Hall and Wilcox: Franchisors and franchisees must work together as award takes effect

According to Hall & Wilcox Lawyers , about two-thirds of Victorian employees have their terms and conditions of employment determined by Federal Awards, certified agreements or Australian Workplace Agreements (AWAs).

Prior to 1 January this year, the only awards that applied in Victoria were Federal Awards of the Australian Industrial Relations Commission (AIRC). These awards contain the minimum wages and conditions of a group of employees and still apply, but only to employers named in the award document in question as a respondent.

Certified agreements are agreements reached at the workplace level between an employer and their employees or a union. The agreement must be approved by AIRC. The terms and conditions of employment contained in the certified agreement bind all employees in the workplace, as long as they do not, on balance, disadvantage the employees when compared to an applicable Federal Award. Otherwise, the terms and conditions of employment can differ from those contained in the applicable award.

AWAs are agreements reached between an employer and an individual employee. Similar to a certified agreement, AWAs can contain terms and conditions that differ from those contained in an applicable Federal Award, as long as, on balance, the employee is not disadvantaged when the terms and conditions are compared to the applicable award. The no disadvantage test is carried out by the Office of the Employment Advocate (OEA).

The remaining one-third of Victorian employees not covered by a Federal Award, certified agreement or AWA, had their terms and conditions of employment determined by Schedule 1A of the Workplace Relations Act 1996 (Cth) (the Act). Schedule 1A set out minimum entitlements to annual leave, personal leave (sick leave and bereavement leave), parental leave and minimum notice requirements on termination. Minimum wages for such employees were usually determined by reference to a Victorian industry sector determination.

What are common rule awards and who do they apply to?

A common rule award is an award that applies to all employees in a particular industry, irrespective of whether their employers are named as respondents to the award. If you carry on work in an industry, and a common rule award determination is made, you will be bound by the common rule award, unless you are already covered by a certified agreement, AWA, or Federal Award. Therefore, common rule awards will now apply to many Victorian employees, whose employment terms and conditions were previously governed by Schedule 1A of the Act.

History of the award system in Victoria

Common rule awards are not entirely novel in Victoria. In fact, Wage Boards were first established in Victoria from 1905 to preserve minimum rates of pay for particular industries. Wage Boards also had powers regarding matters such as the maximum number of working hours per day, the particular work to be performed, overtime penalties, and work on Sundays and public holidays.

From 1927, Wage Boards were empowered to determine all industrial matters, and their determinations then operated as common rules for the industry to which they related. However, these ad hoc determinations, and the existence of over 200 Wage Boards by the 1970s, made it difficult to decipher all the relevant terms and conditions governing a particular industry.

The Industrial Relations Act 1979 (Vic) subsequently renamed the Wage Boards ‘Conciliation and Arbitration Boards’, and Board determinations became known as ‘awards’. The awards continued to operate as common rules, thereby binding all employers (and employees) within the particular industry to which the award related. Therefore, employees who were not covered by a Federal Award were most often captured within the scope of a Victorian common rule award.

The Kennett Government abolished the common rule system in 1992, with the introduction of the Employee Relations Act 1992 (Vic). Employees who had been subject to a common rule award were instead considered to be bound by an individual employment contract, with terms and conditions similar to those in the common rule awards. Minimum entitlements were introduced for new employees, which were subsequently enshrined in Schedule 1A of the Federal Act, on the referral of Victoria’s industrial powers to the Commonwealth.

The amending legislation

In 2003, the Bracks Government introduced legislation to grant the Commonwealth power to declare Federal Awards to be common rule awards in Victoria. This referral of industrial power was aimed at giving Victorian employees greater access to the safety net provisions of Federal Awards, thereby remedying the perceived disadvantage to employees, who were not covered by a Federal Award. For example, employees not covered by Federal Awards did not usually have entitlements to annual leave loading, redundancy pay and make up pay.

The Commonwealth enacted the Workplace Relations Amendment (Improved Protection for Victorian Workers) Act 2004 (Cth) (the Amending Act), accepting this referral of power, and vested AIRC with the power to declare common rule awards.

The Amending Act also increased the minimum terms and conditions that apply to employees in Victoria under Schedule 1A. These amendments came into effect on 1 January 2004, and provided additional minimum entitlements, including:

• entitlement to payment for work performed in excess of 38 hours a week;

• the right to two days paid bereavement leave on the death of an immediate family member or household member;

• consolidation of sick leave and carer’s leave into eight days of paid personal leave;

• more detailed provisions regarding sick leave, including provision of medical certificates;

• strengthening employee record-keeping requirements;

• stand down provisions deemed in employment contracts of Schedule 1A employees;

• more detailed provisions regarding annual leave and its calculation; and

• strengthening of enforcement provisions regarding minimum entitlements.

Schedule 1A, as amended, significantly improves the minimum terms and conditions of employment, and will continue to cover any employees who are not covered by a Federal Award, a certified agreement, an AWA or a common rule award. The introduction of common rule awards, however, means that it applies to progressively fewer employees.

How does a Federal Award become a common rule in Victoria?

Federal Awards become Victorian common rule awards through successful applications to AIRC, pursuant to Section 141 of the Act. Applications may be made by any person, union, employer organisation or other interested parties with an interest in the outcome of such an application. Once an application is received, AIRC must then allow interested parties to submit their opinions, after which it will determine the most appropriate award for the industry in question. When assessing whether it will declare an award to be a common rule, AIRC must also take into account factors such as:

• the possibility of overlapping awards;

• ensuring minimisation of the number of awards applicable to a given employer; and

• whether there are other awards applicable to work performed in the particular industry that is more relevant or appropriate awards for that industry (ensuring that only the most relevant award is declared as a common rule award for a particular industry).

