[2015] FWCFB 6656
The attached document replaces the document previously issued with the above code on 30
September 2015.
Typographical error in endnote 42 has been corrected.
Miriam Henry
Associate to Justice Ross, President
Dated: 30 September 2015
1
Fair Work Act 2009
s.156 - 4 yearly review of modern awards
4 yearly review of modern awards
(AM2014/1 and others)
JUSTICE ROSS, PRESIDENT
VICE PRESIDENT HATCHER
SENIOR DEPUTY PRESIDENT HAMBERGER
DEPUTY PRESIDENT BULL
COMMISSIONER BISSETT MELBOURNE, 30 SEPTEMBER 2015
4 yearly review of modern awards – award stage – standard absorption clause – calculation
of casual loading.
1. Introduction
[1] A decision issued on 13 July 20151 (the July 2015 decision) dealt with a number of
general issues which arose in subgroups 1A and 1B of the Award stage of the 4 yearly review
of modern awards. This decision deals with two aspects of the July 2015 decision which were
the subject of further submissions. The first is the standard absorption clause currently in all
modern awards and the second concerns the calculation of casual loadings in awards which
provide for an all purpose allowance.
[2] A list of the further submissions filed in respect of these two issues is set out at
Attachment A. A Summary of the submissions filed in respect of absorption issue was
published on 25 August 2015 and a Summary of the submissions filed in respect of the
calculation of the casual loading was published on 26 August 2015. Both of these issues were
the subject of a hearing on 27 August 2015.
[3] We turn first to the absorption clause issue.
2. The absorption clause
[4] Clause 2 in all modern awards is a standard provision which provides as follows:
‘2. Commencement and transitional
2.1 This award commences on 1 January 2010.
2.2 The monetary obligations imposed on employers by this award may be absorbed into
overaward payments. Nothing in this award requires an employer to maintain or increase any
overaward payment.
[2015] FWCFB 6656
DECISION
E AUSTRALIA FairWork Commission
http://www.fwc.gov.au/documents/sites/awardsmodernfouryr/Further-summ-sub-Casual-loading-1A1B.pdf
http://www.fwc.gov.au/documents/sites/awardsmodernfouryr/AM201464andors-summarysub-FWC-250815.pdf
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2
2.3 This award contains transitional arrangements which specify when particular parts of
the award come into effect. Some of the transitional arrangements are in clauses in the main
part of the award. There are also transitional arrangements in Schedule A.
The arrangements in Schedule A deal with:
minimum wages and piecework rates
casual or part-time loadings
Saturday, Sunday, public holiday, evening or other penalties
shift allowances/penalties.
2.4 Neither the making of this award nor the operation of any transitional arrangements is
intended to result in a reduction in the take-home pay of employees covered by the award. On
application by or on behalf of an employee who suffers a reduction in take-home pay as a
result of the making of this award or the operation of any transitional arrangements, the Fair
Work Commission may make any order it considers appropriate to remedy the situation.
2.5 The Fair Work Commission may review the transitional arrangements in this award
and make a determination varying the award.
2.6 The Fair Work Commission may review the transitional arrangements:
(a) on its own initiative; or
(b) on application by an employer, employee, organisation or outworker entity
covered by the modern award; or
(c) on application by an organisation that is entitled to represent the industrial
interests of one or more employers or employees that are covered by the modern
award; or
(d) in relation to outworker arrangements, on application by an organisation that
is entitled to represent the industrial interests of one or more outworkers to whom the
arrangements relate.’
[5] In a decision2 issued on 23 December 2014 (the December 2014 decision) the
Commission decided to vary the current modern awards, rather than superceding them; to
retain the transitional provision relating to take home pay orders (ie subclause 2.4); and to
delete subclauses 2.3, 2.5 and 2.6. As a consequence of the December 2014 decision, and that
part of the July 2015 decision which dealt with the commencement date provision,3 the
current ‘commencement and transitional’ clause in modern awards will become clause 1
‘Title and commencement’. Clause 1 provides as follows:
‘1. Title and commencement
1.1 This award is the xx Award 2015.
1.2 A variation to this award does not affect any right, privilege, obligation or liability
that a person acquired, accrued or incurred under the award as it existed prior to that variation.
1.3 Schedule H—Definitions sets out definitions that apply in this award.
[2015] FWCFB 6656
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1.4 The monetary obligations imposed on employers by this award may be absorbed into
overaward payments. Nothing in this award requires an employer to maintain or increase any
overaward payment.
1.5 Neither the making of this award nor the operation of any transitional arrangements is
intended to result in a reduction in the take-home pay of employees covered by the award. On
application by or on behalf of an employee who suffers a reduction in take-home pay as a
result of the making of this award or the operation of any transitional arrangements, the Fair
Work Commission may make any order it considers appropriate to remedy the situation.’
[6] Clause 1.4, the ‘absorption clause’, is in the same terms as the current subclause 2.2 in
all modern awards and is the issue in contention in these proceedings.
[7] In the proceedings which led to the July 2015 decision the AMWU contended that
subclause 1.4 should be deleted on the basis that the provision upon which it is based (current
subclause 2.2) was intended to be a transitional provision only. In their further submission4 on
21 November 2014 the AMWU submit that the absorption clause ‘did not appear in pre-
modern awards and was simply a product of the Part 10A modernisation process to facilitate
transition to modern awards’.
[8] The AMWU’s submission was directed at the exposure draft in respect of the
Manufacturing and Associated Industries and Occupations Award 2010, but, as we have
mentioned, the relevant provision is found in all exposure drafts and so the issue has much
broader application. Any decision to remove or modify subclause 1.4 will have application
across all modern awards and so the July 2015 decision concluded that all interested parties
should be given a further opportunity to make submissions in respect of this issue. Directions
were issued in relation to the filing of such submissions.5
[9] The AMWU initially contended that the absorption clause should be replaced by an
alternate provision but this contention was abandoned during the course of the hearing on
27 August 2015.
[10] The submissions advanced in relation to the absorption clause raise the following
issues:
1. Was the clause intended to be transitional in nature?
2. If the absorption clause no longer has any transitional purpose on what basis can such
a clause be included in a modern award?
3. If an absorption clause can be included in a modern award is the inclusion of such a
clause necessary to achieve the modern awards objective or the minimum wages
objective?
[11] We now turn to consider each of these issues.
[2015] FWCFB 6656
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Issue 1: Was the clause intended to be transitional in nature?
[12] The AMWU submits that the absorption clause is a transitional provision and that this
is made clear by the relevant Award Modernisation Full Bench decisions.6 The AMWU –
Vehicle Division, APESMA, AWU, CFMEU (C&G Division) and TCFUA support the
AMWU’s submissions.
[13] Ai Group, ABI/NSWBC, Business SA, CCIWA, HIA and MBA filed submissions on
the issue of absorption. The employer organisations differ as to their characterisation of the
absorption clause and in the submissions they advanced in favour of retaining the current
provision.
[14] Ai Group, Business SA and CCIWA submit that the absorption clause is not a
transitional provision and that it deals with the absorption of any monetary obligation
contained in the award against any overaward payment.7
[15] Ai Group rejects the proposition that the absorption clause was designed to cease
operation at the end of the transitional period, but in any event contends that if that was the
intention of the AIRC then that would not justify removing the absorption clause from
modern awards and submits that the absorption clause ‘has continuing relevance and is
necessary in the sense contemplated by s.138 of the Act’.8
[16] Ai Group also submits that it would not be appropriate to remove the absorption clause
from awards while the take-home pay order clause remains (ie subclause 1.5).9 We deal later
with the interaction between the absorption clause and the take home pay provision.
[17] HIA’s position on the characterisation of the absorption clause is unclear. At
paragraph 2.2.8 of its submission HIA says:
‘…on an assessment of other types of transitional arrangements in Modern Awards, if the
AIRC intended for the Absorption Clause to operate on a transitional basis the provision
would have been drafted to reflect this as was the case in relation to numerous other provisions
of a “transitional nature”.’ (emphasis added)
[18] The emphasised words in the above extract suggest that HIA acknowledges that the
absorption clause was intended to be a transitional arrangement, though it does not say so
expressly.
[19] The MBA acknowledges that the absorption provision was introduced as part of the
transitional arrangements, but argue that it continues to be relevant whilst the take home pay
provisions remain in the award.10
[20] ABI submits that the current absorption clause is transitional in nature but supports its
retention ‘for a little while longer’,:
‘Whether or not the clause has work still to do is unclear and places the Commission in a similar
position to when it was considering the deletion of the model take home pay transitional clause
in modern awards.
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5
In the Commission's 23 December 2014 decision on Group lA and lB awards, the Commission
decided to take a pragmatic view about the retention of the take home pay transitional
clause…
It seems prudent to adopt a similar pragmatic approach now and retain the model absorption
clause for a little while longer as happened with the model take home pay transitional
clause.’11
[21] In the course of oral argument ABI submitted that Item 7 of Part 2 of Schedule 5 of the
Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 (the
Transitional Provisions Act) provided a source of power for the retention of the absorption
clause. Schedule 5 of the Transitional Provisions Act provides, among other things, that the
AIRC is to continue and complete the award modernisation process provided for by Part 10A
of the Workplace Relations Act 1996 (WR Act). Item 7 of Part 2 of Schedule 5 of the
Transitional Provisions Act provides as follows:
‘7. Review of transitional arrangements included in modern awards
(1) If:
(a) a modern award includes terms (review terms) under which the FWC may review
transitional arrangements included in the award; and
(b) the review terms, and the transitional arrangements, were included in the award in
the Part 10A award modernisation process;
the FWC may:
(c) review the award in accordance with the review terms; and
(d) make a determination varying the award in any way it considers necessary, having
regard to that review.
