Confusion over new modern award clause

by 01 Jun 2010

Employers were left in the dark over modern awards last week when industry bodies clashed over the interpretation of a newly-added ‘absorption clause’.

Following the Fair Work Ombudsman guidance note on how pay rates in modern awards will be phased in over the next four years, the Australian Industry Group (Ai Group) was quick to label the guidance ‘alarming’.

The note detailed the FWO’s interpretation of transitional arrangements created by the national workplace tribunal, Fair Work Australia. It also set out how the FWO will apply its interpretation of these arrangements to its education and compliance activities.

But just hours after the guidance was published, a statement from Ai Group criticised FWO’s interpretation of an ‘absorption clause’ which enables employers to offset any additional costs arising under modern awards into over-award payments.

Fair Work Australia included the following clause in nearly all of the 122 modern awards:

‘The monetary obligations imposed on employers by this award may be absorbed into over-award payments. Nothing in this award requires an employer to maintain or increase any over-award payment.’

Heather Ridout chief executive at Ai Group said the FWO's interpretation would require an employer to obtain the agreement of each individual employee before it could absorb any additional costs arising under modern awards into over-award payments, and that such an approach is unworkable and would result in an unfair, costly and complex burden being imposed on business.

"In Ai Group's view the clause means that so long as an employer is paying its employees at least the total amount that they are entitled to be paid under the relevant modern award, the employer does not need to pay more.

"To suggest that employers will be able to readily reach agreement with each employee on the absorption of award changes into over-award payments reflects a lack of understanding of many workplaces, including the communication challenges and the role of unions in seeking to maximise wages and working conditions.”

While modern awards commenced on 1 January, most contain Fair Work Australia’s transitional arrangements whereby certain pay- related entitlements are to be phased-in over four years from July 1.

These include minimum wage rates, casual and part-time loadings and penalty rates for weekend, public holiday and night work.

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