Australia: Fair Work Australia: Are you getting the flexibility you are looking for?
Workplace Relations Update

A recent prosecution by the Fair Work Ombudsman has demonstrated the strict compliance requirements associated with the use and implementation of an individual flexibility arrangement (IFA) in an employer's business.

What is an IFA?

Under the Fair Work Act 2009 (Cth) (FW Act), modern awards and enterprise agreements are required to permit the making of an IFA. The introduction of IFAs into modern awards and enterprise agreements was heralded as enabling employers and employees to make arrangements to meet their genuine individual needs. Modern awards generally contain a standard clause allowing for the making of an IFA, while the clause to be used in an enterprise agreement is a matter for negotiation.

IFAs were supposed to be as simple as possible for an employer and employee to understand and implement. Despite this, modern awards set out a number of specific requirements that must be satisfied by an IFA. These include the IFA:

• being made without coercion or duress
• generally only dealing with arrangements for when work is performed; overtime rates; penalty rates; allowances; and leave loading
• naming the parties
• being signed by the parties and, if the employee is under 18 years of age, by the employee's parent or guardian
• stating each term of the award to be varied
• detailing how the application of each term of the award will be varied
• detailing how the employee will be better off overall in relation to their terms and conditions of employment
• stating the date the IFA will start to operate.

What happened?

With the commencement of modern awards, the employer became regulated by awards for the first time. The employer was a small business with only six employees, and the manner in which it operated its business, including with flexibility in the hours to be worked by employees, did not comply with the modern award. As a result, the employer formed the view that it was unable to implement the penalty rates and other loadings payable under the modern award.

In order to try to accommodate the application of the modern award to the employer's historical business operations, the employer drafted a document intended to be an IFA and requested that all employees sign the IFA. Some employees declined to sign the IFA, and the employer converted those employees to casual employees.

The employer admitted that it had failed to comply with the requirements of the modern award and the FW Act in that it had:

• failed to specify which terms of the modern award would be varied by the IFAs
• failed to detail how the application of each term had been varied (although it had detailed the manner in which the provisions would operate as a result of the IFA)
• failed to state the date on which the IFA would commence operation
• failed to ensure the IFA made with an employee was genuinely made without coercion or duress
• contravened certain protections under the FW Act prohibiting the taking or threatening of adverse action, coercion and the exertion of undue influence about IFAs.

As a result of the employer's admissions, the court found that the employer, and its managing director, had contravened the FW Act (including the modern award). Despite this, the court found that the employer had admitted its contraventions of the FW Act at the earliest possible opportunity, and had taken a number of voluntary steps, including apologising to the employees, to start to rectify its breaches. As a result, the court heavily discounted the penalties to be imposed on the employer and its managing director and fined the employer $25,000 (out of a maximum of $99,000) and the managing director $5,000 (out of a maximum of $19,700).

Key lessons for employers

Despite the limited matters that may be dealt with by an IFA and the ability for an employee to unilaterally terminate the IFA with four weeks' notice, provided an employee agrees, an IFA can provide employers with additional flexibility in the operation of their business. This can be especially beneficial with the increase in the regulation of employment under modern awards, particularly in relation to part-time employment.

Before making an IFA with an employee, employers should carefully consider the ease with which the employer can return to the modern award or enterprise agreements conditions that would otherwise apply if the employee decides to terminate the IFA. Provided this can be effectively managed, employers should take care to ensure that they have fully complied with all of the requirements necessary to implement an IFA, including ensuring that sufficient detail is provided regarding the application of the varied terms of the relevant modern award or enterprise agreement.

Finally, in circumstances where an employer has inadvertently contravened the FW Act, it is important to take immediate steps to rectify those contraventions, including cooperating with the Fair Work Ombudsman or other prosecutorial body, so as to minimise the penalties to be imposed.

This report does not comprise legal advice and neither Gadens Lawyers nor the authors accept any responsibility for it.