Note: Any variation of the modern award must comply with the requirements of the
FW Act relating to the context of modern awards (see Subdivision A of Division 3 of
Part 2-3 of the FW Act).
(2) The review terms are taken to be terms that are permitted to be included in the modern
award by Subdivision B of Division 3 of Part 2-3 of the FW Act.’
[22] ABI submits that subject to the retention of the ‘review terms’ (that is subclause 2.6 in
current modern awards) the absorption clause could be retained if it still has work to do,:
‘… the question the bench would need to ask itself about anything in a modern award dealing
with transition that was validly placed in the award as part of 10A is simply this: is it still
necessary in relation to the transition process? Does it still have work to do? If you form the
view that it’s effective operation to manage the transition process is now exhausted, then you
take it out … Its role was to facilitate the transition from one system to another. When the
time comes that that role is exhausted, it just goes.’12
[23] Later in the course of oral submissions ABI acknowledged that the retention of the
absorption clause was not necessary to facilitate the finalisation of the transition process.13
[24] Ai Group took a different view in relation to the source of the power to include an
absorption clause in a modern award. In the course of oral argument Ai Group contended that
[2015] FWCFB 6656
6
to the extent that the Transitional Provisions Act contained such a power – and it was not
conceded that it did – then it was extinguished by ss.136 and 137 of the Act.14
[25] The ACTU filed a submission in reply. The ACTU submits that the absorption clause
is a transitional provision and were the clause intended to operate otherwise than a transitional
provision then,:
‘…a real question would arise as to whether this was permissible and, consequently, whether it
had any legal effect outside of matters concerning the transition to modern awards … There is
no provision of the Fair Work Act that would permit an absorption clause to now be included.
To the extent that it might be said that an absorption clause is an incidental matter, we would
question how it is that the clause is ‘essential for the purpose of making a particular term
operate in a practical way’. (emphasis added) The absorption clause is quite clearly concerned
not with the terms contained in awards but rather with whether over award payments must be
maintained.’15
[26] The essence of the ACTU’s submission is that outside of the transitional arrangements
the absorption clause is not permissible.
[27] Contrary to the submissions advanced by Ai Group, Business SA and CCIWA it is
clear from the arbitral background that the absorption clause was intended to be transitional in
character. Further, for our part we doubt that Item 7 of Part 2 of Schedule 5 of the
Transitional Provisions Act provides a source of power to include a term in a modern award
which does not meet the requirements in Subdivision A of Division 3 of the Act. There is no
explicit provision to that effect and such a legislative purpose is inconsistent with the ‘note’ in
Item 7 of Part 2 of Schedule 5. But it is unnecessary for us to reach a concluded view on this
issue. We accept that to the extent that such a power exists its purpose is to facilitate the
finalisation of the transition process. We agree with ABI that it is not necessary to retain the
absorption clause for this purpose.
[28] The award modernisation process commenced on 28 March 2008 when the Minister
for Employment and Workplace Relations signed an award modernisation request pursuant to
s.576C(1) of the WR Act. Part 10A of the WR Act, combined with the award modernisation
requests (and its various iterations), set out the framework for the award modernisation
process.
[29] On 29 April 2008, the AIRC outlined its proposal for the conduct of the award
modernisation process.16
Essentially the process involved dividing industries or occupations
into various groups, much like the current 4 yearly review. Exposure drafts of each proposed
modern award were published and parties were given an opportunity to comment on those
exposure drafts.
[30] On 20 June 2008, the AIRC selected the industries that would be dealt with first as
priority industries or occupations.17 On 12 September 2008, the AIRC published exposure
drafts of modern awards for the priority industries and occupations.18
[31] In the Statement of 12 September 2008, the AIRC made the following observation in
respect of transitional provisions:
‘…the number and type of transitional provisions are better dealt with after consideration of the
net impact on current terms and conditions flowing from each draft modern award... We
[2015] FWCFB 6656
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encourage further comment on whether transitional provisions are needed and if so the form
they should take. The drafts do not generally include transitional provisions.’19
[32] On 19 December 2008, the AIRC made 17 modern awards as part of the priority
industry stage of the modernisation process.20 In that Statement, the AIRC made the following
observations in relation to transitional provisions generally:
‘[106] We have received many submissions and suggestions concerning the way in which
modern awards should deal with the multitude of transitional issues which may arise in the
establishment of a safety net based predominately on modern awards and the NES.
Transitional provisions must be developed, that, in a practical way, take account of the
intention of the consolidated request that modern awards not disadvantage employees or
increase costs for employers. In the case of some conditions of employment we have decided
to include a specific transitional provision in the priority awards. These conditions are
redundancy pay, accident pay and district allowances in Western Australia and the Northern
Territory. There are also a small number of transitional provisions of limited application. In
general, however, we are convinced that, as many contended, transitional provisions are best
dealt with after the terms of the priority awards have been published, if it is practical to do so.
There are a number of reasons. The first and obvious reason is that it is difficult to know what
the effect of the award will be until those affected have had an opportunity to consider the
impact in detail. The second reason is that in many cases the effect of the award upon
employees and employers is not uniform and depends upon the terms of the NAPSA or pre-
reform award which applied previously. More debate will be needed as to how the differing
situations of employers and employees are to be viewed and dealt with. In some cases an
aggregate or overall approach may be the appropriate one. Finally, it follows that the
representatives of employers and employees will be in a better position to assess the overall
effect of the awards, taking potential gains and losses into account and will be in a position to
give practical assistance to the Commission.
[107] There is an additional consideration. It is desirable that transitional provisions, including
supersession provisions, take account of the legislative scheme in which they will operate. For
that reason it is our intention not to deal with transitional provisions until the legislation,
including the foreshadowed transitional legislation, has been passed by the Parliament. At that
time we shall be in a position to assess the overall economic impact and to give consideration
to how transitional provisions are to be finalised for the remaining stages of the modernisation
process. On current indications we would expect to address these matters towards the middle
of 2009.’
[33] On 23 January 2009, the AIRC published 24 exposure drafts of Stage 2 industries, and
took the same approach in relation to transitional provisions; that is they would be considered
at a later stage of the process, although the AIRC sought proposals and submissions as to the
manner in which transitional issues should be dealt with.21
[34] On 3 April 2009, the AIRC foreshadowed the need for transitional provisions to
operate in modern awards in order to ‘cushion the impact of changes in wages and other
conditions’ as a result of the making of modern awards.22 The AIRC programmed a separate
proceeding to deal with transitional provisions relating to priority industries and Stage 2
industries and this occurred by way of a consultation process over the period from 29 May to
18 July 2009. Parties were invited to file written submissions by 29 May 2009 and reply
submissions by 26 June 2009, with a hearing heard in the week of 13 July 2009.
[35] On 2 September 200923 the AIRC handed down a decision relating to the transitional
provisions to be included in the priority and Stage 2 modern awards. It is uncontroversial that
[2015] FWCFB 6656
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the model absorption clause arose out of this decision. The relevant passages of that decision
are:
‘The model commencement and transitional clause
[19] We deal first with the issue of absorption. There was a range of views on the issue. Most
employer representatives took the view that any increases resulting from a modern award
should be capable of absorption into existing overaward payments. The Australian Council of
Trade Unions (ACTU) and most unions took a contrary view. They argued that overaward
payments should be maintained in all circumstances. Modern awards are concerned with
minimum wages and conditions and not with overaward payments. It would not be
appropriate, even on a transitional basis, to require an employer to maintain overaward
payments. We have decided to provide for absorption. Of course the payments specifically
regulated in the transitional provisions are not to be regarded as overaward payments. Those
payments are referable to pre-modernisation obligations in award- or agreement-based
transitional instruments. The model provisions will include the following:
“The monetary obligations imposed on employers by this award may be absorbed into
overaward payments. Nothing in this award requires an employer to maintain or
increase any overaward payment.”
[20] We deal next with the possibility of reductions in take-home pay. The provisions of Part 3
of Schedule 5 to the Transitional Act are concerned with the maintenance of take-home pay.
