Kralage Pty Ltd ATF Ainsworth Family Trust

[2010] FWA 7520

[2010] FWA 7520

FAIR WORK AUSTRALIA

DECISION

Fair Work Act 2009
s.185 - Application for approval of a single-enterprise agreement

Kralage Pty Ltd ATF Ainsworth Family Trust
(AG2010/11138)

COMMISSIONER MCKENNA SYDNEY, 28 SEPTEMBER 2010

Kralage Pty Ltd Enterprise Agreement 2010.

[1] Kralage Pty Ltd ATF Ainsworth Family Trust (“the applicant”) has made an application for the approval of an enterprise agreement titled the Kralage Pty Ltd Enterprise Agreement 2010 (“the Agreement”). The Agreement is proposed to cover the applicant’s 61 employees working at a shop and several food outlets in New South Wales and Victoria.

Wage rates

[2] The Agreement contains two types of loaded wage rates. The first type includes financial consideration for an additional 12 per cent with respect to sick/carer’s leave and annual leave entitlements. The rates loaded for sick/carer’s leave and annual leave in this Agreement are the same as those considered by Thatcher C in Or-Tak Pty Ltd [2010] FWA 5235 (“Or-Tak”) to be in contravention of the National Employment Standards. This application was filed before the decision in Or-Tak and the applicant has since provided undertakings which would have the effect of excising such rates.

[3] The second type of loaded rates includes consideration for certain award-referenced provisions. The applicant nominated the following instruments as being relevant:

• Fast Food Industry Award 2010 (MA000003) (“the Modern Fast Food Award”);



• General Retail Industry Award 2010 (MA000004) (“the Modern Retail Award”);



• Shop Employees (State) Award (AN120499) (“the NAPSA”);



• National Fast Food Retail Award (AP806313).

[4] The employer’s declaration provided further information as to terms and conditions with respect to the respective instruments and the Agreement as follows. As to the Modern Fast Food Award:

• cl.13.4 - minimum engagement for casual employees (no equivalent Agreement term);



• cl.14.3 - job search entitlement for termination of employment (no equivalent term);



• cl.15.4 - job search entitlement for redundancy (no equivalent term);



• cl.19.2(b) - laundry allowance (loaded into rates);



• cl.20 - accident pay (no equivalent term);



• cl.21.1 - employee choice of superannuation fund (Agreement term submitted to raise no better off overall issues);



• cl.22 - payment of wages (no equivalent term);



• cl.25 - ordinary hours of work (cross-referenced to cl.7 of the Agreement);



• cl.28.3 - annual leave loading (loaded into rates).

[5] As to the Modern Retail Award:

• cl.12.5 - minimum engagement for part-time employees (no equivalent Agreement term);



• cl.13.4 - minimum engagement for casual employees (no equivalent term);



• cl.14.3 - job search entitlement for termination of employment (no equivalent term);



• cl.15.4 - job search entitlement for redundancy (no equivalent term);



• cl.20.2(b) - laundry allowance (loaded into rates);



• cl.21 - accident pay (no equivalent term);



• cl.22.1 - employee choice of superannuation fund (Agreement term submitted to raise no better off overall issues);



• cl.23 - payment of wages (no equivalent term);



• cl.26 - hours of work (cross-referenced to cl.7 of the Agreement);



• cl.31.3 - annual leave loading (loaded into rates).

[6] Although the employer’s declaration cross-referenced ordinary hours of work from the respective provisions of the modern awards, there is no comparable cross-reference because the Agreement does not contain comparable work parameters concerning hours and overtime.

[7] As to both fast food and retail employees, the employer’s declaration indicated that the terms and conditions with respect to penalty rates and shift allowances for all employees to be covered by the Agreement were made with reference to the NAPSA and the Federal Award. The terms and conditions of these instruments that are more beneficial than the Agreement were identified in the employer’s declaration as follows:

• cl.14 of the NAPSA and cl.24 of the Federal Award - penalty rates for weekend work (loaded into Agreement rates);



• cl.24 of the Federal Award - penalty rates for evening work (loaded into rates);



• cl.17 of the NAPSA and cl.27 of the Federal Award - penalty rates for public holidays (with an assumption of five public holidays loaded into rates).

