Are you the next Seven Eleven? Modern Award Compliance in the Modern Workplace

It is astounding that so often we have discussions with both corporate and individual clients, and when we enquire what Modern Awards apply in their business or cover their employment, they either answer that they don’t have any as all employees are paid above award rates, or they just do not know. Modern Awards cover a vast number of employees across almost all areas of work. It is most unlikely that all an employers’ employees are award free, unless they have an enterprise agreement or other industrial agreement in place that overrides and displaces the operation of a Modern Award.

For any employer and employee, it is vital that they know what Modern Award (if any) governs the employment, as the Modern Award sets the minimum entitlements for each employee and cannot be bargained away. Often it is assumed that if an employee has a written contract of employment, then they are not also covered by a Modern Award. This is not the case. Even if employees have written contracts of employment providing significant remuneration and other benefits, the Modern Award will continue to apply.

Modern Award instruments are a crucial part of the Fair Work system, which is governed by the Fair Work Act 2009 (Cth) (“Act”). There are now over 122 Modern Awards operating across Australia with each containing individualised rules in relation to wage indexation, allowances, penalty rates, loadings and a host of other employment and pay matters such as flexibility, consultation requirements and dispute resolution procedures.

It is more common than not, however, that many employers forget that a Modern Award is a legally enforceable document, and place little emphasis on complying with the terms of conditions of Modern Awards applying to their employees. This has in many cases caught out employers who become the subject of significant backpay claims, or find themselves defending an unfair dismissal claim in circumstances where they initially thought that the employee did not have right to commence such proceedings. In fact, it is possible to have an employee covered by a Modern Award make a back pay claim for award entitlements he or she did not receive despite being remunerated far in excess of the Award requirements.

As is illustrated by the recent widely publicised investigation and prosecution of Seven Eleven by the Fair Work Ombudsman, this issue is relevant to all employers whatever the size of the business, including publically listed entities. The Seven Eleven case demonstrates the real and significant impact the failure to comply with Modern Award conditions can have on the individual reputations of the officers and directors of a company in default. It will also be some time before Seven Eleven recovers from the reputational damage to its brand, and this is notwithstanding the significant financial consequences this matter has had on its bottom line. In some circumstances, prosecutions by the Fair Work Ombudsman against companies which have not complied with their award obligations, have been forced into liquidation in order to make the necessary back payments and meet penalties imposed by the Courts.

Determining what Modern Award applies, and whether the minimum obligations prescribed by the instrument are being met, can be difficult. As is often the case, an employer will engage an employee in a role where they are required to perform a myriad of duties, or hybrid functions. This can be problematic for determining Modern Award coverage, and assessing which instrument is more appropriate when there are several Modern Awards that could apply.

The task of identifying the relevant Modern Award covering the employee or employees concerned will depend on a number of matters including:

• the industry in which the employer operates;
• the nature of the majority of the duties performed by the employee; and
• the seniority of the employee concerned.

The failure to identify the correct Modern Award, and to apply the incorrect award, even if by legitimate mistake or ignorance will not prevent an employee from successfully claiming back pay or entitlements they did not receive as a result of the mistake. Often employers seek to pay their employees in excess of any award requirements with the view to absolve themselves from the obligation of paying overtime, loadings, penalty rates and other entitlements and allowances provided by an applicable Modern Award. This practice can be particularly costly, if care is not taken to ensure that any contract of employment which seeks to offset remuneration which is in excess of the Modern Award requirement with other loadings and allowances in the award, is not carefully worded in accordance with the Award requirements to allow such set off. In certain circumstances, this type of “all up” rate is not permitted.

However, for awards that do allow “all up” rates or annualised salaries, if an employee is, for example, entitled to overtime, allowances, loadings and penalty rates for weekend work, there is some benefit in negotiating a total remuneration package (“TRP”) that compensates the employee fully for all Modern Award benefits and entitlements they may otherwise be entitled to receive. However, in order to achieve this outcome, the employer needs to be satisfied that the TRP sufficiently compensates the employee taking into account the particular traits of the work being performed, the ordinary and overtime hours required to be worked, and other reasonable contingencies which may give rise to a back pay claim in the event the TRP is inadequate.

Ensuring compliance with the Modern Awards can be incredibly burdensome, particularly when an employer is administering various rules and regulations under numerous Modern Award instruments which apply to different employees working within their workforce. Having carefully worded employment contracts can assist to reduce the administrative burden where the contract provides for an “all-up” TRP that is inclusive of Modern Award entitlements to reasonable overtime, allowances, loadings and so forth.

Apart from achieving compliance in terms of properly remunerating staff and meeting the Modern Award pay requirements, employers need to also be aware of their other obligations under Modern Awards. This includes, among other things:

• parental leave rights;
• rights to request flexible working arrangements;
• consultation obligations regarding major workplace change;
• rostering and rest break requirements; and
• cashing out of annual leave rules.

For employees who earn more than the High Income Threshold, an employer is able to provide a High Income Guarantee that ensures the employee will be paid more than he or she would earn under the Modern Award taking into account allowances, overtime, penalties and loadings. If this guarantee is provided, it will remove the operation of the Modern Award from the particular employee’s employment.  It is therefore of significant benefit to an employer, however care needs to be taken to ensure any such agreement accords with the requirements of the Act.

Lastly, employers are able to remove the operation and application of Modern Awards entirely by entering into enterprise agreements with their employees. Enterprise Agreements enable employers with a varied workforce to customise their employment relations practices so that specific operational needs and workforce exigencies can be accommodated. An enterprise agreement is a form of workplace instrument that is approved by the Fair Work Commission, once it has been agreed to by a majority of employees who will be covered by it.

We recommend that all employers regularly undertake an audit of their Modern Award compliance to ensure they do not have a contingent liability. In any event, an audit of Modern Award compliance together with an audit and if necessary review and amendment of contractual terms and conditions may save your business significant costs in back pay claims and penalties.

If you have been considering the benefits of moving to an enterprise bargaining agreement, or wish us to undertake an audit of your employment contract and compliance with Modern Awards, please do not hesitate to contact us for specialist advice or assistance.

This alert is not intended to constitute, and should not be treated as, legal advice.