The test cases – first declaration of Victorian common rule awards

On 17 August 2004, a Full Bench of AIRC declared that 11 Federal Awards were to apply as common rule awards in Victoria, pursuant to the power granted by the Amending Act. Although awards may be declared to be common rule awards from 1 January 2004, no awards were recognised as common rule awards before 1 January 2005. The first awards to be named as common rule awards in Victoria were:

1. Clerical and Administrative Employees Victorian Common Rule Award 2005

2. Clothing Trades Victorian Common Rule Award 2005

3. Transport Workers’ Victorian Common Rule Award 2005

4. Poultry Industry Victorian Common Rule Award 2005

5. Storage Services – General – Victorian Common Rule Award 2005

6. Horticultural Industry Victorian Common Rule Award 2005

7. Pastoral Industry Victorian Common Rule Award 2005

8. Security Employees Victorian Common Rule Award 2005

9. Catering Victorian Common Rule Award 2005

10. Building Services Victorian Common Rule Award 2005

11. Clerks (Road Transport Industry) Victorian Common Rule Award 2005

Principles from test cases

In addition to the declaration of the 11 common rule awards, the Full Bench of AIRC outlined a Statement of Principles to be of general application to future declarations of common rule awards. A template for the declaration of common rule awards was also contemplated by its decision.

The Principles summarised:

1. Generally, the declaration of an award to be a common rule award throughout an industry will mean that all of the substantive provisions of the award will operate as a common rule, except where inappropriate to do so.

2. A common rule award should come into operation as early as practicable.

3. AIRC will adopt a standard form of declaration, which clearly states the coverage of the common rule award.

4. In assessing whether or not to declare an award as a common rule, AIRC will take into account the importance of avoiding the overlap of awards applicable to a particular industry and minimising the number of awards applicable to a particular employee.

5. The historical coverage of an industry or vocationally based award (either under the previous Victorian State awards or current Federal Awards) is relevant to the determination of the ‘industry’ in which the common rule is to be declared.

6. In cases of disputes regarding whether a particular award applies to a particular employer as a common rule:

(a) Notification of the dispute under Section 99 of the Act is possible;

(b) A member of AIRC shall assist parties to resolve their dispute regarding the alleged overlap of awards; and

(c) Regard shall be had to the regulation history of the work in question, and how overlaps have been resolved in the past (if any).

7. The Statement of Principles from the Safety Net Review Case shall apply to applications for declarations of awards as common rule awards.

8. This list of principles is not exhaustive and further principles may be developed as required.

However, the test case failed to clarify whether employers were permitted to offset above-award entitlements, currently provided to their employees, against any failure to pay the declared common rule entitlements of employees – such as overtime and penalty rates, 17.5 percent annual leave loading, and severance payments on redundancy. Such clarification was eagerly anticipated by employers, whose terms of employment were on the whole more beneficial than the terms of the applicable common rule award, but did not comply with some specific entitlements. Instead, AIRC introduced a dispute resolution system whereby employers could refer their specific situations regarding set-off of entitlements and benefits to a Board of Reference. The Board of Reference consists of a member of AIRC, and determines questions of set-off with regard to what is fair and equitable in the circumstances of each case. This dispute resolution mechanism will only be available until 31 December 2005. The scope of an employer’s entitlement to offset thereafter remains uncertain.

Latest declarations of common rule awards

In addition to the initial 11 awards declared common rules, over 175 further applications are before AIRC. At the time of writing, the following awards had also been declared common rule awards:

1. The Hospitality Industry – Accommodation, Hotels, Resorts and Gaming Award 1998

2. Motels, Accommodation and Resorts Award 1998

3. Licensed Clubs (Victoria) Award 1998

4. Liquor and Accommodation Industry – Restaurants – Victoria – Award 1998

5. Storage Services Steel Distributing Award 2000

6. Storage Services Material Handling Award 2002

7. Storage Services – Wholesale Wine and Spirit Stores – Award 1999

8. Manufacturing Chemists Award 1998

9. Market Research Industry – Consolidated Award 2003

10. Commercial Sales (Victoria) Award 1999

Effect of common rule awards on Victorian employers

The introduction of common rule awards almost certainly impacts every Victorian employer not currently bound by a Federal Award, certified agreement or AWA. The impact is potentially significant, due to requirements concerning likely increased wages, payment of annual leave loading, redundancy payments and accident make-up pay. For example, all employers with employees engaged in clerical or administrative tasks are now bound by the Clerical and Administrative Employees Victorian Common Rule Award 2005. Therefore, the real issue employers should be aware of is the extent of the awards’ impact, and how best to manage their introduction.

Action plan for employers

As mentioned, those employees covered by a Federal Award, certified agreement, or AWA are not affected by the introduction of common rule awards.

However, those employers whose employees were only covered by Schedule 1A of the Act should address whether common rule awards affect their industry. If their industry is affected, employers need to assess the extent of their impact and, where feasible, potentially minimise their impact by renegotiating employment conditions by introducing overriding agreements such as certified agreements, AWAs or new contracts of employment. In the event new contracts of employment are used, they should contain carefully drafted set-off provisions stating that any above-award payments are expressly designated to be a payment in lieu of another specific entitlement. Such a set-off provision will arguably place the employer in a better position to minimise the impact of common rule awards, but certainly not as strong a position as if the provision was contained in a certified agreement or AWA.

As an absolute minimum, employers should budget for the increased costs they are likely to incur.