[8] With the identification of the comparative provisions, the employer’s declaration described the rates as follows:

“The hourly rates of pay in the Agreement as set down in Schedule A of the Agreement have been specifically calculated to accommodate the average working patterns of all Employees covered by the Agreement. The average weekly hours worked by Employees in each of the penalty periods attracted by the Award have been factored into the hourly rates of pay provided in Schedule A of the Agreement. These hourly rates of pay calculate the monetary value of the average weekly hours worked in each penalty period which, when combined with the annual value of any relevant loading or allowance under the Award, have been used to calculate an annual salary. This annual salary has been converted into an hourly rate as provided for within Schedule A of the Agreement. An additional $250.00-$300.00 annual advantage as been made in all relevant Agreement calculations to additionally compensate all employees covered by this Agreement in a manner outside any parameters set down by the reference instruments.”

[9] The loaded rates do not factor-in contingent allowances which may arise for individual employees, for example, transport allowances.

[10] The employer’s declaration included a table setting out the “Hourly Rate calculated with reference to the modern awards at the end of the transitional period (2014)” as against the “Hourly Rate in the Enterprise Agreement”. That table commences with permanent Level 1 Retail Permanent (16 years and under) rate of $8.95; the table shows the hourly rate in the Agreement and the hourly rate with reference to the modern award at the end of the transitional period in 2014 at the same amount of $8.95. The comparative rates for each category of employee are then progressively listed, showing some rates being the same but rising to a couple of dollars in difference for, say, a Level 3 Fast Food casual.

Wage rates loaded other than for sick/carer’s leave and annual leave

[11] The employees proposed to be covered by the Agreement are mostly female (54). Eleven employees are full-time, 33 are part-time and 17 are casuals. Of the 61 employees, 36 employees are aged under 21 years. The Agreement would cover those employees who are classified in cl.6 of the Agreement as either Fast Food Employees (Level 1-3) or Retail Employees (Levels 1-3). The Agreement also contains provisions concerning trainees.

[12] The applicant, through the various spreadsheet calculations (25 in all), provided information on average or typical hours of work for all employees. However, there was no further information about the basis on which those hours’ calculations themselves were based in support of the proposition that the loaded rates satisfied the better off overall test. Further to my request for rosters, the applicant provided the following rosters:

• Subway Lavington (NSW) - four week period 27 January to 23 February 2010;



• Subway Albury (NSW) - four week period 27 January to 23 February 2010;



• Subway Wodonga (Vic) - four week period 3 February to 2 March 2010;



• Subway Benalla (Vic) - four week period 3 February to 2 March 2010;



• Subway Centro Lavington (NSW) - four week period 27 January to 23 February 2010;



• Subway Centro Birallee (Vic):




- one week period 27 January to 2 February 2010;

- two week period 16 June to 29 June 2010;

- one week period 7 July to 13 July 2010;

- one week period 28 July to 3 August 2010;

• Healthy Life Health Food Albury (NSW) - four week period 16 August to 12 September 2010.

[13] It is unclear why the applicant provided rosters with such a disparate range of dates when rosters representative of work patterns for periods uniformly covering, or uniformly proximate to, the test time would seem to be apposite - particularly following from the approach adopted by the applicant in relation to the significance of the roster-related wage entitlements only as at the test time. Most of the rosters significantly pre-date or post-date the test time.

[14] In any event, an examination of the rosters provided by the applicant indicates the hours for Saturdays and Sundays assumed in the calculations in the spreadsheets provided with the employer’s declaration fall well-below the actual average hours calculated through roster analysis. In this application, the discrepancies are apparent from even a preliminary examination of certain rosters provided by the applicant; closer analysis of the rosters reinforces the conclusion that the model of hours advanced by the applicant is erroneous considered in the context of the indicative rosters.

