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Transitional arrangements for modern awards

From 1 July 2010 many employers will be affected by the transitional provisions in modern awards dealing with rates of pay and certain other conditions. 

These changes to wages, loadings and penalty rates will be progressively introduced in 5 annual instalments.  As such, it will be critical for employers to review any modern award that covers their employees to ensure that they are complying with those transitional provisions. 

What rates will be affected?

The transitional provisions in the modern awards will largely affect payment of wages, loadings and penalty rates.  These include:

• minimum wages, including piece work rates;
• casual and part time loadings;
• Saturday, Sunday and public holiday penalty rates;
• evening and other penalty rates; and
• shift allowances or penalties.

In addition to the phasing in of the new rates under the modern award, businesses will also need to consider any minimum wage decision that Fair Work Australia (FWA) will publish starting from 1 July 2010. 

Decreases and increases to pay rates but the same take home pay

In some cases, businesses will be required to pay a higher rate under the modern award.  These higher rates will increase in 20% instalments from the first year commencing after the first full pay period on or after 1 July 2010. 

On the other hand, if the rate is lower than the pre-modern award position, then the reduction will be progressively phased in over 5 annual instalments.  It should be kept in mind that even if the modern award contains lower wages and more penalty rates, businesses should be aware that the overall take home pay of employees is not intended to be reduced.  If there is any dispute about this, FWA may make an order called a “take home pay order” requiring, or relating to, the payment of an amount to an employee if it considers it appropriate to remedy that situation.  There have been a number of recent cases of applications for take home pay orders made by employees to FWA  The number of applications is likely to increase after 1 July 2010.

Different categories of employees

There are a number of special requirements for employees whose rate of pay is calculated as a percentage of the adult wage rate.  These include:

• apprentices and trainees;
• young workers;
• casual employees;
• commission based employees;
• employees with a disability; and
• piece rate employees;

Employers will need to examine their workforce, or anticipated workforce, to see whether they are complying with these special requirements.

Impact on Workplace Agreements

Businesses also need to be aware that if their employees are currently covered by an industrial instrument such as an enterprise agreement, collective agreement, certified agreement, AWA or ITEA that came into operation before 1 January 2010, then the modern awards will not immediately affect the employee’s rights or entitlements. 

Having said that, if an employee is paid less than the minimum wage under an applicable modern award the base pay rate must be raised to at least the amount in the modern award. As such, businesses will need to assess whether they are covered by a modern award even if they are currently covered by an industrial instrument.  An assessment must be made as to whether the base rates are equal or better than the ones contained in the modern award.  

Dismissal wrap up

Avoid raising the bar too high when dismissing for misconduct

Serious misconduct refers to misconduct by an employee that is so serious that the employer is relieved of the obligation to give notice or payment in lieu of notice.

Examples of serious misconduct include theft, fraud, violence and serious breaches of OH&S procedures.

If an employee claims that dismissal for serious misconduct was unfair under the Fair Work Act (FW Act), Fair Work Australia (FWA) will determine whether the alleged misconduct occurred.  It will also look to see that the employer, before making the decision to dismiss, informed the employee that it is contemplating dismissal for serious misconduct and gave the employee an opportunity to respond.  The employee should be given the opportunity to bring a support person.

The Full Bench of FWA recently considered a case involving a University lecturer dismissed for serious misconduct (Asher v RMIT [2010] FWAFB 12000).

FWA ruled that factors pointing towards the dismissal being fair were:

• A valid reason existed for termination because the reasons relied on by the employer were sound, defensible and well founded.
• The employer had taken reasonable steps to investigate the allegations of misconduct and had given the employee a fair chance of answering them.

FWA ruled that factors pointing towards the dismissal being unfair were:

• The reasons for termination involved a combination of performance and conduct issues, which fell short of serious misconduct.  Therefore, the employer should have counselled and warned the employee before dismissing.
• The termination was not a fair and reasonable form of disciplinary action in the circumstances of this case.

On balance, FWA ruled that the termination was harsh, unjust and unreasonable.

Lesson for employers:  When dismissing for misconduct, if there is any doubt that an employee has committed gross or serious misconduct it may be a more prudent course for an employer to pay the employee in lieu of his or her notice entitlement.

When will a retrenchment be unfair?

If an employer is to defeat an unfair dismissal claim made by a retrenched employee under the Fair Work Act, the following must be established:

a) The employer must no longer require the person’s job to be performed by anyone because of changes in the operational requirements of the employer’s enterprise.

b) The employer must have complied with any obligation in a modern award or enterprise agreement to consult about the redundancy.

c) It must not have been reasonable in all the circumstances for the employee to be redeployed within the employer’s enterprise or the enterprise of an associated entity of the employer.

A Full Bench of FWA recently considered these issues after a mining company reviewed operations at an underground coal mine and decided to reduce its workforce, outsource certain functions and increase the proportion of employees with trades qualifications (Ulan Coal Mines [2010] FWAFB 3488). The company decided that 38 mineworker jobs had to go and selected those employees to be retrenched on the basis of volunteers firstly and then seniority grounds for the balance. Yet at the same time, the company increased the number of trade-qualified mineworker jobs by 11.

FWA decided that the 38 retrenchments were cases of genuine redundancy, despite the fact that the company had increased its trade qualified workforce.  FWA distinguished between the “jobs” of the retrenched mineworkers – which had become redundant – and the functions performed by those mineworkers, which continued.  FWA ruled that the jobs of the mine workers had become redundant, even though the employer still wanted the functions or duties previously performed by the retrenched mineworkers to be performed.

FWA ruled in this case that the relevant consultation obligations in the enterprise agreement had been followed by the company meeting with employees and their union representatives to explain the redundancy process.  FWA decided that the employer did not need to have a second meeting one-on-one with the employees selected for retrenchment.

Lessons for employers:  The consultation provision in the enterprise agreement in the Ulan Coal Mines case is very similar to that which appears in many modern awards.

Employers need to think about ways to address this requirement in implementing redundancies.  Should they register internal vacancies on a group-wide intranet?  Or do employers need to adopt a more proactive approach?  When will it be reasonable to offer redeployment to vacancies that are interstate, even overseas?

When is it lawful to dismiss an employee because they cannot perform their position?

If an employer dismisses an employee because of disability, it will breach the discrimination provision (section 351) of the Fair Work Act.  However, the employer will not breach this provision if dismissal is because the employee cannot perform the inherent requirements of their particular position.

An employee cannot perform the inherent requirements of their particular position if they cannot exercise the necessary skills to perform the essential tasks of their job in their particular position.