They deal with what happens when an employee suffers a reduction in take-home pay as a
result of a modern award coming into operation. It is to be implied that the provisions do not
apply to employees who commence employment after the modern award has come into
operation. So while the provisions are concerned with what happens when the modern award
comes into operation, they do not deal with the potential for reductions in take-home pay
resulting from the operation of the transitional provisions. As will be seen, the model
provisions permit a phased reduction in pre-modern award conditions if they were more
beneficial for employees than the modern award. For that reason we think it is important to
provide protection for new employees from reductions in take-home pay which otherwise
might result from the operation of the transitional provisions. The model provision specifies
that neither the making of the award nor the operation of the transitional provisions is intended
to result in a reduction in take-home pay. It also indicates that Fair Work Australia may make
an order to remedy a reduction in take-home pay. This provision will complement the power
to make take-home pay orders in item 9 of Schedule 5 to the Transitional Act. The model
provision reads:
“Neither the making of this award nor the operation of any transitional provision is
intended to result in a reduction in the take-home pay of employees covered by the
award. On application by or on behalf of an employee who suffers a reduction in
takehome pay as a result of the making of this award or the operation of any
transitional provision, Fair Work Australia may make any order it considers
appropriate to remedy the situation.”’24 (emphasis added)
[36] The model absorption provision was subsequently considered by a Full Bench of Fair
Work Australia in 2010 in the context of an application by Ai Group to insert an absorption
provision with wider application than the standard provision. In that case the Full Bench
considered clause 2.2 to be a “transitional” clause observing that:
‘[19] The intent of the clause is that where monetary obligations increase as a result of the
implementation of modern awards, employers should be able to absorb those increases into
existing overaward payments. Nevertheless, the award clause adopted to reflect this intent is
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confined to the treatment of award obligations themselves, and does not extend to regulating
any additional matters in contracts of employment. There may be some examples of
contractual entitlements to overaward payments irrespective of the nature and extent of award
obligations. However in the vast majority of cases, it is likely no such entitlement will exist.
The wording of the clause is permissive, not mandatory, and does not modify the effect of any
ongoing entitlement to overaward payments. Further, the clause is a transitional clause. It does
not have application beyond the transitional period.’25 (emphasis added)
[37] It is clear from the above observation (and from the AIRC discussion of
2 September 2009, see [21] above) that the absorption clause was intended to be transitional.
The purpose of the clause was to facilitate the transition from pre-modernised instruments to
modern awards. The clause was not directed at overaward payments in the traditional sense
but rather at payments referable to pre-modernisation obligations in award or agreement based
transitional instruments. The AIRC decided that the phasing arrangements to the modern
award system would take place as follows:
‘We have decided that phasing should commence on 1 July 2010. The effect will be that where
the phasing provisions are included in an award the pre-modern award conditions relating to
minimum wages, casual and part-time loadings, Saturday, Sunday, public holidays, evening
and other penalties and shift allowances will continue to apply until 1 July 2010 when the
modern award obligations will commence … There will be a further four instalments on 1 July
of each year concluding on 1 July 2014.’26
[38] The transition to modern awards was effectively complete on 1 July 2014. It is not
necessary to retain the absorption clause in order to facilitate the finalisation of the transition
process.
[39] We acknowledge the force of the submission put by Ai Group that even if the clause
was intended to be transitional that would not be the end of the matter. The question remains
as to whether the absorption clause should be retained in either current form or with
amendments.
Issue 2: If the absorption clause no longer has any transitional purpose on what basis can
such a clause be included in a modern award?
[40] Division 3 of Part 2–3 of the Fair Work Act 2009 (FW Act) deals with the terms of
modern awards. Subsection 136(1) provides that a modern award must only include terms that
are permitted or required by:
‘(a) Subdivision B (which deals with terms that may be included in modern awards); or
(b) Subdivision C (which deals with terms that must be included in modern awards); or
(c) section 55 (which deals with interaction between the National Employment Standards
and a modern award or enterprise agreement); or
(d) Part 2-2 (which deals with the National Employment Standards).’
[41] Subsection 136(2) provides that a modern award must not include terms that
contravene:
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‘(a) Subdivision D (which deals with terms that must not be included in modern awards);
or
(b) section 55 (which deals with the interaction between the National Employment
Standards and a modern award or enterprise agreement).’
[42] In determining whether the absorption clause can be included in a modern award two
preliminary questions must be determined:
(i) Is the absorption clause a term that must not be included in a modern award?
(ii) Is the absorption clause a term permitted or required by Subdivisions B or C,
s.55 or Part 2–2?
[43] As to the first preliminary question subdivision D of Division 3 of Part 2–3 of the Act
sets out the terms which must not be included in modern awards. A modern award must not
include:
an ‘objectionable term’ as defined in s.12 (s.150);
a term that has no effect because of s.326(1) (which deals with unreasonable payments
and deductions for the benefit of an employer) or s.326(3) (which deals with
unreasonable requirements to spend an amount) (s.151);
terms about right of entry (s.152);
discriminatory terms, within the meaning of s.153;
terms and conditions of employment that are determined by reference to State or
Territory boundaries or are expressed to operate in one or more, but not every, State
and Territory (s.154); and
terms dealing with long service leave (s.155).
[44] It seems to us that the absorption clause is not excluded by any provision in
Subdivision D of Division 3 of Part 2–3 and no party contended to the contrary.
[45] As to the second preliminary question it is clear that the absorption clause is not a term
which must be included in a modern award. The issue is whether the absorption clause is a
term which may be included in a modern award. In other words is it a permitted term?
[46] Subdivision B of Division 3 of Part 2–3 deals with terms that may be included in
modern awards. In particular, s.139(1) provides:
‘A modern award may include terms about any of the following matters:
(a) minimum wages (including wage rates for junior employees, employees with a disability
and employees to whom training arrangements apply), and:
(i) skill-based classifications and career structures; and
(ii) incentive-based payments, piece rates and bonuses;
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(b) type of employment, such as full-time employment, casual employment, regular part-time
employment and shift work, and the facilitation of flexible working arrangements, particularly
for employees with family responsibilities;
(c) arrangements for when work is performed, including hours of work, rostering, notice
periods, rest breaks and variations to working hours;
(d) overtime rates;
(e) penalty rates, including for any of the following:
(i) employees working unsocial, irregular or unpredictable hours;
(ii) employees working on weekends or public holidays;
(iii) shift workers;
(f) annualised wage arrangements that:
(i) have regard to the patterns of work in an occupation, industry or enterprise; and
(ii) provide an alternative to the separate payment of wages and other monetary
entitlements; and
(iii) include appropriate safeguards to ensure that individual employees are not
disadvantaged;
(g) allowances, including for any of the following:
(i) expenses incurred in the course of employment;
(ii) responsibilities or skills that are not taken into account in rates of pay;
(iii) disabilities associated with the performance of particular tasks or work in
particular conditions or locations;
(h) leave, leave loadings and arrangements for taking leave;
(i) superannuation;
(j) procedures for consultation, representation and dispute settlement.’
[47] Section 142 is also relevant. It provides that a modern award may include incidental
terms (within the meaning of s.142(1)) or machinery terms (within the meaning of s.142(2)),
as follows:
‘142 Incidental and machinery terms
Incidental terms
(1) A modern award may include terms that are:
(a) incidental to a term that is permitted or required to be in the modern award; and
(b) essential for the purpose of making a particular term operate in a practical way.
Machinery terms
(2) A modern award may include machinery terms, including formal matters (such as a
title, date or table of contents).’
[48] The absorption clause is plainly not a ‘machinery term’ within the meaning of s.142(2)
and no party contended to the contrary. Hence the issue becomes whether the absorption
clause can be properly characterised as being a term ‘about’ one or more of the matters
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specified in ‘ paragraphs 139(1)(a) to (j), or whether it is an ‘incidental term’ within the
meaning of s.142.
[49] The unions generally contended that there was no power to include the absorption
clause in a modern award. ABI advanced a submission in similar terms.
[50] ABI submits that the word ‘about’ in s.139 requires a more than incidental connection
between an award term and the specified subject matters before the term can be included in an
award pursuant to the power confirmed by s.139. At paragraph 46 of its written submission
ABI says:
‘This “about” requirement is stricter than the “relating to” requirement which in turn is different
from “incidental and essential”. Pictured as concentric circles formed by dropping a stone in
water; “about” is the one with the smallest diameter.’
[51] ABI submits that the absorption clause is about ‘over award payments’ rather than any
matter falling within the scope of s.139 and on that basis the term cannot be inserted in a
modern award pursuant to the power in s.139(1).
[52] Further, ABI submits that s.142(1) does not provide a source of power to include the
absorption clause in modern awards. ABI contends that the word ‘essential’ in s.142(1)(b)
imports a high bar: “absolutely necessary, indispensable’ and submits that the absorption
clause does not meet this requirement,:
‘On a proper characterisation, it would not be available to conclude that the clause is both
incidental to a term in section 139(1) most likely “minimum wages” and absolutely necessary
or else the award cannot operate in a practical way. In fact quite the contrary.
In addition, the common law doctrine on set off and the ability to construct a common law
employment contract to determine how any over award payment is to operate is in no way
impacted by the inclusion or deletion of the clause.’27
[53] ABI concludes its submission as follows:
‘For these reasons, absent the clause operating to perform its original transitional function there
appears no basis for such a clause to be included in a modern award given the real limitations
imposed by section 139 and/or 142.’28
[54] Ai Group submits that, properly construed, the absorption clause is not about
overaward payments but is about the status of award obligations, such as minimum wages. Ai
Group advanced the following argument during the course of oral argument,:
‘We’ve said this is, in essence, a clause about the status of award terms that are dealing with
matters that are validly part of the award, pursuant to section 139. So it must be about matters
that are capable of being dealt with in the award, because we don’t see this is regulating the
overaward space, we see it as regulating the status of the award obligations, saying that they
can be satisfied by the overaward payment, even if it’s not in the exact nature that’s prescribed
by the award.’29
[55] Ai Group also submits in the alternative, that the absorption clause is an ‘incidental
term’ within the meaning of s.142(1).