[15] The applicant relied, in part, on an “annual advantage of $250.00-$300.00” added to the rate calculations - which, at the higher level of $300.00, is about $5.75 a week. Depending on the classification, an extra hour a week worked on Sundays would negate this value or one-and-a-half to two extra hours on Saturdays. Analysis of the rosters indicates there are easily such differences of one to two hours (and generally more) as against the spreadsheet calculations. This leads to the result that the Agreement’s wage rates, considered in the context of the actual rosters provided by the applicant, would not be sufficient to compensate for the displacement of penalty rates in various instances. This is so irrespective of whether the rosters are considered on the basis of an averaged consolidation of hours or considered in the context of certain location-specific averages. Employees who work more hours in patterns differing from those assumed in the standardised calculations, particularly increased weekend hours, would be substantially disadvantaged by the Agreement. There are examples in the rosters of employees working well-outside the averaged hours shown in the calculations provided by the applicant - resulting in financial disadvantage to such employees. In this respect, and having regard to the calculated assumptions in support of the loaded wage rates, it may be noted the Agreement provides only as follows in relation to rostering under the Agreement: “8.2 The employer will ordinarily roster Employees in a manner that is both fair and equitable to ensure that, where applicable, the allocation of weekend and public holiday hours are equally divided between Employees on a rotating basis.”

[16] Loaded rates and rosters have been considered by Fair Work Australia in a number of recent applications for the approval of enterprise agreements, including Shaydi Pty Ltd and others [2010] FWA 4262 at [23]-[24]; Earthfield Pty Ltd t/as Bakers Delight Diamond Creek, Bakers Delight St Helena & Bakers Delight Laurimar Enterprise Agreement 2009[2010] FWA 5752 at [5] (“Earthfield”); Turn Key Distribution Pty Ltd re Turn Key Pty Ltd Enterprise Agreement [2010] FWA 6987 at [7]-[14] (“Turnkey”); and Lutanda Children’s Services re Lutanda Children’s Services Enterprise Agreement 2010 [2010] FWA 7247 (“Lutanda”). As in those cases, analysis of the rosters does not accord with the assumptions propositioned by the applicant in relation to this Agreement. Further, the question of advantage and disadvantage with the type of loaded rates contained in this Agreement necessarily will depend on the actual times and days employees may be rostered to work, rather than being based on a hypothetical model. In this respect, see the comments in Margin Brothers at [25] and Nepero Pty Ltd T/A Morgan’s Super IGA [2009] FWA 1712 at [39] (“Nepero”). As to the application of the better off overall test, see also Top End Consulting Pty Ltd re Top End Consulting Enterprise Agreement [2010] FWA 6442 at [26]-[29].

[17] Section 193(1) of the Act provides that an enterprise agreement passes the better off overall test if Fair Work Australia is satisfied, as at the test time, that each award covered employee, and each prospective award covered employee, for the agreement would be better off overall if the agreement applied to the employee than if the relevant modern award applied to the employee. Further, s.193(7) of the Act provides that for the purpose of determining whether an enterprise agreement passes the better off overall test, if a class of employees to which a particular employee belongs would be better off if the agreement applied to that class than if the relevant modern award applied to that class, Fair Work Australia is entitled to assume, in the absence of evidence to the contrary, that the employee would be better off overall if the agreement applied to the employee. The principal test time advantage relied on by the applicant in the employer’s declaration is an amount of $250.00-$300.00 added to the rates which are loaded to include the matters identified in the employer’s declaration. I doubt that this amount, in and of itself, would render the Agreement capable of satisfying the better off overall test at the test time. That is, the amount is just not set high enough to provide an adequately advantageous financial buffer for those employees who work more hours that would attract penalty rates than envisaged by the hypothetical hours’ model; and, added to that, the Agreement provides conditions that are, at best, mostly only equal to, and, in various instances, inferior to, those otherwise applicable. The addition of $250.00-$300.00 to the annualised rates used for formulating the employees’ hourly rates cannot be viewed in isolation when considering whether the better off overall test has been met.