An inherent requirement is not a peripheral requirement.  It must be a kind of requirement that, if removed, would make the employee’s position different.  The focus is also on the requirements of the employee’s particular position in which he or she was employed before the injury, not any position that is performed with restrictions or modified duties.

The enquiry is not confined to the requirements of the employee’s job.  There is a difference between an employee’s job and an employee’s job in a particular position.  For example, the inherent requirements of the job of a pilot are not the same as the inherent requirements of the position of captain of B747-400 aircraft flying on Qantas’ international routes.

Just because dismissal for incapacity is not discriminatory under the FW Act does not mean that an employer can lawfully dismiss.  The employer should also consider liability in these other areas:

• If an employee is dismissed because of disability, this will breach federal and State anti-discrimination legislation.  Again, an employer will have a defence if the employee cannot perform the essential requirements of the role, but in most cases the employer will also need to prove that it was not reasonable to implement special measures or facilities to enable the employee to perform those requirements.
• If an employee who is on workers’ compensation is dismissed the employer may breach federal and State workers’ compensation laws.
• If an employee is dismissed because they are on paid sick leave the employer will breach s 352 of the FW Act, unless the employee has not provided a medical certificate or a statutory declaration in respect of the illness or injury within a reasonable time period and/or not complied with other requirements for taking sick leave imposed by an applicable enterprise agreement.  This prohibition applies even after the employee exhausts paid sick leave entitlements, until the absence on unpaid sick leave extends for more than 3 months (or total sick leave absences in the last year exceed 3 months).  A worker is not receiving paid sick leave when he she is absent from work and receiving workers’ compensation.
• If an employee is dismissed in breach of provisions in the employment contract, enterprise agreement or human resources policies regarding incapacitated workers the employer may be liable for that breach.
• If an employee is dismissed because they cannot perform the inherent requirements of their position, and dismissal has not breached any of the laws described above, the employer should be able to defeat any unfair dismissal claim.  However, there will be exceptional cases.  For example, if the employee’s incapacity is only temporary then dismissal might be unfair, particularly in the case of long-serving employee with a good employment record.

The new “adverse action” claim: lessons from Jones v QTAC (No 2)

This case concerned the Chief Executive Officer of QTAC, Ms Jones (Applicant), who was involved in enterprise agreement (EA) negotiations with the Australian Services Union (ASU) on behalf of her employer, QTAC (Respondent). 

Whilst negotiations were on foot, the ASU made several complaints about the Applicant’s conduct, and 4 employees of QTAC made formal complaints of bullying against the Applicant.  In response to these complaints, QTAC appointed an external investigator to investigate the allegations, and after the Report was completed, wrote to the Applicant informing her that if the allegations were made out then QTAC would consider disciplinary action, including termination (show cause letter). 

Before further action was taken, the Applicant applied for (and was granted) a temporary injunction restraining QTAC from taking further action .  The Applicant’s final entitlement to this injunction depended on whether or not “adverse action” within the meaning of the Fair Work Act 2009 (Cth) (FW Act) had been, or was proposed to be, taken against the Applicant because of her entitlement to a “workplace right”.  The relevant “workplace rights” alleged by the Applicant were:

• Her role or responsibility in the EA negotiations as the “bargaining representative” of QTAC (s 431(1)(a) FWA); or alternatively
• Her ability to participate in the EA negotiations (s 431(1)(b) FWA)).

This decision has significant implications for employers because it clarifies the scope of the adverse action provisions in the FW Act, which have been relatively untested to date.  Employers have good reason to be alarmed by the potential scope of “workplace rights” as interpreted in this decision, but may also take some comfort in the weight accorded  by the Court to an employer’s subjective evidence. 

Was Ms Jones QTAC’s bargaining representative

The Applicant contended that she had a role or responsibility in the EA negotiations because she had been appointed as QTAC’s bargaining representative pursuant to a letter sent by QTAC to the ASU, which stated: “The Board has confirmed that the CEO should continue to be QTAC’s bargaining representative.”  However, QTAC argued that this was an insufficient appointment because the FW  Act confines an employer’s power to appoint bargaining representatives to persons who are external to the employer, and the FW Act requires the appointment to be a “written instrument” and to specify the date from which the appointment is effective. 

The Court rejected these arguments, and held that provided the appointment is in writing and evidences the creation of the role, this is sufficient.  It held that it is not necessary for the date of the appointment to be formally specified.  The dated letter was therefore an effective appointment of a “bargaining representative” for the purposes of the FW Act, and the Applicant had a “role or responsibility” under a workplace law within the meaning of s 341(1)(a) of the FW Act.  Accordingly, the Applicant was exercising a workplace right.   

“Workplace right” – when does an employee have an “ability” to “participate” in a process or proceedings?

The Court held that even if the Applicant had not been appointed as a bargaining representative, she still would have had a workplace right because she was “able” to “participate” in the EA negotiations.  Thus, the “ability” to participate within the meaning of s 341(1)(b) extends beyond a legal right to participate, and may arise from informal permission given by an appropriate person to participate in the process or proceeding.  The Court held that it is irrelevant that this permission might be subsequently withdrawn.  Accordingly, irrespective of whether the Applicant had been appointed as a bargaining representative, she was entitled to protection by virtue of her participation in the negotiations with QTAC’s consent. 

This interpretation demonstrates the wide range of conduct that could potentially be characterised as a “workplace right” for the purposes of this provision.  Accordingly, before employers take decisions that are adverse to any employee, it is essential to consider whether the employee is, or has recently been, participating in a process or proceeding under a workplace law, regardless of whether that participation is by legal right or informal permission.  

Can disciplinary action amount to “adverse action”?

The Court held that the commencement of a misconduct investigation may, in certain circumstances, constitute adverse action.  In making this assessment, relevant factors include:

• the nature of the employee’s position (i.e. an employee with management responsibilities is more likely to be prejudiced or injured by the commencement of an investigation);
• the manner in which the investigation is handled (i.e. whether the investigation is widely publicised and by whom it is conducted);  and
• the seriousness of the investigation (i.e. charges of bullying against a senior executive are more likely to cause prejudice and/or injury).

In this case, the Court needed to decide whether the appointment of an external investigator constituted “adverse action”, and/or whether giving the Applicant the show cause letter amounted to “adverse action”.  The Court held that the appointment of the investigator did not constitute “adverse action” because, in the circumstances, an effective investigation could not be conducted internally due to the Applicants seniority in the organisation.  Accordingly, the appointment of an external investigator was appropriate in the circumstances. 

