Industry alarm over modern awards interpretation


Employers will have to obtain agreement of each employee before absorbing extra costs arising under modern awards into over-award payments

June 1, 2010

Employers will be required to obtain the agreement of each employee before it can absorb any additional costs arising under modern awards into over-award payments.

Such an approach – outlined in a ‘guidance note’ released today by the Fair Work Ombudsman (FWO) – is "alarming" and "unworkable" and will result in an "unfair, costly and complex burden" being imposed on business, according to Ai Group.

Chief Executive Heather Ridout says the FWO statement also goes against the approach recommended by the Australian Industrial Relations Commission (now Fair Work Australia).

"During the development of the modern awards, Ai Group vigorously argued in support of an ‘absorption clause’ to enable employers to offset any additional costs arising under modern awards into over-award payments.

"In response to Ai Group's arguments, the Australian Industrial Relations Commission inserted the following model clause in nearly all of the 122 modern awards: ‘The monetary obligations imposed on employers by this award may be absorbed into over-award payments. Nothing in this award requires an employer to maintain or increase any over-award payment’.

"In Ai Group's view the clause means that so long as an employer is paying its employees at least the total amount that they are entitled to be paid under the relevant modern award, the employer does not need to pay more."

Ridout says the FWO's interpretation will require an employer to obtain the agreement of each individual employee before it can absorb any additional costs arising under modern awards into over-award payments.

"In Ai Group's view such an approach is unworkable and would result in an unfair, costly and complex burden being imposed on business," she says.

"To suggest that employers will be able to readily reach agreement with each employee on the absorption of award changes into over-award payments reflects a lack of understanding of many workplaces, including the communication challenges and the role of unions in seeking to maximise wages and working conditions.

"This issue will be extremely important from 1 July 2010 when the phasing-in of higher and lower wage rates, penalties and loadings under modern awards commences."

Ridout says Ai Group intends to make an application to Fair Work Australia to vary the absorption clause in modern awards to clarify its meaning.

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