[18] Calculations regarding the rosters provided by the applicant, as both averages and on certain individual bases, indicate the rates and conditions of employment in this Agreement as against the comparator instruments would see some employees/classes of employees disadvantaged, principally those employees/classes of employees who do not work hours according with the generalised assumptions advanced by the applicant in the spreadsheets - being assumptions which are not, in any event, supported by analysis of the rosters.

Wage increase mechanism

[19] Clause 9.1 of the Agreement provides as follows in relation to wage adjustments: “The minimum rates of pay for each hour worked are set out in Schedules [sic] A of this Agreement and are subject to adjustments by Fair Work Australia pursuant to section 206 of the Act.” The applicant’s representatives, Enterprise Initiatives Pty Ltd/EI Legal, submitted that the applicant “explained cl.9.1 to employees on the basis that such increases to the rates of pay in Schedule A will be dependent upon the award increases, that is, the modern award, and will not be guaranteed annual increases. The [applicant] made it clear to employees that the rates of pay in Schedule A will only increase to meet the base rates of pay under the relevant modern award.”

[20] Hence, employees would not receive any wage increase over the four year nominal term of the Agreement unless the rates which are loaded to include certain entitlements fall behind the relevant base rate of pay as defined by s.206 of the Act. The practical reality is that the test time value of the rates which contain allowance for certain award-stipulated entitlements will not keep pace in dollar and/or percentage terms with what the employees would be entitled to be paid if they were employed under: (a) the modern awards, given the reasonable predictability of annual wage increases; or (b) an enterprise agreement that provided increases other than by s.206 of the Act, so as, for example, to at least maintain the real value of the base rate plus loaded components. Here, the wage rates in this Agreement will remain static unless they fall below the legislated minima. If s.206 of the Act was engaged as a wage increase mechanism, the value of the loaded wages in the Agreement relied on in satisfaction of the better off overall test at the test time would be nil.

Hours of work/overtime

[21] Clause 7 of the Agreement provides that the ordinary hours of work for employees will not exceed 38 hours per week on average over 26 weeks. Except as provided in cl.7, the Agreement does not otherwise define ordinary hours or hours that would attract penalty rates for additional hours worked under cl.7.2. The Agreement contains neither minimum hours per shift nor a cap on the hours worked in any day, week, fortnight or month over 26 weeks before overtime rates would be attracted. Moreover, part-time employees who might otherwise be entitled to reasonably predictable hours of work and attendant conditions could work, in effect, as casual employees but without a casual loading. It may be noted the rosters record various examples of employees being rostered for periods of, for example, one-and-a-half to two hours. The rosters also show starts as early as 6.00am.

[22] Undertakings have been provided in relation to hours, but the arrangements are still less favourable for some employees. For example, the undertakings propose that the maximum ordinary hours on any day would not exceed eleven hours, whereas, for example, one of the modern awards nominated in the employer’s declaration provides that an employee may be rostered to work up to a maximum of nine ordinary hours on any day, provided that for one day per week an employee can be rostered for eleven hours. It also provides matters including spreads of ordinary hours that would be more beneficial for employees than the Agreement, as well as provisions such as those concerning consecutive days off, arrangements relating to notification of rosters, and minimum breaks between work periods with associated penalty payments.

[23] Clause 7 of the Agreement has similarities to clauses which have been the subject of previous expressions of concern by Fair Work Australia in decisions including Nepero at [38], Margin Brothers at [26], Turnkey at [20]-[23] and Lutanda at [23]. Those concerns also arise in relation to this Agreement considered, for example, in relation to the combined effect of the reference instruments’ specifications concerning matters such as hours and circumstances where overtime payments are attracted.