However, it was held that the show cause letter constituted adverse action because it had the effect of making her employment less secure.  The Court also reasoned that written warnings of serious or major breaches pursuant to an employer’s disciplinary policy may constitute “adverse action” for the same reason. 

Practically this now means that employers should ensure that before any such steps are taken, they consider whether the affected employee has a workplace right, and if so, ensure that the decision is not taken for a reason (or reasons including) that workplace right.    

Was any adverse action taken against Ms Jones for a prohibited reason?

Subjective evidence

Once it is established that “adverse action” has been taken against an Applicant, the onus is cast on the Respondent to demonstrate that the “adverse action” was not taken for a prohibited reason, or reasons including a prohibited reason.  The Court referred to and agreed with the recent decision in Barclay v The Board of Bendigo Regional Institute of Technical and Further Education [2010] FCA 284, where it was held that the subjective evidence of the employer regarding their reasons for the decision is to be given weight by the Court.  While this finding should give some comfort to employers, an employer is still responsible for leading the evidence (that is, oral evidence of the decision-maker/s) to demonstrate that the “adverse action” was not taken for the prohibited reason alleged.  This task should not be underestimated for a number of reasons, including the risk that not all of the employer’s witnesses may give evidence that is consistent when subjected to the pressure of cross-examination.

Who is the relevant decision-maker?

This case also illustrates the importance of correctly identifying the person responsible for the decision to take the “adverse action”.  In this context, careful consideration should be given to who is an appropriate person for the task before the decision to take adverse action is made, particularly where there is a risk of this type of claim.  Whoever the decision maker is, it is essential that this person gives evidence to discharge the employer’s onus of proof.  If no evidence of the correct decision-maker is submitted to the Court, then an inference may be drawn that the decision was made for the prohibited reason.  In this case, the Respondent only called evidence of the Chair and Former Chair of QTAC and not the other members of the Board.  Fortunately for QTAC, the Court held that the Chair had the implied authority of the Board to manage the investigation.  However, if this had not been the case, the employer may have failed to discharge the reverse onus of proof. 

Outcome in Jones v QTAC

The Court ultimately held that the “adverse action” was not taken for a reason including the Applicant’s workplace rights.  The evidence revealed that QTAC had acted out of genuine concern for the organisation and its determination that the Applicant had been mistreating staff members.  In this regard, the Court held that QTAC did not respond to initial complaints made by the ASU regarding the conduct of the Applicant, as it dismissed these complaints as mere negotiating tactics.  However, after the Board received 4 formal complaints from employees, it legitimately considered that further investigation was necessary.  On the facts therefore, the Court held the decision was not taken because of the ASU’s hostility towards the Applicant being a bargaining representative (as QTAC had previously indicated it was indifferent to the ASU’s position on this issue), but rather, out of concern to discharge QTAC’s workplace health and safety obligations by properly investigating the matter. 

The fact that the complaints were conveyed through the ASU was not relevant, because the ASU had a legitimate role to pursue such allegations, and such allegations were more likely to be raised during EA negotiations due to the increased contact between the ASU and its members.   The Application was therefore dismissed.

Endnotes

1. Jones v QTAC (No 1)

2. The principle in Bowling (1976) 12 ALR 605.

CFO conditionally resigns and is awarded $800,000

In the recent New South Wales Supreme Court case of Fardell v Coates Hire Operations Pty Limited (2010) NSWSC 346, a senior executive made shrewd use of a conditional resignation to secure a large termination payout from his employer following a takeover and merger. 

Facts

Mr Fardell was employed by Coates Hire Operations Pty Limited (Coates Hire) in the position of Chief Financial Officer reporting to the Managing Director, Mr Jackman.  His employment contract relevantly provided the following:

1. He was entitled to participate in a long term and a short term incentive scheme, but was only entitled to derive entitlements and benefits under these schemes if he was employed at the date of the entitlements vesting or benefits becoming due.  The incentive schemes could be varied at the discretion of the Board of Directors.
2. The employment contract could be terminated:
   
   a) by Coates Hire for any reason on 12 months’ notice or a payment in lieu of notice, based on the “total cost of employment package”;\
   
   b) by Mr Fardell on 3 months’ notice to Coates Hire; or
   
   c) Mr Fardell on 3 months’ notice, with an entitlement to a payment in lieu of 12 months’ notice, as well as an additional payment equivalent to 12 months’ “total cost of employment package”, if:
   
   i. any person became entitled to more than 50% of Coates Hire’s shares;
   ii. leading to a material diminution of his role and responsibilities,
   (paragraph 7.3 of the employment contract).
   
   
3. The contract further provided that Mr Fardell was under an obligation to “observe and comply with the provisions set out in any written policy, practice or procedure circulated by the Company from time to time”.

Three years after commencing in the role of CFO, Coates Hire entered into a takeover and merger arrangement with a competitor.  This resulted in significant organisational changes, as a result of which Mr Fardell was required to apply for the position of CFO in the new structure and had to attend an interview for this purpose.  Prior to attending the interview, Mr Fardell wrote to Mr Jackman informing him that if he was not selected for a comparable senior role to the position of CFO, that he wished to exercise his rights under paragraph 7.3 of the employment contract, invoking his entitlement to a total payment equivalent to 24 months’ total remuneration. 

Coates Hire awarded the position of CFO in the new structure to an external candidate and issued to Mr Fardell a notice of termination of his employment. 

Consequently, Mr Fardell claimed the following payments from Coates Hire:

1. 12 months’ payment in lieu of notice based on the “total cost of employment package”;
2. an additional payment equivalent to 12 months’ “total cost of employment package” pursuant to paragraph 7.3 of his employment contract;
3. a redundancy payment pursuant to an unwritten redundancy policy; and
4. payments pursuant to the long term and short term incentive plans, even though he would not be employed at the date the entitlements vested or the benefits became due.

Entitlement to payments under incentive plans

With reference to the payments under the incentive plans, Mr Fardell claimed that the rules of the incentive plans had been varied by Mr Jackman in an email sent to senior executives prior to the completion of the merger and take-over of Coates Hire.  In this email Mr Jackman expressly stated that the company would “draw a line in the sand” at 31 December 2007 and would then calculate entitlements under the incentive plans on a pro rata basis, with actual payments being made in July of 2008.  The email expressly provided that any staff who ceased employment as a result of the restructure before July 2008 would receive payment on the termination of their employment.  This covered Mr Fardell whose employment ceased in January 2008.

The question arose as to whether Mr Fardell was entitled to payments under the incentive plans as part of the “total cost of employment package”.

