Or-Tak Pty Ltd T/A Or-Tak Pty Ltd
[2010] FWA 5235
•15 JULY 2010
[2010] FWA 5235 |
|
DECISION |
Fair Work Act 2009
s.185 - Application for approval of a single-enterprise agreement
Or-Tak Pty Ltd T/A Or-Tak Pty Ltd
(AG2010/935)
Lida ACMI Pty Ltd
(AG2010/7744)
COMMISSIONER THATCHER | SYDNEY, 15 JULY 2010 |
Loaded rates of pay and unpaid annual and personal/carer’s leave contravene NES
[1] The applicant employers are Gloria Jeans Coffees franchisees. The employees are covered by the Fast Food Industry Award 2010. As the provisions of the two enterprise agreements for which FWA approval is sought include almost identical terms that are relevant to this decision, I will deal with each application in the same decision.
[2] Each agreement includes provision for permanent and casual employees, with permanent fulltime employees working an average 38 hours per week and permanent part-time employees having pro rata entitlements. 1
[3] In respect of permanent employees, in addition to providing minimum hourly rates of pay, the agreements provide an entitlement to paid annual leave of 4 week’s per year of continuous employment and paid sick/carer’s leave of up to 10 days leave for each year of continuous employment accruing on a pro-rata basis progressively throughout the year. Those minimum hourly rates of pay are described in the agreements as unloaded rates.
[4] As an alternative, the agreements provide for higher loaded hourly rates of pay for permanent employees “who are not entitled to paid annual leave and paid sick/carer’s leave entitlements” 2 “as the (additional)(sic) cash provision is incorporated in lieu and in advance (in the loaded rates)(sic).”3 Further, the agreements provide that permanent employees on the loaded rates are entitled to take:
(a) up to 4 weeks unpaid annual leave per year for the purposes of physical and mental rest and respite from work; 4 and
(b) reasonable unpaid sick/carer’s leave (subject to provisions relating to notice and the production of medical certificates). 5
[5] The loaded rates are approximately 12% in excess of the corresponding unloaded minimum rates of pay.
[6] Although I received certain undertakings from the applicant employers, I asked that they address two areas of preliminary concern, namely:
(a) whether such leave arrangements do not contravene s.55 (which deals with the interaction between the National Employment Standards and enterprise agreements) of the Fair Work Act 2009 (the Act). An enterprise agreement that includes a term that contravenes s.55 must not be approved (s.186); and
(b) why a loading of 12% is sufficient for the agreements to pass the better off overall test (BOOT).
NATIONAL EMPLOYMENT STANDARDS (NES)
[7] Part 2-2 of the Act provides for the NES, with Part 2-1 containing the obligation for employers to comply with such standards. Section 55 of the Act provides that an enterprise agreement must not exclude the NES or any provision of the NES. This prohibition extends to both standards that purport to exclude the operation of the NES or a part of it, and to provisions that purport to provide lesser entitlements than those provided by the NES. 6
[8] Some provisions of the NES expressly authorise an enterprise agreement to deal with certain issues in a way that would, or might, otherwise be contrary to the NES 7 and s.55(2) ensures that such terms are able to be included in an enterprise agreement.
[9] Section 55 also relevantly includes:
“Ancillary and supplementary terms may be included
(4) A modern award or enterprise agreement may also include the following kinds of terms:
(a) terms that are ancillary or incidental to the operation of an entitlement of an employee under the National Employment Standards;
(b) terms that supplement the National Employment Standards;
but only to the extent that the effect of those terms is not detrimental to an employee in any respect, when compared to the National Employment Standards.
Note 1: Ancillary or incidental terms permitted by paragraph (a) include (for example) terms:
(a) under which, instead of taking paid annual leave at the rate of pay required by section 90, an employee may take twice as much leave at half that rate of pay; or
(b) that specify when payment under section 90 for paid annual leave must be made.
Note 2: Supplementary terms permitted by paragraph (b) include (for example) terms:
(a) that increase the amount of paid annual leave to which an employee is entitled beyond the number of weeks that applies under section 87; or
(b) that provide for an employee to be paid for taking a period of paid annual leave or paid/personal carer’s leave at a rate of pay that is higher than the employee’s base rate of pay (which is the rate required by sections 90 and 99).
