DECISION

Fair Work Act 2009
s.156—4 yearly review of modern awards

4 yearly review of modern awards—plain language re-drafting
(AM2016/15)

4 yearly review of modern awards – plain language re-drafting – standard absorption clause – take-home pay orders.

[1] Section 156 of the Fair Work Act 2009 (Cth) (the Act) requires the Fair Work Commission (the Commission) to review all modern awards every 4 years (the Review). 1

[2] This decision concerns two outstanding issues which were outlined in a statement issued on 16 October 2018 2 (the October 2018 statement). The first is the standard absorption clause and the second concerns the take-home pay order clause. Both appear in the Commencement and transitional clause contained in all modern awards. The standard absorption clause is set out below:

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.

[3] The standard take-home pay clause is set out below:

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.

[4] In a decision issued on 20 September 2015 3 (the September 2015 decision), the Group 1 Full Bench considered, among other things, whether an absorption clause such as clause 2.2 can be included in modern awards. The Full Bench concluded that:

“•  the absorption clause was intended to be transitional in character; 4

•  there was doubt as to whether the absorption clause can properly be said to be about one or more of the matters specified in s.139(1)(a), but it was not necessary to reach a concluded view in respect of that issue; 5 and

•  it is not necessary to include the absorption clause in modern awards to achieve the modern awards objective’. 6

[5] As to the last matter the Full Bench said:

‘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.’

[6] After this decision, the absorption clause was removed from the exposure drafts prepared for the Review but remained in the modern awards.

[7] In the Group 1 proceedings Australian Business Industrial (ABI), Ai Group and the Master Builders Association (MBA) submitted that it would not be appropriate to remove the absorption clause from modern awards while the take-home pay order clause remained. The Full Bench decided not to determine the issue at that time, and expressed an intention to determine the matter at the conclusion of the 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…

[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.’ 7

[8] The take-home pay clause was further considered in the 4 yearly review of modern awards – Penalty rates – Transitional arrangements decision 8 (the Transitional arrangements decision). The Full Bench in the Transitional arrangements decision concluded:

‘[100] Item 13A of the TPCA Act and the take-home pay order clauses in modern awards are limited to reductions in take-home pay suffered by employees as a result of the award modernisation process, including as a result of any transitional arrangements phasing in differences between the pay rates in pre-modernised awards and modern awards. Item 13A was inserted to address both the inclusion of take-home pay order terms in modern awards, and their scope, which expands the class of employees eligible to seek a take-home pay order to include employees employed after the commencement of modern awards (who are not eligible for a take-home pay order under Part 3, item 9 of Schedule 5 to the TPCA Act).

[101] Any reductions in take-home pay arising from the Penalty Rates decision will not be attributable to the award modernisation process or any residual issues arising from that process, but, rather, will result from the variation of specified modern awards as part of the 4 yearly review of modern awards. It follows that take-home pay orders are not available to mitigate the impact of the proposed reduction in Sunday (or public holiday) penalty rates.

[102] One of the questions on notice put to all parties in the present proceedings was in the following terms:

“It seems to be common ground that the take-home pay order provisions of the TPCA Act are not an available option to mitigate the impact of the reductions in penalty rates set out in the Penalty Rates decision. Does any interested party take a different view?”

[103] No party expressed a view contrary to that posed in the question. Ai Group, ACCI, the Hospitality Employees, ABI, the Pharmacy Guild, RCI, the SDA and United Voice all submitted that the take-home pay provisions of the TPCA Act were not an available option to mitigate the impact of the reductions in penalty rates. (references omitted)’

[9] In the October 2018 statement, interested parties were invited to make submissions addressing the following issues:

•  Whether there is a power to retain the take-home pay clause in modern awards and if so, the relevant source of that power;  9 and

•  If there is such a power, should the Commission exercise the discretion to retain the provision.

[10] In response to the October 2018 statement, submissions were received from the following parties:

•  Australian Industry Group (Ai Group);

•  Australian Manufacturing Workers' Union (AMWU); and

•  Australian Business Industrial and NSW Business Chamber (ABI).

[11] In the October 2018 statement we said that absent of any requests for an oral hearing, this matter will be determined on the papers. No such request was received and so we will determine this matter on the basis of the submissions received.

[12] We now turn to consider the 2 issues outlined at [9] above.