His Honour Justice White concluded that benefits under the incentive schemes did not form part of Mr Fardell`s total package, but that he was nonetheless entitled to payments under the schemes themselves. This was on the basis that the scheme rules had been varied by Mr Jackman’s email with the result that Mr Fardell did not have to be employed at July 2008 to be entitled to payments under the plans.  Consequently, Mr Fardell was awarded $217,000 as entitlements under the short and long tern incentive plans.

Entitlement to additional payment equivalent to 12 months remuneration

Turning to the issue of whether Mr Fardell was entitled to an additional payment under paragraph 7.3 of his employment contract, Coates Hire argued that he was not because:

1. his notice of resignation was conditional and therefore ineffective; and in any event. 
2. at the time of the resignation notice there had not in fact been a diminution in his role and responsibilities, nor had the purchaser of Coates Hire become entitled to 50% of Coates Hire’s shares because the merger arrangement had not completed.

His Honour Justice White rejected these arguments by applying a broad interpretation of paragraph 7.3 of the employment contract, concluding that as at the date of Mr Fardell’s resignation, the Coates Hire’s purchaser had a beneficial interest in its shares and a legal right to enforce specific performance to complete the arrangement.  In addition to that, the language of paragraph 7.3 indicated that it was not necessary for the material diminution in Mr Fardell’s role and responsibilities to have occurred by the time of his resignation letter.  It was sufficient that the change in control at the point of his resignation was “leading to” a material diminution in his role and responsibilities. 

Further in relation to the conditional resignation, His Honour Justice White reviewed the relevant case law on this point and concluded that a conditional resignation was effective and became operative on the fulfilment of the condition.  Consequently, when Mr Fardell was not offered a comparable position, the notice became operative as of the date it was given. 

Therefore, Mr Fardell was entitled to the additional payment pursuant to paragraph 7.3 of his employment contract.

Redundancy policy

Lastly, Mr Fardell asserted that he was entitled to a redundancy payment pursuant to Coates Hire’s unwritten redundancy policy and practice.

White J His Honour Justice White rejected this argument on the basis that the employment contract compelled compliance with “written” policies, whereas the redundancy policy was not a written policy.  In addition to that, nothing in the contract gave rise to a binding obligation on the part of Coates Hire and, in any event, the employment contract dealt comprehensively with termination payments, effectively covering the field in relation to Mr Fardell’s entitlements on termination. 

Even if this was not the case, His Honour concluded, the policy did not apply to senior employees in the position of Mr Fardell and accordingly, he was not entitled to an additional payment as compensation for redundancy.

Total compensation

In addition to a payment in lieu of notice equivalent to 12 months’ remuneration, Mr Fardell recovered the total sum of $819,180, comprising payments under the incentive plans and a payment equivalent to the total cost of his employment package for a period of 12 months, with interest. 

Conclusion

This case demonstrates how employers need to be careful of how they treat conditional resignations.  Following this case, senior executives may consider there are strategic advantages for them in making use of a conditional resignation in circumstances where there is a risk of termination by their employer.  Apart from the scenario under consideration in this case, an executive could also look to do so in a context where a statutory workplace right, such as giving statutory notice of termination,  is involved, effectively invoking the protection contained in Part 3-1 of the Fair Work Act 2009 (Cth), against adverse action on the basis of workplace rights.

The case also serves as a reminder to employers to conduct a careful analysis of the effect of organisational change on the employment and entitlements of senior executives so as to reduce the risk of liability for unintended termination payments. 

Do you know how the changes to superannuation will affect your business?

The Government has recently announced several changes to superannuation which will have a significant impact on employers. The announcements follow the Henry Review’s report on Australia’s taxation system.

The most significant change is an increased Super Guarantee Rate.  The Government is raising the superannuation guarantee to 12%. Employers will have to pay 12% superannuation to employees rather than the 9% they currently pay.

The transition to the higher rate will be phased-in and there will be a three year lead time before any changes start.

The phasing-in will first occur by two smaller steps of 0.25 per cent, in 2013-14 and 2014-15. These will be followed by steps of 0.5 per cent in every year after 2015 until the superannuation guarantee reaches 12 per cent in 2019-20.

So, how much superannuation will you have to pay your employees?

You will have to pay your employees superannuation in accordance with the following table:

Period	Superannuation rate
Current until 30 June 2013	9%
1 July 2013	9.25%
1 July 2014	9.5%
1 July 2015	10%
1 July 2016	10.5%
1 July 2017	11%
1 July 2018	11.5%
1 July 2019 and thereafter	12%

Other changes – you will have to pay superannuation to your employees for longer

Currently, the compulsory Superannuation Guarantee only applies to people aged under 70. From 1 July 2013 the superannuation guarantee age limit will be raised from 70 to 75. Naturally, this is unlikely to apply to many employers.

Older workers can continue to make higher concessional superannuation contributions

From 1 July 2012, if your employee is aged 50 and over and has a super balance below $500,000, he or she will be able to make up to $50,000 per year in concessional superannuation contributions. This will permanently extend the transitional cap which was scheduled to expire on 30 June 2012. However, this does not mean much more for employers than minor adjustments at the payroll level.

Other than the above changes, everything else remains the same including that superannuation guarantee contributions need only be paid quarterly and that you do not have to report superannuation contributions to your employees when paid.

Court upholds a 12 months restraint period but permits employee to compete

In the recent decision of Stacks/Taree v Marshall [2010] NSWSC 77, the New South Wales Supreme Court found that a 12 month period of restraint against a former employee was reasonable but held that it was unnecessary to impose restraints against competitive activity or clients in general. 

Facts

Mr Marshall was employed as a solicitor in the Taree office of a solicitor corporation (Stacks). His contract of employment contained restraints which prevented Mr Marshall from doing the following for a period of 12 months after the termination of his employment:

• soliciting employees and ‘Clients of [Stacks]’, which included all clients of Stacks in the preceding 12 months; and
• engaging in ‘Competitive Activity’, which was defined as carrying on the business or profession as a lawyer within a 10 kilometre radius of Stacks.

Prior to joining Stacks, Mr Marshall had worked as a solicitor in a large Sydney law firm. Stacks invested significant time and effort in promoting Mr Marshall to its clients and within the wider Taree community. On 31 August 2009, Mr Marshall decided to leave Stacks and resigned. Shortly afterwards, Mr Marshall informed Stacks that he would be pursuing opportunities to work locally as a solicitor and confirmed by email that he would abide by the restraints in his contract of employment so far as they related to solicitation of clients and staff.

Stacks commenced legal proceedings in the Supreme Court of New South Wales to enforce the restraint of trade clause against Mr Marshall and prevent him from competing with Stacks by taking up employment with another law firm in Taree.