[2015] FWCFB 6656
13
[56] For our part, we doubt the absorption clause can properly be said to be ‘about’ one or
more of the matters specified in paragraphs 139(1)(a) to (j). It seems to us that such a clause
is ‘about’ overaward payments rather than any matter falling within the scope of s.139(1).
Nor do we consider that the absorption clause is ‘essential for the purpose of making a
particular term operate in a practical way’ and hence it is not an incidental term within the
meaning of s.142(1). But in the end it is unnecessary for us to reach a concluded view on
these issues. Even if the absorption clause was a permitted term (pursuant to either s.139(1)
or s.142(1)) it could only be included in a modern award if it was necessary to achieve the
modern awards objective. For the reasons which follow we are not persuaded that it is
necessary to include an absorption clause for this purpose.
Issue 3: If an absorption clause can be included in a modern award is the inclusion of
such a clause necessary to achieve the modern awards objective or the
minimum wages objective?
[57] Section 138 provides, relevantly, that a modern award may include terms that it is
permitted to include ‘only to the extent necessary to achieve the modern awards objective’.
The modern awards objective is to ensure that modern awards, together with the NES,
provide “a fair and relevant minimum safety net of terms and conditions”, taking into account
the matters specified in paragraphs 134(1)(a) to (h).
[58] The ACTU (and the unions generally) and ABI submit that the absorption clause is not
necessary to achieve the modern awards objective. Such a submission may be inferred from
ABI submissions and is put directly by the ACTU. ABI submits:
‘… the common law doctrine on set off and the ability to construct a common law employment
contract to determine how an overaward payment is to operate is in no way impacted by the
inclusion or deletion of the clause.
… absent the clause operating to perform its original transitional function there appears no
basis for such a clause to be included in a modern award given the real limitations imposed by
section 139 and/or 142.’30
[59] The ACTU submits:
‘… the Commission ought to find that it is not a ‘necessary’ part of a ‘fair and relevant
minimum safety net’ to include any general clause that regulates the relationship between total
monetary amounts in the safety net and the monetary remuneration provided under
employment contracts. The common law principles in relation to set-off are adequate and
clear. An absorption clause would not make the safety net simpler or easier to understand,
rather it would act only on matters outside, the safety net which are not in need of
simplification.’31
[60] The common law principles in respect of set off are canvassed in one of the award
modernisation decisions. 32 The decision in question dealt with an application by Ai Group to
vary the absorption clause in the Manufacturing and Associated Industries Award 2010. The
Full Bench cited, with approval, the summary of relevant principles concerning set off
contained in a judgment of Anderson J of the Western Australian Industrial Appeal Court in
James Turner Roofing Pty Ltd v Peters33 (James Turner Roofing). In James Turner Roofing
Anderson J summarised the relevant principles, as follows:
[2015] FWCFB 6656
14
‘1. If no more appears than that (a) work was done; (b) the work was covered by an
award; (c) a wage was paid for that work; then the whole of the amount paid can be
credited against the award entitlement for the work whether it arises as ordinary time,
overtime, weekend penalty rates or any other monetary entitlement under the award.
2. However, if the whole or any part of the payment is appropriated by the employer to a
particular incident of employment the employer cannot later claim to have that
payment applied in satisfaction of his obligation arising under some other incident of
the employment. So a payment made specifically for ordinary time worked cannot be
applied in satisfaction of an obligation to make a payment in respect to some other
incident of employment such as overtime, holiday pay, clothing or the like even if the
payment made for ordinary time was more than the amount due under the award in
respect of that ordinary time.
3. Appropriation of a money payment to a particular incident of employment may be
express or implied and may be by unilateral act of the employer debtor or by
agreement express or implied.
4. A periodic sum paid to an employee as wages is prima facie an appropriation by the
employer to all of the wages due for the period whether for ordinary time, overtime,
weekend penalty rates or any other monetary entitlement in respect of the time
worked. The sum is not deemed to be referable only to ordinary time worked unless
specifically allocated to other obligations arising within the employer/employee
relationship.
5. Each case depends on its own facts and is to be resolved according to general
principles relating to contracts and to debtors and creditors.’34
[61] In the decision dealing with Ai Group’s claim the Full Bench noted that the absorption
clause (ie clause 2.2, upon which clause 1.4 is based) ‘is not intended to modify the principles
regarding set-off established by the Courts and summarised [by Anderson J in James Turner
Roofing]’.35
[62] Ai Group, HIA and CCIWA submit that the retention of the absorption clause is
necessary to achieve the modern awards objective and they rely on a number of the s.134
considerations in this regard. Ai Group advances the following submission,:
‘The principal function of the absorption clause is to ensure that any increase resulting from a
modern award is capable of absorption into overaward payments. We acknowledge that a Full
Bench of the FWC has indicated that the effect of the clause is permissive, not mandatory, and
does not modify the effect of any ongoing entitlement to overaward payment. ([2010] FWAFB
4488 at [19]) Nonetheless, the clause ensures that no award term operates as a barrier to the
absorption of award derived monetary obligations into any overaward payment. The clause
also provides clarity to employers and employees in relation to how the award operates. These
propositions are develop further below.
The absorption clause was undoubtedly very important at the time of transitioning to the
modern award system. However, merely because the transitional period has now concluded, it
cannot be assumed that the absorption clause is no longer necessary. It has ongoing utility. …
Ultimately, the absorption clause is necessary because it removes any award derived barriers
to the appropriation of an amount paid to an employee to any monetary obligation under the
award. That is, given the operation of the clause, it cannot be argued that an employer is
prevented, by operation of a particular award term, from crediting a monetary amount paid to
[2015] FWCFB 6656
15
an employee, which has not been appropriated by the employer to a particular incident of
employment, in satisfaction of an award derived obligation to pay a particular amount.
It would not generally be fair for an award to impose an additional monetary obligation on an
employer in circumstances where the employer is already paying a greater monetary amount
to an employee. Consequently, the clause is necessary to ensure that any award term or
condition does not operate to deliver an entitlement to an employee that would exceed a level
that constitutes a “fair and relevant minimum safety of terms and conditions”. (s.134(1))
Clause 2.2 does not prohibit an employer from paying overaward payments or from
committing to a contractual obligation to provide such benefits. Instead, the absorption clause
merely ensures that it is open to employers to absorb monetary entitlement under the award
into overaward payments where this is otherwise permissible in accordance with the principles
concerning absorption/set-off. The relevant principles were conveniently summarised by
Justice Anderson of the Supreme Court of Western Australia in James Turner Roofing Pty Ltd
v Peters ([2003] WASCA 28 at [21]), and referred to by the FWC Full Bench in the 2010
absorption case ([2010] FWAFB 4488 at [14]).
If an employer pays a wage or salary which is higher than the total of any amount payable to
the employee within the relevant pay period, the clause clarifies that there is not an award
derived obligation to provide an additional monetary amount in order to meet the requirements
of a particular award clause. For example, an employer cannot be held to be required to pay an
additional allowance or to pay a separate loading or penalty rate for particular work, in
addition to the wage provided, if the wage or salary paid in the relevant pay period is higher
than all amounts the employee would be required to pay pursuant to the award. Consequently,
the clause ensures that the terms of the award cannot, of themselves, operate to provide an
employee with a monetary entitlement beyond the level that constitutes a minimum safety net.
The clause forms part of a relevant safety because it recognises and reflects the common
practice of paying employees above award rates in satisfaction of applicable award
entitlements, rather than simply paying in the form prescribed by awards.
The retention of the absorption clause would be consistent with following mandatory
consideration referred to in subsection 134(1);
The likely impact of any exercise of modern award powers on businesses, including on
productivity, employment costs and the regulatory burden (s.134(1)(f)); and
The need to ensure a simple and easy to understand, stable and sustainable modern award
system for Australia that avoids unnecessary overlap of modern awards (s.134(1)(g)).
If the removal of the clause in anyway prevented a right to absorption that currently exists it
would of course negatively impact upon business by increasing employment costs and the
regulatory burden, as contemplated by paragraph 134(1)(f).
Many employers pay employees wage rates that are in satisfaction of all applicable monetary
entitlements under the relevant award. In practice, questions can arise as to an employer’s
ability to credit these payments towards award obligations. Clause 2.2 makes it clear that
employers may absorb award obligations into overaward payments, thus enhancing the extent
to which the award is “simple and easy to understand” as contemplated by paragraph
134(1)(g).
Put another way, the clause articulates what is permissible. This is significant given the
complexity around the interaction between contractual arrangements and the operation of
[2015] FWCFB 6656
16
entitlements under industrial instruments. It affords the parties a level of guidance as to the
manner in which the award obligations operate. This is important; employers should not need
to consult lawyers to obtain an explanation of the principles around “set off” (as it is
commonly described) in order to satisfy themselves that they are able to enter into
arrangements involving the payment of overaward payments to satisfy all award derived
entitlements.’36
[63] HIA submits that the absorption clause is necessary to ensure that modern awards
meet the modern awards objective. In support of this proposition HIA submits that ‘a
provision that facilitates the absorption of increases in monetary obligations under modern
awards where over-award payments are made provides certainty as to employment costs and
assists in reducing regulatory burden in furtherance of s.134(1)(e)’.37
[64] CCIWA advances a similar submission and adds that the continued operation of the
absorption clause is consistent with the matters specified in s.134(d)(e) and (g) in that:
it allows for the continuation of remuneration systems that may promote the more
efficient and productive performance of work; and
it contributes to stability in remuneration structures for relevant employers and
employees.