Note 3: Terms that would not be permitted by paragraph (a) or (b) include (for example) terms requiring an employee to give more notice of the taking of unpaid parental leave than is required by section 74.
Enterprise agreements may include terms that have the same effect as provisions of the National Employment Standards
(5) An enterprise agreement may include terms that have the same (or substantially the same) effect as provisions of the National Employment Standards, whether or not ancillary or supplementary terms are included as referred to in subsection (4).
Effect of terms that give an employee the same entitlement as under the National Employment Standards
(6) To avoid doubt, if a modern award includes terms permitted by subsection (4), or an enterprise agreement includes terms permitted by subsection (4) or (5), then, to the extent that the terms give an employee an entitlement (the award or agreement entitlement) that is the same as an entitlement (the NES entitlement) of the employee under the National Employment Standards:
(a) those terms operate in parallel with the employee’s NES entitlement, but not so as to give the employee a double benefit; and
(b) the provisions of the National Employment Standards relating to the NES entitlement apply, as a minimum standard, to the award or agreement entitlement.
Note: For example, if the award or agreement entitlement is to 6 weeks of paid annual leave per year, the provisions of the National Employment Standards relating to the accrual and taking of paid annual leave will apply, as a minimum standard, to 4 weeks of that leave.
Terms permitted by subsection (4) or (5) do not contravene subsection (1)
(7) To the extent that a term of a modern award or enterprise agreement is permitted by subsection (4) or (5), the term does not contravene subsection (1).
Note: A term of a modern award has no effect to the extent that it contravenes this section (see section 56). An enterprise agreement that includes a term that contravenes this section must not be approved (see section 186) and a term of an enterprise agreement has no effect to the extent that it contravenes this section (see section 56).”
[10] In respect of the clause in the initial Fair Work Bill 2008 which, following the subsequent amendment referred to below, was to become s.55(4), the Explanatory Memorandum to the Fair Work Bill 2008 stated:
“214. This provision allows modern awards and enterprise agreements to deal with machinery issues (such as when payment for leave must be made). It also allows awards to provide more beneficial entitlements than the minimum standards provided by the NES. For example, an award or agreement could provide for more beneficial payment arrangements for periods of leave, or provide redundancy entitlements to employees of small business employers. Similarly, an agreement could provide a right to flexible working arrangements. The term about a dispute settlement procedure would also apply to that right.”
[11] The clause in the original Fair Work Bill 2008 to which the abovementioned paragraph 214 applied was identical to what was to become s.55(4) with the exception that the general words “but only to the extent that that the effect of those terms” in s.55(4) had, prior to the amendment, been “but only if the effect of those terms” in clause 55(4) of the initial Bill. In respect of that amendment, the Supplementary Explanatory Memorandum to the Fair Work Bill 2008 stated:
“The intention of this amendment is to ensure that if a term of an enterprise agreement or modern award that is ancillary or incidental to, or supplements, the NES contains an element that is detrimental when compared with the NES, then only the detrimental element of the term is of no effect. The remainder of the term will operate.”
[12] In respect of subclauses of the amended Fair Work Bill 2008 that were to become ss.55(5), 55(6) and 55(7), the Supplementary Explanatory Memorandum to the Fair Work Bill 2008 stated:
“24. The amendments make clear that an enterprise agreement can include terms that are the same (or substantially the same) as an NES entitlement. These could be terms which simply replicate the NES or terms that make ancillary or supplementary provision in relation to the NES and subsume the NES entitlement. This means that an employer can make a comprehensive enterprise agreement with the employer’s employees.
25. Such terms operate in parallel with the NES entitlement, and do not confer a double entitlement. The same applies to terms of modern awards that are ancillary or supplementary to a NES entitlement. This means that a NES entitlement can be sourced both in the NES and in an enterprise agreement or modern award and can be enforced as an entitlement under either. Also, the mechanisms contained in the agreement are available to resolve any dispute about the entitlement.