Decision of the NSW Supreme Court

McDougall J heard the matter urgently on a final basis and later published detailed reasons in which he recounted the established principle that restraints are invalid unless they can be shown to be reasonable to protect the legitimate interests of the person seeking to enforce it. In New South Wales, the Restraints of Trade Act 1976 (NSW) (Act) also provides that a restraint of trade is valid to the extent that it is not against public policy. His Honour accepted that Stacks had established a legitimate interest by virtue of its ‘considerable lengths’ to market Mr Marshall to its clients and the local community. In addition, the 12 month period of restraint was valid as “some weight should be given to contractual choice, at least when there was nothing unreasonable on its face”.

Solicitation of clients - The Court held that the relevant test related to how long it would take to sever the connection between Mr Marshall and the client relationships he had formed, rather than the time it would take to train a replacement.  Further, the Court utilised the Act to read down the restraint from soliciting a “Client of the Firm” to only include those clients with whom Mr Marshall had worked.  This was because the employer’s interests were sufficiently protected if the restraint was limited to clients for whom Mr Marshall had provided services rather than to all Stacks’ clients. 

Solicitation of staff - As Mr Marshall had offered an undertaking to the Court in terms of this restraint, an Order was made in the same terms. 

Competitive activity - The Court refused to enforce this restraint. McDougall J stated that becuase Mr Marshall was an officer of the Court and he had offered an undertaking not to solicit, a blanket prohibition against competition that protected not only the employer’s legitimate interest in its own clients but also those who were not, or never had been its clients, went further than what was reasonably necessary.

Ultimately, Stacks was unsuccessful and was ordered to pay 80% of Mr Marshall’s costs.

Implications for Employers

This case highlights how Courts can read down restraints to make an otherwise unenforceable restraint, enforceable.  For employers, the case is a useful reminder of the importance of carefully drafting post-termination restraints to ensure that they adequately protect the legitimate business interest of the employer. 

However, when doing so, employers need to ensure the protections go no further than is reasonably necessary given the circumstances. 

As well as ensuring the intentions of the parties are clearly defined at the outset of an employment relationship, it is also important to consider whether conduct and communications following a resignation or termination of employment have affirmed the restraints. This may include the giving of undertakings by the departing employee.  This case highlights that Courts will have regard to any conduct of the former employee that affirms the restraints, when determining whether to enforce them.

Recent amendments to the Corporations Act: shaking up the golden handshake

Amid the global financial crisis in 2009, the Federal Government announced reforms to Part 2D.2 of the Corporations Act 2001 (Cth) (Corporations Act) to address public disapproval for what was characterised as rewarding company executives for poor performance in the form of a “golden handshake”. 

On 24 June 2009, the Federal Government introduced into Parliament the Corporations Amendment (Improving Accountability of Termination Payments) 2009, which, after amendment, came into operation on 24 November 2009.  The amendments to the Corporations Act have significantly expanded the circumstances in which shareholder approval must be obtained before termination benefits can be provided to executives and company officers on retirement from office or a position of employment. 

Summary of the Changes

The effect of the new legislation is reflected in the following table:

Issue	Previous Position	New Position
When must shareholder approval be obtained to pay a termination benefit?	When the payment exceeds seven times the recipient’s annual remuneration.	When the total value of the benefits exceeds one year’s base salary, i.e. the average base salary over the previous 3 years .
Does shareholder approval have to be obtained for directors only?	Directors only.	Not only directors, but for any person who holds a “managerial or executive office”. i.e. a person who has been a director at any time over the previous 3 years and, in the case of a listed company, key members of management and (if different) the 5 highest remunerated executives over the last year.
Who can participate in the shareholder vote?	A director could participate in the vote to approve their own termination benefit.	Directors and executives who hold shares in the company cannot participate in the vote to approve their own termination benefit.
What if the payment is made without shareholder authorisation?	No express requirement for immediate repayment.	The individual must pay back unauthorised termination benefits immediately.
What are the sanctions for making a payment without shareholder approval?	Civil penalties of $2,750 for individuals and $16,500 for corporations, with a risk of 6 months’ imprisonment.	Civil penalties have been increased to $19,800 for individuals and $99,000 for corporations, with a risk of 6 months’ imprisonment.

                 

Since the introduction of the amendments, a number of issues have already arisen as company directors and senior executives have retired on substantial termination pay-outs.  We set out some of these issues below:

Issue:  What is a benefit?

IS a “benefit” and requires shareholder approval	IS NOT a “benefit” and/or does not require shareholder approval
Share-based payments where there is an accelerated or automatic vesting right on retirement Payments made with respect to restrictive covenants Voluntary out of court settlements relating to the termination of employment A pension which is not derived from a superannuation fund Payments in lieu of notice	Deferred bonuses as long as there is no accelerated or automatic vesting right on retirement Genuine superannuation contributions A benefit given under a court order constitutes a benefit but does not require shareholder approval Genuine redundancy payments in accordance with company policy A payment required by a law of another country A payment from a superannuation fund on death or incapacity

Issue: Who is prevented from paying the termination benefit?

The revised section 200B(1) of the Corporations Act states that the following “entities” must not give a termination benefit in connection with a person’s retirement from office or position of employment with a company:

a) the company itself;

b) a related body corporate of the company;

c) an associate of the company, which includes a director or secretary of the company and a director or secretary of a related body corporate of the company; and

d) a prescribed superannuation fund in relation to the company.

Whilst the entities at paragraphs (a) and (b) are self explanatory, those at paragraphs (c) and (d) are surprising. 

The effect of paragraph (c) is that it understandably precludes directors and secretaries of the company or a related company from giving the benefit.  What is interesting is that it also may preclude members of a partnership from paying a termination benefit to a departing member of the same partnership where the partners are also directors of a related service company used to employ staff, obtain services or undertake some other function within the partnership.

With respect to paragraph (d), the inclusion of a prescribed super fund ensures that a company cannot avoid its obligations under section 200B of the Corporations Act by paying the benefit to a person through the prescribed superannuation fund.

The amendments to the Corporations Act do not apply retrospectively to executive service contracts which existed on 24 November 2009.  The amendments will only apply to contracts entered into or extended after that date.  This means that where existing contracts are varied, for instance by a pay rise or pay reduction, it could bring the individual within the scope of the amendments.  Companies should therefore be particularly cognisant of this when conducting pay reviews, restructuring positions or otherwise varying service agreements.  

Issue:  Which members must give their approval?