[65] In relation to the other s.134 considerations CCIWA submits that the retention of the
absorption clause does not adversely impact any other relevant consideration. CCIWA also
submits that the absorption clause has been ‘significantly utilised’,:
‘The ability for the clause to apply to any monetary obligation imposed by the new modern
awards provided significant flexibility to absorb additional allowances, penalty rates and/or
loadings into overaward rates of pay. This benefited both the employers and employees by
allowing them to retain more generous remuneration arrangements and avoid the uncertainty
associated with renegotiating existing contractual arrangements.’38
[66] In considering whether the absorption clause is necessary to achieve the modern
awards objective we first turn to the legal effect of the clause. The submissions of the various
employer organisations varied significantly on this issue.
[67] Ai Group initially submitted that the absorption clause ‘merely ensures that it is open
to employers to absorb monetary entitlements under the award into overaward payments
where this is otherwise permissible in accordance with the principles concerning
absorption/set off’.39 But during the course of oral argument Ai Group acknowledged that the
first sentence of the absorption clause established a right, exercisable by the employer, to
absorb any monetary obligation under the award into any over award payment.40
[68] ABI takes a different, more benign, view as to the legal effect of the absorption
clause,:
‘… the clause that is currently being debated is not, on a proper characterisation, a set-off clause
that one might find in an employment contract … which begs the question, then: what work
does the clause really do? And in all candour we would say probably not a lot.
[2015] FWCFB 6656
17
What it seems to do is to affirm the discretion that vests in an employer at common law
anyway, and that is the right of the employer, subject to how the contract of employment is
crafted, to absorb over-award payments against anything that happens in a modern award.
It does something else as well. The second limb of the clause does this. It tells you what the
award does not do, and in that sense it tells you that the modern award, in effect, does not
require the employer to increase actual rates of pay as a consequence of the modern award. So
really it’s an affirming role and a confirmation of what it doesn’t do and no more than that.’41
[69] Contrary to ABI’s submission we think that the first sentence of the absorption clause
creates a right whereby an employer may set off the monetary obligations imposed by the
award against overaward payments. Further, such a right overrides any contrary contractual
arrangement between the employer and employee.
[70] We acknowledge that Ai Group submits that the absorption clause was not intended to
override contractual arrangements and that the clause may need to be redrafted to confine its
scope. But such a submission fails to adequately address two points.
[71] The first is that if the absorption clause is intended to coexist with existing contractual
arrangements then it’s difficult to see how such a clause ensures that the award is simple and
easy to understand (as contended by a number of employer organisations). In each case the
existing contractual arrangement would have to be ascertained before the absorption clause
was applied.
[72] The second point is that if the absorption clause only operated in circumstances where
the contractual parties had not turned their minds to the question of set off then that begs the
question – why should the Award system dictate the outcome? Ai Group is proposing, in
effect, that an award term should create the default position with respect to absorption and
that the default position would operate in the absence of any contrary contractual position.
We fail to see how such a term is necessary to achieve the modern awards objective. As we
have mentioned, the modern awards objective is to ensure that modern awards, together with
the NES, provide ‘a fair and relevant minimum safety net of terms and conditions’. The safety
net nature of modern awards was emphasised in the July 2015 decision, as follows:
‘Modern awards provide a safety net of minimum entitlements. The modern award prescribes
the minimum rate an employer must pay an employee in given circumstances. Overaward
payments, while permissible, are not mandatory.’42
[73] For completeness, we would observe that contrary to Ai Group’s submission, we are
not persuaded that there are any award derived barriers to the operation of the common law
principles of set off.
[74] Modern awards are part of the minimum safety net of terms and conditions established
by the Act. It is not the function of such a minimum safety net to regulate the interaction
between minimum award entitlements and overaward payments. Such matters are adequately
dealt with by the common law principles of set off to which we have referred and should be
left to individual employers and employees to determine. It is not necessary to include an
absorption clause in modern awards in order to provide a fair and relevant minimum safety
net. As the absorption clause is not a term which is necessary to achieve the modern awards
objective it cannot be included in a modern award.
[2015] FWCFB 6656
18
[75] ABI, Ai Group and MBA submit that it would not be appropriate to remove the
absorption clause from awards while the take home pay order clause remains in awards. The
take home pay order clause is subclause 1.5 (see paragraph [5] above), which states:
‘1.5 Neither the making of this award nor the operation of any transitional arrangements is
intended to result in a reduction in the take-home pay of employees covered by the award. On
application by or on behalf of an employee who suffers a reduction in take-home pay as a
result of the making of this award or the operation of any transitional arrangements, the Fair
Work Commission may make any order it considers appropriate to remedy the situation.’
[76] The take-home pay order clause was one of the matters addressed in the 23 December
2014 Full Bench decision, at paragraphs 12-16, as follows: 43
‘[12] The ACTU also expressed the view that removal of the references to transitional
arrangements may leave some workers worse off, and submits that the take home pay order
provisions and the transitional provisions upon which they operate should be retained.44
[13] Clause 2.4 in the majority of the current modern awards provides as follows:
‘Neither the making of this award nor the operation of any transitional arrangements is
intended to result in a reduction in the take-home pay of employees covered by the award. On
application by or on behalf of an employee who suffers a reduction in takehome pay as a result
of the making of this award or the operation of any transitional arrangements, the Fair Work
Commission may make any order it considers appropriate to remedy the situation.’
[14] The ACTU submitted that orders authorised by such clauses differ to those of statutory
origin in the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009
and the Fair Work (Transitional Provisions and Consequential Amendments) Regulations
2009; most notably, for present purposes, in that the orders authorised by the award provision
are not restricted to ‘modernisation-related’ reductions in take-home pay.45
[15] The Ai Group initially submitted that the clause should be deleted, arguing that the clause
will be obsolete when the transitional provisions end on 31 December 2014,46 but in a later
submission did not object to the retention of the clause for the time being.47 Australian
Business Industrial (ABI) and the NSW Business Chamber submitted that leaving the current
clause 2.4 in the exposure drafts would be an appropriate solution.
[16] The current take home pay clause (see paragraph [13] above) will remain in all modern
awards. Our intention is that the clause will be removed in the next four yearly review.’
[77] Our conclusion in respect of the absorption clause raises a question as to the
appropriateness of retaining the take-home pay order subclause. In the summary document
published on 25 August 2015 interested parties were put on notice that if there was no
relevant source of power then the subclause should be deleted.
[78] In written submissions filed on 28 August 2015 (pursuant to leave granted during the
hearing on 27 August 2015) the ACTU and AMWU addressed the source of power to make
the take-home pay order provisions in modern awards. The ACTU submits that Item 3A of
Schedule 5 of the Transitional Provisions Act provides a relevant source of power, it states:
‘13A Modern award terms giving FWA power to make take-home pay orders
[2015] FWCFB 6656
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(1) A modern award may include terms that give FWA power to make an order (a take-home
pay order) remedying a reduction in take-home pay suffered by an employee, or a class of
employees, as a result of the making of a modern award or the operation of any transitional
arrangements in relation to the award (whether or not the reduction in take-home pay is a
modernisation-related reduction in take-home pay).
(2) An employee’s take-home pay is the pay an employee actually receives:
(a) including wages and incentive-based payments, and additional amounts such as
allowances and overtime; but
(b) disregarding the effect of any deductions that are made as permitted by section 324 of
the FW Act.
(3) This Part applies to an employee, or a class of employees, to whom a modern award
applies if the employee or employees is likely to suffer a reduction in take-home pay
attributable to the making of a modern award or the operation of any transitional arrangements
in relation to the award.’
[79] The ACTU contends that sections 136 and 137 of the Act are to be read down to the
extent required to allow Item 13A to operate. The ACTU also submits that whether or not the
take-home pay order clause ought to be retained is a discretionary matter which it submits
need not be dealt with at this time,:
‘… the appropriate course is to consider holistically whether any changes that develop through
the 2014 Award Review are likely to lead to any loss of take-home pay and, if so, at that time
determine whether the take-home pay provisions or some modified or alternate mechanism is
the most appropriate way to deal with those instances.’48
[80] The AMWU supports the ACTU’s submissions.
[81] We do not propose to determine this issue at this time. We will revisit the take-home
pay provision before the conclusion of the Review after providing all interested parties with a
further opportunity to make submissions regarding the relevant source of power and, if there
is such a power, whether we should exercise our discretion to retain the subclause in either its
current form or with amendments.
3. Casual loading and all purpose allowances
[82] One of the issues raised in the proceedings which led to the July 2015 decision
concerned the calculation of casual loadings.
[83] Casual employment provisions in exposure drafts have in most cases been drafted
along the following lines:
Casual employees
(a) A casual employee is an employee who is engaged and paid as a casual employee.
(b) For each engagement, a casual employee must be paid for a minimum of three hours.
(c) Casual loading
(i) For each ordinary hour worked, a casual employee must be paid:
the minimum hourly rate; and
[2015] FWCFB 6656
20
a loading of 25% of the minimum hourly rate,
for the classification in which they are employed.