26. This means, for example, that an enterprise agreement could include provisions about requests for flexible work arrangements (as provided for by Division 4 of the NES), and disputes about whether or not an employer had reasonable business grounds for refusing an application could be dealt with by FWA (or an alternative dispute resolution provider) under the dispute procedure in the agreement, even though dispute resolution about this issue is generally not available (see clauses 739 and 740 of the Bill).”
Annual Leave (Division 6)
[13] Section 87 (Entitlement to Annual Leave) of the Act provides that for each year of service, employees (who are not prescribed shift workers) are entitled to 4 weeks of paid annual leave.
[14] Section 87(2) provides that an employee’s entitlement to paid annual leave accrues progressively during a year of service according to the employee’s ordinary hours of work, and accumulates from year to year.
[15] Section 88 (Taking Paid Annual Leave) of the Act provides that paid annual leave may be taken for a period agreed between an employee and his or her employer and the employer must not unreasonably refuse to agree to a request by the employee to take paid annual leave.
[16] Section 90 (Payment for Annual Leave) includes:
“(1) If, in accordance with this Division, an employee takes a period of paid annual leave, the employer must pay the employee at the employee’s base rate of pay for the employee’s ordinary hours of work in the period.”
[17] In relation to s.55(2), whilst Division 6 expressly authorises an enterprise agreement to deal with the cashing out of annual leave in a way that would, or might, otherwise be contrary to the NES, Division 6 does not expressly authorise enterprise agreements to provide for the loading of rates of pay as monetary compensation for an entitlement to only unpaid annual leave.
[18] In relation to s.55(4), given the guidance in the Notes thereto and the relevant provisions of the Explanatory Memorandum and Supplementary Explanatory Memorandum to the Fair Work Bill 2008 to which I have referred, I do not accept that the loading of rates of pay as monetary compensation for an entitlement to only unpaid annual leave:
(a) is ancillary or incidental to the NES entitlement of 4 weeks of paid annual leave;
(b) supplements such entitlement;
(c) can aptly be described as machinery issues in relation to such entitlement; or
(d) is more beneficial than such entitlement.
[19] Further, I do not accept that, for the purposes of s.55(5), such loading of minimum rates of pay and an entitlement to unpaid leave has the same effect, or substantially the same effect, as the NES entitlement of paid annual leave. Whilst the incorporation of an amount equivalent to the payment for annual leave into the rate of pay may compensate employees financially for the loss of pay at the time of such leave, it may discourage them from actually taking leave as they will receive no income for the period of leave at the relevant time. Such financial compensation does not adequately recognise the importance of paid annual leave in the NES, namely for employees to have a financial incentive to take such leave for the purposes of rest and recreation.
[20] During the proceedings it was submitted on behalf of the applicant employers that the combination of the loading of the rates of pay and the entitlement to a minimum of 4 weeks unpaid annual leave was, in effect, ‘paid leave’ for the purposes of the NES.
[21] I do not accept that submission. The concept of paid annual leave has a well-established meaning which should be applied to the NES provisions. That meaning does not include such leave being granted without pay and with additional monetary compensation being included in the base rate of pay on which overtime, long service and other paid leave, pay in lieu of notice of termination, severance pay, etc, are based.
Personal/Carer’s Leave (Subdivision A, Division 7)
[22] Subsection 96(1) of the Act provides that for each year of service, employees (who are not casual employees) are entitled to 10 days of paid personal/carer’s leave.
[23] Subsection 96(2) provides that an employee’s entitlement to paid personal/carer’s leave accrues progressively during a year of service according to the employee’s ordinary hours of work, and accumulates from year to year.
[24] Section 99 (Payment for Paid Personal/Carer’s Leave) of the Act states:
“(1) If, in accordance with this Subdivision, an employee takes a period of paid personal/carer’s leave, the employer must pay the employee at the employee’s base rate of pay for the employee’s ordinary hours of work in the period.”
[25] In respect of s.55(2), whilst Subdivision A expressly authorises an enterprise agreement to deal with the cashing out of personal/carer’s leave, that subdivision does not expressly authorise enterprise agreements to provide for the loading of minimum rates of pay as compensation for an entitlement to only unpaid personal/carer’s leave.