Member approval for giving the termination benefit is obtained on the passing of a resolution at a general meeting of the company.  However, depending on the corporate structure of the group, further member approval may also be required.  For instance:

a) if the company is a subsidiary of a listed domestic corporation, the resolution must also be passed at a general meeting of the listed corporation; and

b) if the company has a holding company that is not a listed domestic corporation or a subsidiary of a domestic corporation, the resolution must also be passed at a general meeting of the holding company.

It is important for companies to bear in mind that a retiring director or executive (or an associate of the retiring director or executive) is not permitted to cast a vote in respect of a resolution approving their own termination benefit.  An exception to this rule is where the director or executive is casting a proxy vote on behalf of another person who is entitled to vote on the resolution.

Issue:  Does member approval absolve directors of their duties?

Compliance with section 200B does not absolve directors from their duties as officers of the company, even in situations where shareholder approval has been validly obtained in respect of a termination benefit.  Directors will remain open to scrutiny in respect of their other director’s duties.  For instance, sections 180, 181 and 182 of the Corporations Act will still require a director to act with care and diligence, in good faith and in a manner that does not abuse their position.

In effect the amendments echo the broader issue of how director’s duties and their accountability to the company may be balanced with reward and incentive schemes.  This is particularly the case where shareholders are required to approve a termination payment in the face of disappointing financial outcomes or where an applicable remuneration scheme has encouraged risk-taking by executives.

Cases

To date there have not been any cases decided under the new amendments with the result that there is little judicial guidance on the ambit and future operation of the revised Part 2D.2 of the Corporations Act.  However, the New South Wales Court of Appeal examined the  application of these provisions as they existed in 2000 in the case of Dome Resources NL v Silver. 2

In this case Mr Silver provided his services as director to Dome through interposed companies.  Mr Silver retired as a director of Dome and claimed payment for a retirement benefit in the amount of approximately $474,000 pursuant to a retirement deed.  Dome claimed it was not liable to pay him the retirement benefit because, in doing so, it would contravene section 200B of the Corporations Act.  This was on the basis that the payment would exceed the financial cap then in place under section 200G, when determined with reference to the annual sums paid to Mr Silver’s interposed companies, as opposed to only the annual remuneration paid to Mr Silver himself.

The Court of Appeal concluded that the payments to the interposed companies could be considered “remuneration” for the purposes of determining the financial cap under section 200G of the Corporations Act.  However, even taking this additional amount into account, the Court of Appeal still held that the termination benefit owed to Mr Silver under the deed did not exceed the financial cap by reason of taking into account the period of Mr Silver’s employment and member approval was therefore not required.  As a result, Dome was ordered to pay Mr Silver the termination payment under the retirement deed.

The Dome decision is an example of how some claims by former executives will now proceed by reason of the reduced “cap” and the prohibition on companies now paying prescribed termination benefits.  It should be remembered that the “cap” applies to the “estimated annual base salary” as opposed to the former test of “total remuneration”.  This new test is much narrower.

Conclusion

The amendments are expected to impact on companies, particularly those considering a restructure of their senior management team.  It may well result in litigation where  companies now refuse to seek member approval, or indeed are unable to obtain member approval.  Further, senior executives may now negotiate more rigorously on remuneration rates, performance-based bonuses, executive equity schemes and “golden hellos”.  Against the context of these amendments, together with the ASX Corporate Governance Guidelines and the Productivity Commission Report on Executive Remuneration, companies should expect to make substantial changes to their recruitment, retention and retirement strategies for company officers and senior executives if they are to achieve efficient “exits” of senior executives.  For company officers it should also highlight the need for scrupulous compliance with their statutory and fiduciary duties.

Paid Parental Leave Bill 2010

Following a Productivity Commission inquiry and Government consultations, the Federal Government has passed legislation that introduces a Paid Parental Leave scheme (PPL) in Australia.  This brings Australia in line with other OECD countries who, with the exception of the United States of America, have had statutory

PPL schemes for some time.

We look at how thePPL scheme will operate and the implications for employers.

The Paid Parental Leave Bill 2010 (Bill) was passed by the Federal Government on 17 June 2010 and will provide eligible primary carers of children born or adopted on or after 1 January 2011 with parental leave pay of up to 18 weeks at the national minimum wage ($569.90 per week from 1 July 2010) (NMW).   The Bill is currently awaiting Royal Assent and is expected to take effect on and from 1 October 2010. 

Overview

Eligibility requirements

Not all employees will be entitled to receive PPL.  To be eligible, claimants will need to satisfy the following criteria:

1. The work test - The primary carer must have worked continuously for at least 10 of the 13 months prior to the expected birth or adoption of the child and for at least 330 hours in that 10 month period (this equates to around one day a week).  There must not be a break of more than 8 weeks between any 2 consecutive work days.
2. The income test - The primary carer’s adjusted taxable income must not exceed the income limit (initially $150,000) in the previous full financial year before the claim or birth, whichever is earlier.  The primary carer’s adjusted taxable income includes their taxable income adjusted fringe benefits, tax-free pensions or benefits, target foreign income, reportable superannuation contributions and total net investment losses. 
3. The residency requirements - Generally, the primary carer will need to be living in Australia and be an Australian citizen or resident.

Full-time, part-time and casual employees as well as contractors may be eligible for PPL if they meet the above criteria.

What employees will receive

Eligible primary carers will receive the NMW for a period of up to 18 weeks.  The amount received will be taxable, similar to salary or wages. This amount will replace the “baby bonus”.

PPL must be taken in one continuous 18 week period, even if it is transferred to another primary carer.

It is anticipated that employees can apply for PPL up to three months before the expected birth or adoption of the child to assist with family budgeting.  This means applications may be made from 1 October 2010 for expected births or adoptions on or after 1 January 2011.

Who is the primary carer?

The primary carer of a child will generally be the mother. However, the Bill also allows for the child’s father or, in exceptional circumstances, a third party to be the primary carer and receive PPL. 

A couple can, for instance, split the 18 weeks of PPL between them.   Accordingly, a number of employees could be affected, not just the mother.  However, at any time only one person will be regarded as the child’s primary carer and they must meet the above eligibility criteria.

Implications for Employers

Employers are expected to have an initial six months to transition to PPL so as to limit the costs of implementation half-way through the financial year.  Accordingly, employers will be required to facilitate payments of PPL for eligible employees from 1 July 2011, although they may agree with employees to provide such payments from 1 January 2011. 

The Family Assistance Office (FAO), not employers, will assess the eligibility of employees to receive PPL. On receipt of an ‘employer determination’ informing an employer that PPL is payable to an employee, the employer will have 14 days to accept and provide certain financial information, or request a review of the decision.