(ii) …
(iii) The casual loading is paid instead of annual leave, paid personal/carer’s leave,
notice of termination, redundancy benefits and other entitlements of full-time or part-
time employment.
[84] However, in the case of modern awards containing any allowance characterised as all
purpose in nature, the exposure draft has provided that a casual employee must be paid the
ordinary hourly rate and in addition a loading of 25% of the ordinary hourly rate. Because the
ordinary hourly rate (as distinct from the minimum hourly rate) includes any all purpose
allowance, the consequence of this is that the 25% loading is payable on any such all purpose
allowance. This distinction between the minimum hourly rate and the ordinary hourly rate
was explained in the July 2015 decision as follows (footnotes omitted):
‘(ii) Definitions of all purpose and ordinary hourly rate of pay
[35] A definition of ‘all purpose’ has been inserted in all exposure drafts containing such
payments along the following lines:
“all purposes means the payment will be included in the rate of pay of an employee
who is entitled to the allowance, when calculating any penalties or loadings or
payment while they are on leave.”
[36] The identification of a particular allowance or loading as being for all purposes in the
exposure drafts is intended to reflect the existing position in each of the current modern
awards. …
[39] In the Part 10A award modernisation process, all purpose allowances were retained in
modern awards as separately identifiable entitlements. However in the decision in relation to
Transitional Provisions, it was clear that the Full Bench considered the interaction between all
purpose allowances and wages.
[40] Allowances and, less commonly, casual loadings, have been defined as applying ‘for all
purposes’ in awards for many years. The payments were so identified during the Structural
Efficiency process, following the disaggregation of allowances such as industry allowances
that compensated for the disabilities associated with working in a particular industry, from
properly fixed minimum rates of pay. These payments have historically been treated as part of
an employee’s wages for the purpose of calculating penalties and loadings.
[41] Despite the longstanding practice whereby all purpose allowances have been included in
wage rates when calculating penalties and overtime, some issues have arisen concerning the
methodology used in the exposure drafts. For example, in their submission in relation to the
Textile, Clothing, Footwear and Associated Industries Award 2014 exposure draft Ai Group
have submitted that the shift penalties should be calculated on the minimum rate of pay, not
the ordinary rate of pay (including all purpose allowances). The Textile, Clothing and
Footwear Union of Australia (TCFUA) submit that the overtime, casual and penalty rates
should be based on the ordinary hourly rate.
[42] Definitions of ordinary rate of pay have been inserted in the exposure drafts that include
an allowance or loading that is payable for “all purposes” along the following lines (depending
on the application of the all purpose allowances):
[2015] FWCFB 6656
21
All purpose provisions Ordinary hourly rate definition
Only all purpose allowance is an
industry allowance applying to all
employees
ordinary hourly rate means the hourly rate for
an employee’s classification specified in
clause X.1, inclusive of the industry allowance
All purpose allowance(s) only
applying to some employees
ordinary hourly rate means the hourly rate for
the employee’s classification specified in clause
X, plus any allowances specified as being
included in the employee’s ordinary hourly rate or
payable for all purposes
Industry allowance applying to all
employees for all purposes and
other all purpose allowance(s) only
applying to some employees
ordinary hourly rate means the hourly rate for
an employee’s classification specified in clause X,
inclusive of the industry allowance. Where an
employee is entitled to an additional all purpose
allowance, this allowance forms part of that
employee’s ordinary hourly rate
[43] The term ‘ordinary hourly rate’ has been used in contrast to ‘minimum hourly rate’ in
affected awards to make it clear that all purpose allowances must be added to the minimum
rate of pay before calculating any penalty rate.
[44] In affected awards, penalties and loadings are expressed as a percentage of the ordinary
hourly rate, for example “overtime is paid at 150% of the ordinary hourly rate” to make it
clear that an all purpose allowance to which an employee is entitled must be added to the
minimum rate before calculating the loaded rate, that is, there is a compounding effect.
[45] Ai Group submit that the use of the term ‘ordinary hourly rate’ could be “confusing” and
is concerned that it could “extend existing entitlements”. Ai Group submit that all purpose
allowances should not necessarily be added to a minimum rate of pay before calculating any
penalty or loading. In some cases due to the wording of the current award, Ai Group submit
that the allowance should be added after the loading is applied to the minimum rate, that is
there should be a cumulative rather than a compounding effect.
[46] The AMWU, AWU and ACTU support the approach used in the exposure drafts as they
say it reflects current and historical usage of the term ‘all purpose’ and that any calculations
should operate on a compounding basis.
[47] We are not persuaded to depart from established practice in relation to the operation of all
purpose payments and how they interact with an employee’s rate of pay. Definitions of ‘all
purpose’ and ‘ordinary hourly rate of pay’ will be inserted into all affected awards based on
the wording in paragraphs [35] and [91]. Any issues as to whether a particular payment is
payable for all purposes, and, in particular, whether an allowance should be added to a
minimum rate before calculating a penalty or loading, will be dealt with on an award-by-
award basis. Ultimately the resolution of these issues will turn on the construction of the
relevant award and the context in which it was made.’
[85] However in respect of the calculation of the casual loading vis-a-vis all purpose
allowances, the Commission went on to say in the July 2015 decision:
‘[69] Some employer parties (e.g. Ai Group pp.12–13 re Cotton Ginning Award 2010 and more
generally, pp.17–18) have submitted that where the current modern award states that the
loading is calculated on “1/38th of the weekly award wage” or “1/38th of the minimum weekly
[2015] FWCFB 6656
22
rate”, the casual loading should not be calculated based on the ordinary hourly rate that is they
do not consider the all purpose allowance should be added to the minimum rate before the 25%
is calculated. They submit that the casual loading is 25% of the minimum rate and added to the
minimum hourly rate, then the all purpose allowance is added after that.
[70] In our view it is desirable that there be a consistent rule relating to the calculation of a
casual loading which should apply across all awards. Our provisional view is that the position
of certain employer parties outlined above at paragraph [69] is the preferred option that should
be adopted across all awards. That is, the casual loading will not be calculated based on the
ordinary hourly rate. The casual loading will be calculated as 25% of the minimum rate, with
any all purpose allowance being added after that.’
[86] Parties were given an opportunity to make further written submissions in relation to
whether the casual loading should be applied to any all purpose allowances. The submissions
of union parties were consistently in opposition to the general rule as proposed in the July
decision. The submissions of employer parties generally supported the establishment of a
consistent principle, but differed in their degree of support for the provisional decision
identified in paragraph [70] of the July 2015 decision.
[87] The written submissions gave rise, we consider, to the following issues:
1. Does the provisional decision result in substantial change to any modern
award?
2. Is the provisional decision inconsistent with any previous decision of the
Commission and if so what is to be made of this?
3. Should there be exceptions to the proposed general rule e.g. Building and
Construction General On-Site Award 201049 (On-Site Award) where specific
circumstances warrant?
[88] A number of parties made oral submissions in relation to these issues at the hearing
before us on 27 August 2015. We will consider each of these issues in turn having regard to
those submissions.
Issue 1: Does the provisional decision result in substantial change to any modern award?
[89] The unions appearing in the matter identified a number of modern awards which, they
contended, would be substantially affected by the provisional decision. The AWU referred to
the Aluminium Industry Award50, the Cement and Lime Award51, the Premixed Concrete
Award52, the Quarrying Award53 and the On-Site Award as being awards in which it had an
interest which currently provided that penalty rates and the casual loading were payable on
the ordinary-time rate inclusive of all purpose allowances. It characterised any reductions in
the rate of pay for casual employees as a result of the application of the proposed approach as
being significant and substantial. The CFMEU made particular reference to the On-Site
Award, and tendered a document54 which calculated the effect on casual hourly rates for
classifications in that award if the provisional approach was applied. This showed that there
would be a reduction in the hourly rate of an amount in excess of one dollar in relation to a
majority of classifications. The AMWU identified the Manufacturing and Associated
Industries and Occupations Award55, the Graphic Arts, Printing and Publishing Award56 and
the Food, Beverage and Tobacco Manufacturing Award57 as awards which would be affected.
[2015] FWCFB 6656
23
[90] ABI submitted that approximately 20 awards would be affected by the provisional
decision. Using the Quarrying Award as an example, it submitted that the result of the change
would be a reduction in earnings of about half a percent. As to whether this was substantial,
the following submission was made:
‘Is a reduction in pay of that order substantial? Now, I'm sure that my union friends will tell me
that any reduction in pay is substantial. I am not inclined to race in and say it's obviously
substantial but I would suspect if the bench was proposing to increasing costs to employers by
half a per cent, we'd probably be fairly vocal in opposition to that.
…
So do we concede that the awards will be changed? Yes, we do. We don't think they're the
majority in any sense. It's probably in the order of what I said, sort of half to 1 per cent,
potentially a reduction in pay for a casual. The bench asked itself whether or not that's a
substantial matter.
