 In applying this Principle, the Commission will ensure that any alternative to wage relativities is based upon the work, skill and responsibility required, including the conditions under which the work is performed. 12.8 Where the requirements of this principle have been satisfied, an assessment shall be made as to how the undervaluation should be addressed in money terms or by other changes in conditions of employment, such as reclassification of the work, establishment of new career paths or changes in incremental scales. Such assessments will reflect the wages and conditions of employment previously fixed for the work and the nature and extent of the undervaluation established. 12.9 Any changes made to the award as a result of this assessment may be phased in and any increase in wages may be absorbed in individual employees' overaward payments. 12.10 Care should be taken to ensure that work, skill and responsibility which have been taken into account in any previous work value adjustments or structural efficiency exercises are not again considered under this Principle, except to the extent of any undervaluation established. 12.11 Where undervaluation is established only in respect of some persons covered by a particular classification, the undervaluation may be addressed by the creation of a new classification and not by increasing the rates for the classification as a whole. 12.12 The expression ' the conditions under which the work is performed ' has the same meaning as in Principle 8.2, Work Value Considerations. 12.13 The Commission will guard against contrived classification and over-classification of jobs. It will also consider:

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