1. Whether there is a power to retain the take-home pay clause

[13] Ai Group’s primary position is that there is no power under the Act to retain the take-home pay provision in modern awards. 10 It submits that the only potential source of the power derives from regulation 3B.04(2) of the Fair Work Transitional Provisions and Consequential Amendments) Regulations (the TP Amendment Regulations).11 Ai Group submits that because the transitional provisions ceased to have effect from 31 December 2014, the Commission is prevented by s 138 from issuing orders pursuant to the take-home pay clause.12 This is because orders intended to remedy losses in pay resulting from the award modernisation process fall outside the scope of terms which may be included in a modern award pursuant to s.139.13

[14] Ai Group refers to submissions they filed in regard to the Group 1 Exposure Drafts in November 2014 14 in which it cited the following passage from a September 2009 decision of the AIRC:

‘[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.’ 15 [emphasis added]

[15] Ai Group submits that it is evident from the above passage that the Full Bench inserted the take-home pay clause into modern awards because the take-home pay provisions in the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 did not apply to employees who commenced employment after 1 January 2010 or reductions in take-home pay resulting from the operation of the transitional provisions in modern awards. 16

[16] Ai Group submits that the Explanatory Statement for the TP Amendment Regulations and the Penalty Rates — Transitional Arrangements Decision 17 makes clear that the scope for the Commission to make take-home pay orders is confined to responding to reductions in take-home pay resulting from the award modernisation process. The Commission’s status as a statutory body allows it to only exercise powers conferred by parliament or which are necessary and incidental to the exercise of its jurisdiction and powers. Given that the transitional arrangements arising out of the award modernisation process ceased to apply from 31 December 2014, take-home orders cannot be considered necessary to the original transitory purpose of the provision18. Ai Group submits that the take-home pay clause is not incidental to a term permitted or required by s.136 to be included in a modern award, nor is the clause a machinery term for the purposes of s.142. In their reply submission, Ai Group maintain that the take-home pay clause is transitionary, and as such, it was not intended that the Commission would retain a power to make take-home orders in perpetuity.19

[17] ABI supports the submission of Ai Group that the original source of the power was the transitional legislative framework and there is no power under the Act to retain the clause in modern awards. 20

2. If there is such a power, should the Commission exercise the discretion to retain the provision?

[18] Ai Group submits that it is ultimately unnecessary to determine whether there is a power to retain the provision as the Commission should not exercise its discretion to retain the clause in any event given that a significant period of time has elapsed since the introduction of modern awards. It submits that because transitional arrangements ceased to apply from 31 December 2014, the clause has been rendered obsolete. 21 The inclusion of a superfluous clause cannot assist in the maintenance of a simple, easy to understand, stable and sustainable modern award system under s.134(1)(g). Accordingly, the provision does not further the modern awards objective and should be removed. 22

[19] Ai Group submits that if the Commission finds that the potential for a take-home pay order to be made remains, it would be unfair to employers given that a significant period of time has elapsed since the introduction of modern awards. 23

[20] Ai Group questions the utility of retaining the provisions in light of regulation 3B.04 of the TP Amendment Regulations which prevents orders being made for insignificant pay reductions. They submit that take-home pay orders are superfluous because minimum rates of pay and a number of allowances have increased eight times for almost all award-covered employees since the introduction of modern awards. 24

[21] Ai Group refers to the December 2014 decision in which the Commission expressed its intention to remove the clause in the next four yearly review. Ai Group submits that because the Full Bench could not foresee that the review would be ongoing as of late-2018, the Commission should now remove the clause given the extensive passage of time. 25

[22] ABI submits that even if the Commission does have the power to retain the clause, it should not exercise its discretion because it is very unlikely that there will be any remaining employees who would be entitled to apply for such an order due to the passage of time. Accordingly, ABI submits that now is an appropriate time to remove the clause as indicated by the Commission in its September 2015 decision. 26

[23] In its response to the October 2018 statement, the AMWU did not address whether a power existed to retain the take-home pay clause. The AMWU acknowledges that the transitional schedules ceased to have effect from 2014 but submits that that the Commission should exercise its discretion to retain the take-home pay order clauses at least until the expiry of the 6 year limitation period provided under s.544 and s.545(5) of the Act. Section 544 of the Act provides as follows:

“Time limit on applications

A person may apply for an order under this Division in relation to a contravention of one of the following only if the application is made within 6 years after the day on which the contravention occurred:

(a) a civil remedy provision;

(b) a safety net contractual entitlement;

(c) an entitlement arising under subsection 542(1).

Note 1: This section does not apply in relation to general protections court applications or unlawful termination court applications (see subparagraphs 370(a)(ii) and 778(a)(ii)).

Note 2: For time limits on orders relating to underpayments, see subsection 545(5).”

[24] Section 545(5) of the Act provides as follows:

“545 Orders that can be made by particular courts

. . .

Time limit for orders in relation to underpayments

(5) A court must not make an order under this section in relation to an underpayment that relates to a period that is more than 6 years before the proceedings concerned commenced.”

[25] AMWU further submits that take-home pay orders provide a quick and just alternative to seeking a Court order. 27 If the clause were removed from current awards it may be unclear to an applicant pursuing an underpayment claim dating back to 2014 whether the Commission has jurisdiction to issue take-home pay orders.28

[26] Ai Group submits in reply that AMWU failed to address the question of whether the Commission has the power to retain the take-home pay clause in modern awards. 29 It further submits that the AMWU failed to establish how the limitation periods, which are applicable to the Federal Court or the Federal Circuit Court, are relevant to an order made pursuant to a take-home pay clause.30 Ai Group submits that ss.554 and 545(5) of the Act are not concerned with creating new rights and obligations in order to mitigate against loss caused by the Award modernisation process or related transitional arrangements.31 It submits that if the clause was removed, this would not diminish the right of an employee to apply to a Court in the event that rights which applied while the transitory arrangements were on foot have been contravened.32

Consideration

[27] The Commission’s task in the Review is to determine whether a particular modern award achieves the modern awards objective. If a modern award is not achieving the modern awards objective then it is to be varied such that it only includes terms that are ‘necessary to achieve the modern awards objective’ (s.138). In such circumstances regard may be had to the terms of any proposed variation, but the focal point of the Commission’s consideration is upon the terms of the modern award, as varied.