Obviously if it is a substantial matter, the bench would probably revert its mind then back to
the preliminary issues decision and rather than the bench advocate for the change, I think the
bench would really say it's a matter for the employers to take up the cudgels for it and
obviously that would then involve a proper evidentiary case to explain why the change would
occur. We are not at that point here. That's obviously not what the conversation is about today,
but I think that's our best way of answering question 1.’58
[91] The MBA and the HIA addressed the first issue only by reference to the On-Site
Award, being the award in which they had a major interest. They identified that there was a
controversy concerning the calculation of casual rates under the On-Site Award in that the
CFMEU, the employer organisations and the Fair Work Ombudsman all had different views
about the correct method of calculation. This difference of interpretation turned upon whether
the casual rate should be calculated by reference to the daily hire rate in clause 19.3(a)
(CFMEU), the weekly hire rate in clause 19.3(b) (employer organisations) or the minimum
rates in clause 19.1 plus certain allowances (Fair Work Ombudsman). The calculations
prepared by the CFMEU as to the effect of the provisional decision was based, they
submitted, upon the interpretation of the award it preferred. Different results would be
produced if the alternative interpretations were to be utilised.
[92] The Ai Group accepted that there might be changes, including substantive changes,
caused by the adoption of the provisional decision in some awards, but also identified a range
of awards in relation to which there would be no effect because the award provided that the
casual loading was to be applied to the prescribed minimum rate and/or because the award did
not contain any all purpose allowances.
[93] Having considered these submissions, we are satisfied that it is likely that the adoption
of the provisional decision would, in respect of a number of awards which contain allowances
which are currently expressly described as being all purpose in nature or which are stated to
form part of the ordinary hourly rate, result in reductions in the hourly rates of pay for casual
employees. Consistent with the submissions advanced by ABI, we accept that those
reductions, which may be in the order of one half of one per cent of the current rate, would
not be regarded as insignificant by those employees on award minimum rates who would be
directly affected by the proposed approach. It is not necessary for current purposes to attempt
to exhaustively identify the number of awards affected, but it appears to be only a minority of
awards.
[2015] FWCFB 6656
24
Issue 2: Is the provisional decision inconsistent with any previous decision of the
Commission and if so what is to be made of this?
[94] The AWU submitted that the provisional decision was inconsistent with the 2008
Australian Industrial Relations Commission Full Bench Award Modernisation Decision of 19
December 200859 (2008 decision), which confirmed that the general rule was that the casual
loading was to be applied to the “ordinary rate”. The Full Bench stated:
‘[50] In all the circumstances we have decided to confirm our earlier indication that we would
adopt a standard casual loading of 25 per cent. We make it clear that the loading will
compensate for annual leave and there will be no additional payment in that respect. Also, as a
general rule, where penalties apply the penalties and the casual loading are both to be
calculated on the ordinary time rate.’
[95] The AWU also referred to the High Court decision in Scott v Sun Alliance Australia
Ltd60:
‘Unless the context otherwise requires, “ordinary time rate of pay” means the rate of pay for the
standard or ordinary hours of work in contrast to the overtime or penalty rate of pay for hours
of work other than the standard or ordinary hours.’
[96] The AWU submitted that the approach in the 2008 decision should be followed.
[97] In relation to the On-Site Award, the CFMEU submitted that the provisional decision
was inconsistent with the AIRC Full Bench decision in Wages and Allowances Review 2006 –
Supplementary Decision61. In that decision, the Full Bench had determined that the “follow
the job” loading and leading hand rates in the On-Site Award fell within the definition of
“basic periodic rate of pay” in s.178 of the WR Act as it was at the time of the decision - that
is, that they were part of the “rate of pay for a period worked (however the rate is described)
that does not include incentive-based payments and bonuses, loadings, monetary allowances,
penalty rates or any other similar separately identifiable entitlements”.62 A result of that
conclusion was that the casual loading then prescribed in s.185 of the WR Act was payable on
those amounts.
[98] The CFMEU also referred to the AIRC Full Bench Award Modernisation Decision of
3 April 200963 (2009 decision), in which the Full Bench determined that it was necessary that
all-purpose industry allowances, which were characterised as a type of minimum award
payment, be expressed separately from minimum classification rates.64 It submitted that it
followed from that decision that in determining the actual minimum rates to be paid, it was
necessary to take into account any all purpose allowance which were payable. It was further
submitted that it was consistent with that decision that the casual loading apply to the ordinary
time rate applicable in any award.
[99] The AMWU supported the submissions of the AWU and the CFMEU in relation to
issue 2.
[100] ABI submitted that the provisional decision was inconsistent with the decisions made
by the AIRC as part of the award modernisation process to make those modern awards in
which the casual loading was currently payable on all purpose allowances as well as the
[2015] FWCFB 6656
25
minimum, as well as decisions made as part of the two-yearly review process to retain that
position.
[101] The Ai Group submitted that the provisional decision was not inconsistent with any
previous decision. It disagreed in particular with the AWU’s submission that there was any
substantial inconsistency with the 2008 decision, submitting that the issue constituted the
ordinary rate was not dealt with in any serious way in that decision. Alternatively the Ai
Group submitted that even if there was inconsistency with any previous decision, there may
well be cogent reasons to depart from that decision. The HIA likewise submitted that the
CFMEU had placed too much weight on the 2008 decision, and that the 2009 decision dealt
with a different subject matter.
[102] We accept the submission that the provisional decision is inconsistent with the general
approach adopted in the 2008 decision, namely that the casual loading should be applied to
the ordinary time rate. Although what constituted the ordinary time rate was not the subject of
express consideration in the 2008 decision, we consider it to be well understood that an
allowance which is described as all purpose in nature is one that necessarily forms part of the
ordinary time rate. That being the case, any departure from that approach proposed by the
provisional decision must be justified by cogent reasons.
Issue 3: Should there be exceptions to the proposed general rule e.g. Building and
Construction General On-Site Award 2010 where specific circumstances
warrant?
[103] The primary submission of the AWU, the CFMEU and the AMWU was that the
proposed general rule should not be adopted, so that issue 3 did not arise. The AWU
submitted in the alternative that, if the proposed general rule was adopted, it should be on the
basis that no employee suffered a reduction in remuneration as a result. The AMWU
submitted that the 2008 decision demonstrated that there may be departures from a general
rule in relation to particular modern awards.
[104] ABI declined to make a submission in relation to issue 3 beyond noting that the On-
Site Award and the Cotton Ginning Award were examples of modern awards which might
require individual consideration. The Ai Group submitted that there should generally be a
consistent position across all awards, but accepted that there could be a justification for a
departure from that position in relation to particular awards, in which case the party
contending for the departure should carry the onus of demonstrating the requisite justification.
[105] The MBA and the HIA both contended that adoption of the provisional decision in the
On-Site Award would resolve the existing dispute concerning the interpretation of that award,
but that if it was not considered appropriate to resolve the dispute in that way, the problem
should be given specific consideration by the Commission as expeditiously as possible.
[106] The obligation in s.134(1) of the FW Act to ensure that modern awards provide a fair
and relevant minimum safety net of terms and conditions carries with it a requirement (in
s.134(1)(g)) to take into account “the need to ensure a simple, easy to understand, stable and
sustainable modern award system …”. We accept that the adoption of a clear and consistent
approach in relation to whether the casual loading should apply to all purpose allowances is
desirable in the interests of simplicity and ease of understanding, although the particular
circumstances of some awards may require special consideration. The question is whether the
[2015] FWCFB 6656
26
approach proposed by the provisional decision is the one which should be preferred in this
respect.
Conclusions
[107] We have come to the conclusion that the approach in the provisional decision should
not be adopted. We are not satisfied on balance that there are sufficiently cogent reasons to
justify a departure from the general approach adopted in the 2008 decision. Leaving aside the
dispute concerning the interpretation of the relevant provisions of the On-Site Award for the
time being, we do not consider that there is anything before us which suggests that there has
been any practical difficulty in the operation of current modern awards provisions which are
consistent with the 2008 decision. In that circumstance, the adoption of a change which may
cause not insignificant reductions in pay to some award-dependent employees is not justified.
[108] Additionally, and on reflection, the application of the provisional decision may add
unnecessary complexity to modern awards. Its effect would be that allowances which are
currently described as all purpose in nature would no longer operate on a truly all purpose
basis, but would apply for certain purposes only. For the sake of clarity, that would then
require those purposes to be clearly identified. As was pointed out in the submissions of the
AWU, a requirement in the case of casual employees that the casual loading be calculated on
the minimum hourly rate, but that other loadings and penalties be calculated on the ordinary
hourly rate would add difficulty to the process of calculating the correct hourly rate. This
difficulty will not be able to be overcome by the addition of detailed rate schedules specifying
the casual hourly rates payable for each ordinary time, overtime, weekend work and shift
work scenario because, particularly in those awards where there are different all purpose
allowances applying to different categories of employees, it will become impracticable to
produce comprehensive rate schedules coverings every possible scenario for every category of
employee.
[109] The concern which underlay the provisional decision was whether it was appropriate
for certain allowances currently expressed as all purpose allowances to be paid at an increased
level for casual employees by reason of the application of the casual loading. Ultimately
however we have concluded that to deal with this concern in the manner proposed by the
provisional decision is too broad-brush an approach and involves conducting the analysis
from the wrong starting point. We consider that the preferable approach is to permit
reconsideration, on an award-by-award basis during the course of the 4-yearly review, as to
whether any existing allowance should retain its “all purpose” designation or should be
payable on some different basis.