[26] In respect of s.55(4), given the guidance in the Notes thereto and the relevant provisions of the Explanatory Memorandum and Supplementary Explanatory Memorandum, I do not accept that the loading of minimum rates of pay as compensation for an entitlement to only unpaid personal/carer’s leave:
(a) is ancillary or incidental to the NES entitlement of 10 days of paid personal/carer’s leave for each year of service;
(b) supplements such entitlement;
(c) can aptly be described as machinery issues in relation to such entitlement; or
(d) is more beneficial than such entitlement.
[27] Further, I do not accept that, for the purposes of s.55(5), the loading of minimum rates of pay and an entitlement to only unpaid personal/carer’s leave has the same effect, or substantially the same effect, as the NES entitlement of 10 days of paid personal/carer’s leave for each year of service. I agree with the statement of Whelan C in Nepero Pty Ltd T/A Morgan’s Super IGA 8 that paid personal/carer’s leave should not be viewed as a wage supplement but an entitlement designed to meet the objective of providing ongoing payments when an employee or member of his or her family is ill.
[28] During the proceedings it was submitted on behalf of the applicant employers that the combination of the loading of minimum rates of pay and the entitlement to reasonable personal/carer’s unpaid leave was, in effect, ‘paid leave’ for the purposes of the NES.
[29] For reasons similar to those outlined above in respect of annual leave, I do not accept the submission. The concept of paid personal/carer’s leave has a well-established meaning that should be applied to the NES provisions. That meaning does not include such leave being granted without pay and with additional monetary compensation being included in the base rate of pay on which overtime, long service and other paid leave, pay in lieu of notice of termination, severance pay, etc, are based.
Conclusion
[30] For the reasons outlined above I consider that the provisions in the agreements that provide for loaded hourly rates for permanent employees who are not entitled to paid annual and sick/carers leave “as the (additional)(sic) cash provision is incorporated in lieu and in advance (in the loaded rates)” and for such employees to have entitlements to take:
(a) up to 4 weeks unpaid annual leave per year for the purposes of physical and mental rest and respite from work; and
(b) reasonable unpaid sick/carer’s leave,
contravene the NES.
[31] Although the decision of McKenna C in Melbourne Nursing Agency Pty Ltd 9 reached no similar conclusion, I have noted that the following decisions of FWA support the view that the loading of rates of pay as monetary compensation for unpaid annual and personal/carer’s leave contravene the NES:
- Commissioner Gooley in Hollsam Breads Pty Ltd, 11 March 2010, [2010] FWA 2038, paragraph 14.
- Commissioner Cambridge in Margin Brothers Pty Ltd T/A Campbell IGA Friendly Grocer, 15 March 2010, [2010] FWA 2105, paragraph 30.
[32] In accordance with s.186 such agreements must not be approved. However such defects in the agreements are amenable to being cured by undertakings pursuant to s.190 of the Act. Subject to the requirement in s.190(4) to seek the views of each person who is a known bargaining representative for an agreement before deciding whether to accept an undertaking, I would be prepared to accept written undertakings from the applicant employers that the provisions of the agreements which involve the loaded minimum rates of pay and entitlements to unpaid annual leave and personal/carer’s leave will not be relied upon or applied.
[33] Given my conclusion that the loaded rates of pay contravene the NES, it is not necessary for me to consider whether the 12% loading is sufficient for the agreements to pass the better off overall test (BOOT).
COMMISSIONER
Appearances:
Mr B Thompson, solicitor, Enterprise Initiatives, for Or-Tak Pty Ltd and Lida ACMI Pty Ltd.
Hearing details:
2010.
Sydney:
July, 13.
1 Clauses 4.2 and 7.1.
2 AG2010/935 - subclause 9.3; AG2010/7744 - subclause 9.4.
3 Subclauses 13.5 and 14.3.
4 Subclauses 13.5.
5 Subclauses 14.3 and 14.4.
6 Paragraph 209 of the Explanatory Memorandum to the Fair Work Bill 2008.
7 Paragraph 210 of the Explanatory Memorandum to the Fair Work Bill 2008.
8 15 December 2009, [2009] FWA1712.
9 8 June 2010, [2010] FWA 4133.
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