[28] We have already determined that the standard absorption clause at 2.2 is not is not a term which is necessary to achieve the modern awards objective and that it cannot be included in a modern award. 33

[29] We agree with the submissions advanced by Ai Group and ABI that the Commission’s power to make take-home pay orders is in the context of addressing reductions in take-home pay resulting from the award modernisation process. The take-home pay order clauses in modern awards are limited to reductions in take-home pay suffered by employees as a result of the award modernisation process, including as a result of any transitional arrangements phasing in differences between the pay rates in pre-modernised awards and modern awards. Due to the passage of time the relevant transitional schedules have ceased to have any practical effect and have been removed from the exposure drafts.

[30] The circumstances giving rise to the making of such orders have passed and we do not think that there is any power to include a take-home pay order provision with a broader scope in modern awards. Even if we are wrong about this and there is such a power, we are not persuaded that we should exercise our discretion to retain the current take-home pay order clause in modern awards.

[31] We note that the AMWU made no submissions about the power of the Commission to retain the take-home pay clause. We are not persuaded by the AMWU’s submission that we should exercise our discretion to retain such clauses until the expiry of the limitation periods in ss.544 and 545 of the Act.

[32] The number of applications for a take-home pay order has progressively declined since modern awards were made in 2010. No applications were received in the 2017–2018 financial year and only one application was received in the previous year. Since the transitional provisions ceased to have effect in 2014, the following applications have been received by the Commission:

[33] Only 11 applications have ever been made under modern award terms since 2010. None of these applications have resulted in a take-home pay order actually being issued.

[34] We are not satisfied that the take-home pay order clause is necessary to achieve the modern awards objective. The removal of this clause is consistent with the need to ensure a simple and easy to understand modern awards system (s.134(1)(g)). We are not persuaded that any of the other s.134 considerations weigh against this conclusion.

[35] The absorption clause has already been removed from all exposure drafts. The take-home pay clause will be removed from exposure drafts in the second update set out in the timetable in the 13 February 2019 Statement about the finalisation the Review. 34

[36] Clauses 2.2 and 2.4 will remain in modern awards until those awards are varied to reflect the terms of the exposure drafts later in 2019. In the highly unlikely event that there are any residual applications for take-home pay orders these can be made in the intervening period.

PRESIDENT

Printed by authority of the Commonwealth Government Printer

<PR705413>

 1   This requirement was repealed by Schedule 1 to the Fair Work Amendment (Repeal of 4 Yearly Reviews and Other Measures) Act 2018 (Cth) (Amending Act) with effect from 1 January 2018. The current review will continue under transitional provisions in Schedule 4 to the Amending Act.

 2   [2018] FWC 5810.

 3   [2015] FWCFB 6656.

 4   Ibid at [27].

 5   Ibid at [56].

 6   Ibid at [57] to [74].

 7   [2015] FWCFB 6656.

 8   [2017] FWCFB 3001.

 9   In written submissions filed on 28 August 2015 the ACTU and AMWU addressed the source of the power.

 10   Ai Group submission, 6 November 2018 at para 3

 11   Ai Group submission, 6 November 2018 at para 3

 12   Ai Group submission, 6 November 2018 at para 15

 13   Ai Group submission, 6 November 2018 at para 17-18

 14   Ai Group submission, 13 November 2014

 15   [2009] AIRCFB 800.

 16   Ai Group submission, 13 November 2014 at para 15

 17   [2017] FWCFB 3001 at [100]-[101]

 18   Ai Group submission, 6 November 2018 at paras 12-15

 19   Ai Group submission in reply, 20 November 2018 at para 13

 20   ABI submission, 20 November 2018 at p.1

 21   Ai Group submission, 6 November 2018 at para 29

 22   Ai Group submission, 6 November 2018 at para 28

 23   Ai Group submission, 6 November 2018 at para 30

 24   Ai Group submission, 6 November 2018 at para 31

 25   Ai Group submission, 6 November 2018 at para 32

 26   ABI submission, 20 November 2018 at p.1

 27   AMWU submission, 8 November 2018 at para 5

 28   AMWU submission, 8 November 2018 at para 5

 29   Ai Group submission in reply, 20 November 2018 at para 7

 30   Ai Group submission in reply, 20 November 2018 at para 9-11

 31   Ai Group submission in reply, 20 November 2018 at para 12

 32   Ai Group submission in reply, 20 November 2018 at para 14

 33   [2015] FWCFB 6656 at [74].

 34   [2019] FWC 932.