[110] The general approach will remain as expressed in the exposure drafts, namely that the
casual loading will be expressed as 25% of the ordinary hourly rate in the case of awards
which contain any all purpose allowances, and will be expressed as 25% of the minimum
hourly rate in awards which do not contain any such allowances.
[111] In respect of the specific controversy concerning the On-Site Award, we note that the
MBA and HIA have lodged applications to resolve that controversy in the proceedings before
the Full Bench dealing with the issues of part-time and casual employment.65 We consider
that those applications constitute the appropriate vehicle by which that very specific issue may
be resolved. We do not propose to give it any further consideration in this decision.
[2015] FWCFB 6656
27
PRESIDENT
Printed by authority of the Commonwealth Government Printer
Price code G, PR572326
Appearances:
M Butler for the Association of Professional Engineers, Scientists and Managers, Australia.
S Crawford for The Australian Workers’ Union.
S Maxwell for the Construction, Forestry, Mining and Energy Union.
B Ferguson for the Australian Industry Group.
R Calver for Master Builders Australia.
S Taylor for the “Automotive, Food, Metals, Engineering, Printing and Kindred Industries
Union” known as the Australian Manufacturing Workers’ Union (AMWU)
S Taylor for the “Automotive, Food, Metals, Engineering, Printing and Kindred Industries
Union” known as the Australian Manufacturing Workers’ Union (AMWU)—Vehicle
Division
N Ward for Australian Business Industrial and the New South Wales Business Chamber.
M Adler for the Housing Industry Association
Hearing details:
2015.
August 27.
Melbourne: (with video links to Sydney, Adelaide and Canberra)
[2015] FWCFB 6656
28
Attachment– Submissions & Reply Submissions
1A and 1B – Absorption clause and casual loading issues
Australian Business Industrial and NSW
Business Chamber (ABI)
Submission 7 August 2015
“Automotive, Food, Metals, Engineering,
Printing and Kindred Industries Union”
known as the Australian Manufacturing
Workers’ Union (AMWU)
Submission 3 August 2015
“Automotive, Food, Metals, Engineering,
Printing and Kindred Industries Union”
known as the Australian Manufacturing
Workers’ Union (AMWU)
Additional reply
submission
17 August 2015
“Automotive, Food, Metals, Engineering,
Printing and Kindred Industries Union”
known as the Australian Manufacturing
Workers’ Union (AMWU)—Vehicle
Division
Submission 3 August 2015
Association of Professional Engineers,
Scientists and Managers, Australia
(APESMA)
Submission 30 July 2015
Reply submission 17 August 2015
Australian Council of Trade Unions Reply submission 17 August 2015
Australian Industry Group (Ai Group) Submission 3 August 2015
Reply submission 17 August 2015
Australian Workers’ Union (AWU) Submission 3 August 2015
Reply submission 17 August 2015
Additional reply
submission
20 August 2015
Business SA (Bus SA) Submission 31 July 2015
Chamber of Commerce and Industry of
Western Australia (CCIWA)
Submission 3 August 2015
Construction, Forestry, Mining and
Energy Union—Construction and
General Division (CFMEU C&G)
Submission 3 August 2015
Reply submission 17 August 2015
Housing Industry Association (HIA) Submission 3 August 2015
Master Builders Australia (MBA) Submission 3 August 2015
Reply submission 17 August 2015
Textile Clothing & Footwear Union Of
Australia (TCFUA)
Submission 4 August 2015
https://www.fwc.gov.au/sites/awardsmodernfouryr/AM201464andors-sub-TCFUA-040815.pdf
https://www.fwc.gov.au/sites/awardsmodernfouryr/AM201464andors-sub-MB-170815.pdf
https://www.fwc.gov.au/sites/awardsmodernfouryr/AM201464andors-corr-MBA-030815.pdf
https://www.fwc.gov.au/sites/awardsmodernfouryr/AM201464andors-sub-HIA-030815.pdf
https://www.fwc.gov.au/sites/awardsmodernfouryr/AM201464andor-replysub-CFMEU-170815.pdf
https://www.fwc.gov.au/sites/awardsmodernfouryr/AM201464andors-sub-CFMEUCandGdivision-030815.pdf
https://www.fwc.gov.au/sites/awardsmodernfouryr/AM201464andors-sub-CCI-030815.pdf
https://www.fwc.gov.au/sites/awardsmodernfouryr/AM201464andors-sub-BusSA-310715.pdf
https://www.fwc.gov.au/sites/awardsmodernfouryr/AM201464andors-sub-AWU-200815.pdf
https://www.fwc.gov.au/sites/awardsmodernfouryr/AM201464andors-sub-AWU-200815.pdf
https://www.fwc.gov.au/sites/awardsmodernfouryr/AM201464andors-sub-AWU-170815.pdf
https://www.fwc.gov.au/documents/sites/awardsmodernfouryr/AM201464andors-corr-AWU-030815.pdf
https://www.fwc.gov.au/sites/awardsmodernfouryr/AM201464andors-sub-AiG-170815.pdf
https://www.fwc.gov.au/sites/awardsmodernfouryr/AM201464andors-sub-AiG-030815.pdf
https://www.fwc.gov.au/sites/awardsmodernfouryr/AM201464andors-sub-ACTU-170815.pdf
https://www.fwc.gov.au/sites/awardsmodernfouryr/AM201464andors-sub-apesma-170815.pdf
https://www.fwc.gov.au/sites/awardsmodernfouryr/AM201464andors-sub-APESMA-310715.pdf
https://www.fwc.gov.au/sites/awardsmodernfouryr/AM201464andors-sub-AMWUVD-030815.pdf
https://www.fwc.gov.au/sites/awardsmodernfouryr/AM201464andors-sub-AMWU-170815.pdf
https://www.fwc.gov.au/sites/awardsmodernfouryr/AM201464andors-sub-AMWU-170815.pdf
https://www.fwc.gov.au/sites/awardsmodernfouryr/AM201464andors-sub-AMWU-030815.pdf
https://www.fwc.gov.au/sites/awardsmodernfouryr/AM201464andors-sub-ABIandNSWBC-060815.pdf'
[2015] FWCFB 6656
29
1 [2015] FWCFB 4658
2 [2014] FWCFB 9412
3 [2015] FWCFB 4658 at [5]
4 AMWU submission, 21 November 2014 at paragraphss 4-6.
5 [2015] FWCFB 4658 at [19] and [97]
6 See [2009] AIRCFB 800 and [2010] FWAFB 4488
7 Ai Group submission at paragraph 14; Business SA submission at paragraphs 2 and 3; CCI of WA submission at paragraphs
5 and 12; Ai Group submission 3 August 2015 at paragraph 6
8 Ai Group submission 3 August 2015 at paragraph 6
9 Ibid at paragraphs 38-41
10 MBA submission at paragraphs 2.4 and 2.7
11 ABI and NSWBC submission 7 August 2015 at paragraphs 24-26
12 Transcript 27 August 2015 at paragraph 551
13 Ibid at paragraph 554
14 Ibid at paragraphs 654-662
15 ACTU submission 17 August 2015 at paragraphs 6 and 8
16 [2015] FWCFB 4658
17 See [2008] AIRCFB 550
18 [2008] AIRCFB 717
19 Ibid at [31]
20 [2008] AIRCFB 1000
21 [2009] AIRCFB 50 at [11]
22 [2009] AIRCFB 345 at [19]
23 [2009] AIRCFB 50 at [11]
24 [2009] AIRCFB 800 at [19]-[20]
25 Ibid
26 [2009] AIRCFB 800 at [30]
27 ABI submission 6 August 2015 at paragraphs 51-52
28 Ibid at paragraph 53
29 Transcript 27 August 2015 at paragraph 408
30 ABI submission 7 August 2015 at paragraphs 52-53
31 ACTU submission 7 August 2015 at paragraph 11
32 [2010] FWAFB 4488
33 [2003] WASCA 28
34 Ibid at [21]
35 [2010] FWAFB 4488 at [18]
36 Ai Group submission 3 August at paragraphs 16-17 and 29-37
37 HIA submission, 3 August 2015 at paragraph 2.3.2
38 CCIWA submission, 3 August 2015 at paragraph 8
39 Ai Group submissions 3 August 2015 at paragraph 31
40 Transcript 27 August 2015 at paragraphs 369-401
41 Transcript 27 August 2015 at paragraphs 519-521
42 [2015] FWCFB 4658 at [96]
43 [2014] FWCFB 9412
44 For example, clause 2.1 in the Manufacturing and Associated Industries and Occupations Award 2010 at item 2
45 Further submissions of the ACTU: Stage 1 Exposure Drafts, 31 October 2014, item 6
[2015] FWCFB 6656
30
46 Ai Group supplementary submission, 13 November 2014, items 13-16
47 Correspondence from Ai Group dated 24 November 2014
48 ACTU written submission 28 August 2015 at paragraph 12
49 MA000020
50 MA000060
51 MA000055
52 MA000057
53 MA000037
54 Exhibit CFMEU 1
55 MA000010
56 MA000026
57 MA000073
58 Transcript 27 August 2015 at paragraphs 773-776
59 [2008] AIRCFB 1000
60 (1993) 178 CLR 1 at 5
61 [2007] AIRCFB 439
62 Ibid at [21]-[28]
63 [2009] AIRCFB 345
64 Ibid at [43]
65 AM2014/196 and AM2014/197