During the PPL period, employees are unable to work. However, employees may “keep in touch” with the workplace to facilitate their return to work. If employees return to work during the PPL period by performing one hour or more of work per day, PPL funds will cease or the other parent may receive the balance of the unused funds.

Reporting requirements

Employers will be required to notify the FAO as soon as practicable in respect of a number of events, including if the employee returns to work before the end of the PPL period or the employee ceases employment.   Employers will also be required to provide certain payment / payroll related information. 

Cost considerations and paying PPL

PPL will be funded by the Australian Government via the FAO rather than by employers. However, there may be some costs implications associated with payroll and software upgrades and additional administration resources.

Employers will only be required to facilitate PPL following acceptance of an ‘employer determination’ and receipt of funds to cover the instalments, which the employer must pass on to the employee on their usual pay day. This seeks to avoid any cash flow issues. Usual PAYG deductions will be required to be withheld and employees must be issued with a record of payment, such as a payslip.

Interaction with the National Employment Standards and other entitlements

The PPL scheme is not a leave entitlement and supplements the existing parental leave entitlements set out in the National Employment Standards, which cannot be subverted and will be unaffected.

If employers already offer paid parental leave to employees, the PPL scheme will be in addition to such payments and may be received before, after or concurrently with employer entitlements. This also includes employees who elect to take annual leave during their parental leave.

The Bill makes it clear that employers are obliged to pay the instalments of PPL in addition to any other entitlement an employee has to paid leave under a law or industrial instrument (which would include a contract of employment). Essentially this means employers cannot use the PPL scheme to offset other employee entitlements.

Enforcement of employer obligations

The Bill allows an employee to contact the FAO to report any problems with their employer in respect of their PPL, for instance if the employer fails to make PPL payments to an eligible employee.  If this occurs, the FAO will investigate and seek to resolve the matter.  If the FAO is unable to resolve the matter, they can refer it to the Fair Work Ombudsman (FWO).

The FWO is empowered to investigate employers that fail to comply with their obligations under the PPL scheme.  Compliance and infringement notices may be issued, an employer’s premises may be investigated or civil penalties may be ordered.  There are maximum penalties of $6,600 for individuals and $33,000 for corporations.

Actions for Employers

Whilst PPL is still being debated in Parliament and theoretically will not impact employers until 1 July 2011, employers have an opportunity to review their current practices and policies to ensure they are prepared for the introduction of PPL.  This may include taking the following steps:

• familiarising yourself with the PPL provisions and the implications it will have for employers;
• reviewing your current payroll systems and determining what measures are required to comply with the requirements of the PPL scheme, including how to separately identify and distribute payments from the FAO to employees;
• determining capabilities to accommodate requests from employees for payments to be facilitated from 1 January 2011;
• reviewing your existing parental leave policies, particularly where you already offer paid entitlements, to ascertain how it will interact with PPL and consider updating your policies; and/or
• if you do not currently have a paid parental leave scheme, considering whether you wish to provide any payments to ineligible employees or top up payments to a level above the NMW.

Developments in agreement approvals

Decisions by Fair Work Australia (FWA) regarding the enterprise agreement approval process continue to demonstrate that employers must be careful not to treat this process “lightly”.  This can be a risk for employers after the agreement making process and a successful ballot. Recent decisions demonstrate that the job is only “half done” and FWA will exert careful scrutiny to ensure that any agreement meets the pre-approval requirements prescribed in the Fair Work Act 2009 (FW Act).

Pre-approval Requirements

The FW Act provides for the following requirements to be met before an enterprise agreement can be approved by FWA:

a. the agreement must have been genuinely agreed by the employees covered by the agreement (section 186(2)(a) of the FW Act).  In order for an agreement to have been “genuinely agreed” the various procedural steps prescribed under the FW Act, including the issue of a notice of employee representational rights, must be met.

b. the terms of the agreement must not exclude the National Employment Standards or any provision of the National Employment Standards (section 186(2)(c) of the FW Act);

c. the agreement must pass the better off overall test;

d. the group of employees covered by the agreement, must have been fairly chosen (section 186(3) of the FW Act);

e. the agreement must not include any unlawful terms.  An unlawful term is a term which is discriminatory, objectionable (in the sense that it has the effect of contravening the General Protections Part of the FW Act or requires the payment of bargaining services fees) or takes away from other prescribed rights as outlined at section 194 of the FW Act.

f. there must be a nominal expiry date and that date must be no more than four years after the day on which the FWA approves the agreement (section 186(5) of the FW Act);

g. there must be a dispute resolution clause (section 186(6) of the FW Act);

h. there must be a flexibility term (section 202 of the FW Act);

i. the employer must have taken all reasonable steps to ensure that during the seven day period prior to any vote, employees had access to the written text of the agreement and any other material incorporated by reference in the agreement (section 180(2) of the FW Act);

j. the employer must have taken all reasonable steps to notify employees at least seven days immediately before the start of the voting process, of the time and place at which the vote would occur and the voting method that will be used (section 180(3) of the FW Act); and

k. the employer must have taken all reasonable steps to ensure that the terms of the agreement, and the effect of those terms, were explained to all employees and the explanation was provided in an appropriate manner taking into account the particular circumstances and needs of the relevant employees (section 180 (5) of the FW Act).

Strict Approach

In a series of decisions, FWA has emphasised that the pre-approval requirements are strict requirements that must be met in order for any agreement to be approved. 

The mandatory nature of the pre-approval requirements was outlined in a decision of Falls Creek Resort Managements [2010] FWA 2847 (19 May 2010) where Commissioner Roe held that the pre-approval requirements were mandatory requirements.  Commissioner Roe went on to state the following concerning the notice of employee representational rights:

“I could have some discretion about how the notice is distributed. Notwithstanding the Regulations I could have some discretion about how the notice is worded provided it substantially complied with the content requirements of section 175.  However, I have no discretion about the 21 day period and no discretion to waive the requirement for a notice which effectively communicates all the elements required by section 175 to be given in some form.”

The strictness of these requirements has meant that FWA has refused to approve a number of agreements because the pre-approval requirements were not met.  These decisions include McDonald’s Australia Pty Limited on behalf of Operators of McDonalds Outlets [2010] FWA 1347 (23 April 2010) and Section 185 Application for Approval of a Single-Enterprise Agreement, Healthcare Imaging Services [2010] FWA 3473 (4 May  2010).