Undertakings

[24] The applicant has proposed a number of undertakings. In summary, the undertakings would have the principal effects of:

• amending the definitions of base rate of pay in cl.2, so as to remove the rates loaded for annual and personal/sick leave and undertaking that certain clauses concerning wage rates loaded to include annual and personal/sick leave for permanent employees will not be relied on or applied, namely, cll.9.3, 11.5, 13.5, 13.6, 14.3 and Parts 2 and 3 of Schedule A as they concern “Permanent Loaded Employees” and “Loaded Trainee Hourly Rate”;



• introducing provisions regarding working at different locations, including matters such as:




- travelling time,

- transportation arrangements;

- providing that payment for travelling time at ordinary rates of pay except on Sundays and holidays, when the payment will be at time and a half;

- providing a motor vehicle allowance of $0.74 per kilometre (but without any adjustment mechanism for that amount);

• revising the provision concerning termination of employment by resignation;



• changing the hours arrangements, such that ordinary hours of work will not exceed 38 hours per week on average over four weeks;



• providing that ordinary hours can be worked as follows:




- between 7.00am to 11.00pm;

- on Mondays to Sundays;

- inclusive of public holidays;

- with a maximum of eleven ordinary hours in a day;

- with a three hour minimum engagement;

• clarifying the superannuation arrangements;



• addressing a discriminatory provision concerning parental leave;



• clarifying the long service leave clause;



• changing the scale of redundancy payments as between employees in Victoria and those in New South Wales, depending on the date of any such redundancy;

• making changes mandating taking of breaks;



• introducing accident pay provisions for employees in Victoria.

[25] A number of these undertakings are designed to incorporate certain provisions which would otherwise arise, thereby doing no more and no less than bringing the Agreement into better conformity with referenced provisions. It is unclear how it could have been contended that the Agreement as filed would have passed the better off overall test, given that provisions such as these were not also featured in the Agreement.

[26] Some of the proposed undertakings would not result in any tangible change to the Agreement, but others, taken collectively result, in significant changes to core aspects of the Agreement. EI Legal referred to a recent decision where a large number of undertakings had been accepted for an enterprise agreement, in submitting the Agreement also should be approved with the undertakings. However, significant change is a product of the nature of the undertaking or undertakings, rather than turning on a numerical count. Following from the approach in Rockleigh (Vic) Pty Ltd T/A Workforce Extensions Castlemaine [2010] FWA 6570 at [9]-[10], Lighthouse Protection Group [2010] FWA 6553 at [7]-[9] and Earthfield at [8], I do not consider the undertakings may be accepted given they would significantly change the Agreement. The undertakings would involve some fairly fundamental changes to various clauses and the proposed operation of the Agreement. Further, the undertakings do not address other shortcomings of the Agreement in relation to certain entitlements such as would allow a conclusion the better off overall test has been met; and, if additional undertakings were provided to address such matters, they would result in further change to the already substantial changes proposed to the Agreement.

Conclusion

[27] I have not been satisfied the Agreement passes the better off overall test having regard, in particular, to the comparative wages for employees/class of employees who do not work the standardised hours propositioned in the applicant’s spreadsheets - being standardised hours which are, in any event, contraindicated by the indicative rosters provided by the applicant. The Agreement did not feature various entitlements which would be attracted in the reference instruments (some of which are identified in this decision) and, although some matters have now been addressed in the proposed undertakings, the undertakings have not fully or adequately addressed various entitlements which would otherwise arise.

[28] A consideration of this Agreement, including the proposed undertakings and the $250.00-$300.00 annual advantage as at test time factored-into the minimum rates, does not lead to a conclusion the better off overall test has been met. Further, a number of the undertakings would collectively result in significant changes to the Agreement and may not, therefore, be accepted. The application is dismissed.

COMMISSIONER

Appearances:

A. Grant and P. Ryan, solicitors - Enterprise Initiatives Pty Ltd/EI Legal - for the applicant.

Hearing details:

Sydney

2010

August 11 and 25.

Final written submissions:

1 September 2010.

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