McDonalds Decision

In the McDonalds decision Commissioner McKenna examined a number of the requirements set out above and held that McDonalds hade failed to meet these requirements.  In doing so Commissioner McKenna made a number of comments that are well worth employers noting, apart from the warning to ensure strict compliance with the pre-approval requirements.  These general comments included the following:

a. Commissioner McKenna bemoaned the fact that there was no one to take the role of contradictor, that is, someone challenging McDonald’s assertions.  She said that she would have liked to cross-examine some of the witnesses. This raises the issue of whether in future matters where there is more than one bargaining representative for employees and only one supports the application, the disaffected bargaining representative could apply to become the contradictor.  This could be a real prospect if the agreement is put to a ballot over that bargaining representative’s protestations.

b. There are certain timing requirements for the provision of information to employees as noted above.  Commissioner McKenna was not satisfied that these had been met.  In this context, Mckenna also made some comments on the low voter turn out and queried whether this was indicative of a failure to comply with these requirements.  As such, an employer will need to be ready to explain a low voter turnout and will need to be able to show that all staff knew and understood the voting process.

c. McDonalds also could not show that it had explained the terms of the agreement and the effect of the agreement to the employees within the required time. In an attempt to overcome this problem, McDonalds looked to rely on certain bulletins of the Union that it had posted in on its intranet, called “Metime”. In this context, Commissioner McKenna stated: 

“I do not accept the proposition that electronic posting on Metime of SDA documents (or manual posting on a notice board at the workplace or provision of such documents at information sessions) satisfies the obligations on the applicant itself to provide such information.  The applicant cannot come before Fair Work Australia saying it did not actually provide the information contemplated by s180(5) of the Act, but the application should be approved because another organisation or person provided such information.  It is irrelevant, in terms of satisfying the applicants own obligations for the purposes of s180(5) of the Act, whether, for example, on officer of a union wishes to extol what he or she personally perceives as the benefits of an enterprise agreement and, in so doing, provides some summary of the  terms of the agreement…and the applicant determined to post that commendation on Metime.”

d. It will have been noted above that the employer must also ensure that the agreement must be explained taking into account the particular needs of the relevant employees.  In this context, Commissioner McKenna stated:

“The information provided to the employees about the Agreement was the same irrespective of whether the employee was 15 or 55 and irrespective of any employees’ culturally or linguistically diverse backgrounds, or other needs.”

Hence, employers need to be ready to evidence how they took into account the needs of younger less experienced workers and those with English as a second language.  A key issue for employers will be to identify the composition of their work force in respect of age, language skills and experience in Australian workforce conditions.

e. The agreement also purported to incorporate the National Employment Standards although these were not provided to employees.  This would be a common issue that employers should note with some care.

Healthcare Imaging Services Decision

In a second decision of Commissioner McKenna of Section 185 Application for Approval of a Single-Enterprise Agreement, Healthcare Imaging Services [2010] FWA 3473 (4 May 2010), the strict requirements of the pre-approval process for enterprise agreements was again emphasised.  In this decision, Commissioner McKenna rejected the approval of an enterprise agreement purporting to cover some 85 New South Wales worksites because the company had failed to meet the pre-approval requirements in respect of a handful of employees. 

In particular, the evidence showed that there were three employees at the company’s Blacktown workplace that were given the relevant documents 6 days before voting commenced in breach of the 7 day rule and that another employee on maternity leave was sent the documents after the voting had commenced.

The company sought to overcome these two failures to follow the pre-approval process by asserting that even if these relevant employees had been included, that they would have made no difference to the outcome of the vote. It adopted a statistical analyses to demonstrate this point.  Commission McKenna rejected the correctness of this approach and asserted that the pre-approval requirements were strict requirements that do not lend themselves to analysis of whether the failure to meet them would have affected the outcome of the vote overall.  In this regard, Commissioner McKenna stated as follows:

“I am inclined to accept the Union’s submission that the fact that the votes of the employees concerned would not have altered the outcome of the ballot, does not relevantly arise, considered in terms of the Act, when determining the question of whether the Applicant has discharged his obligations as to the pre-approval requirements.  As Mr Stevanja submitted, it does not seem to be open to adopt some form of sliding scale in relation to the pre-approval steps, based on whether the employee’s votes would have altered the outcome of the ballot.”

It is also interesting to note that Commissioner McKenna again highlighted a failure to provide documents incorporated or referred to in the enterprise agreement. In this regard, a “primary health care policy” was referred to in one of the clauses but was not provided to employees.  Commissioner McKenna raised the fact that again, for this reason alone and but for the primary failure, the failure to provide the policy could also have led to a bar to approval. 

Finally, it is important to note that in this case the Health Services Union actively opposed the approval of the agreement.  While they initially concurred with the employer’s application, its view changed and they actively opposed its approval. 

Full Bench decision in McDonalds – further developments expected

On 22 June 2010 the Full Bench of FWA heard McDonald’s appeal against Commissioner McKenna’s decision.  The Full Bench took the unusual step of immediately quashing the decision and approving the agreement.  It stated that its reasons would be issued at a later date.

As such, at the time of this publication the reasons for the decision are not available.  However, it would seem that the Full Bench’s written decision will outline a less technical approach to assessing compliance with pre-approval requirements going forward.  In particular, it is likely that the Full Bench will find that any deficiencies in any application for approval should be seen not as a substantive default but a procedural issue that can be resolved.  In addition, it is likely that the Full Bench will find that there is nothing in the FW Act that prevents an agreement being explained to the employees through an agent, such as a union.

When the reasons for the decision are published it is also anticipated that the Full Bench will take the opportunity to provide a more general statement as to the approval requirements for agreements and the approach that FWA will adopt going forward.  We will keep you informed of any developments in this regard.

Lessons for Employers

The McDonalds and Healthcare Imaging Services decisions highlight the importance of employers adopting a strict approach to compliance with the pre-approval process.  Employers should ensure that they understand each of the relevant steps and can evidence the fact of their compliance with each of these steps of the process.  If they are not able to do so they run the substantial risk that the agreement will not be approved and the hard work expended in getting the agreement made could be lost. 

In addition, employers also need to be wary of challenges made by “unhappy” bargaining representatives to any approval process.  As indicated above, the Health Services Union in the Healthcare Imaging Services case actively opposed the approval process.  Their successful opposition to the approval process highlights the dangers that an employer faces when seeking approval of an agreement that has been “rammed” through over objections of the bargaining representative.  If an employer chooses to take this approach, then the employer should be ready to meet any challenges raised by the union as to the pre-approval process and should also ensure that there is ample leeway in respect of that process so as not to allow the opportunity for the types of arguments that the Healthcare Imaging Services case and also the McDonalds case highlight.