Bills Digest No. 45, 2012–13

19 November 2012

Fair Work Amendment (Transfer of Business) Bill 2012

Anne Holmes
Economics Section

Mary Anne Neilsen
Law and Bills Digest Section

Date introduced: 11 October 2012

House: House of Representatives

Portfolio: Education, Employment and Workplace Relations

Commencement: On the day after the Act receives the Royal Assent

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill's home page, or through http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation. When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.

Purpose of the Bill

The purpose of the Fair Work Amendment (Transfer of Business) Bill 2012 (the Bill) is to amend the Fair Work Act 2009 (Fair Work Act) and other related legislation to enable certain employees in Queensland, New South Wales, South Australia, Tasmania and Western Australia to retain their existing terms and conditions of employment where they transfer from a public sector employer to the national workplace relations system as a result of a transfer of business. The remaining
jurisdictions— Victoria, the Commonwealth and the territories — already have the benefit of the transfer of business protections in the Fair Work Act.

Structure of the Bill

The main part of the Bill is Schedule 1, Part 1, which creates a mechanism for transferring employees’ terms and conditions of employment from a state public sector employer to a national system employer where a transfer of business occurs.

Schedule 1, Part 2 makes consequential amendments to the Fair Work Act, the Fair Work (Registered Organisations) Act 2009 and the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009.

Background

The Fair Work Act provides for the employment conditions of an employee to be maintained when a business changes hands.[1] It does this by making certain instruments, including enterprise agreements and workplace determinations, transferable. This protection extends only to transfers between two national system employers, that is, two employers who are both subject to the Fair Work Act. The recent review of the Fair Work Act suggested that the transfer of business provisions were working well. The only change recommended was to make it clear that when employees, on their own initiative, seek to transfer to a related entity of their current employer they will be subject to the terms and conditions of employment provided by the new employer.[2]

State governments except Western Australia referred their industrial relations powers to the Commonwealth in 2009.[3] Apart from Victoria, these referring states retained jurisdiction over state public servants, employees of public sector corporations apart from those engaged in national markets, and employees of local government bodies. Thus most state public services are not ‘national system employers’, so a transfer of business from a state or local government body to the private sector would not be caught by the existing transfer of business provisions. (Territory governments are within the national system.)

In recent months several state governments have announced redundancies. In Queensland, in particular, after the Government had foreshadowed job cuts, a directive of the Queensland Public Service Commissioner in July empowered the Government to override all employment security provisions and restrictions on the use of contractors in existing industrial instruments. (This directive did not apply to termination, change and redundancy provisions in awards.[4]) The Queensland Government Budget in September confirmed that there would be 14 000 redundancies.[5] Government statements and media reports suggest that many of the jobs would be outsourced to the private sector.[6]

Committee consideration

Senate Scrutiny of Bills Committee

The Senate Scrutiny of Bills Committee has observed that proposed subsection 768CA(2) of the Fair Work Act[7] is a ‘Henry VIII provision’: it explicitly would enable the making of regulations that would modify the legislation.[8] The Committee notes that it routinely raises concerns about so-called Henry VIII provisions that enable the executive government to modify the operation of primary legislation passed by the Parliament. Accordingly, the Committee has sought the Minister’s advice in relation to the justification for the approach in proposed subsection 768CA (2).

Policy position of non-government parties/independents

The Shadow Minister for Employment and Workplace Relations, Senator Eric Abetz, referring to the announcement by the Minister for Employment and Workplace Relations of his intention to introduce the Bill, argued that the proposed policy would leave workers worse off because they would be unable to compete for employment, and noted that most state public servants are outside the national system because state Labor governments had not referred power in respect of those employees.[9] These arguments were expanded on by Coalition members in the debate on the Bill in the House of Representatives.[10]

The Greens have supported the Bill, except that they believe that more should be done to protect public sector workers from state government cuts.[11] They have called for an urgent inquiry.[12]

Mr Bob Katter of Katter’s Australian Party supported the Bill, because he believes the changes being introduced by the Queensland Government could be counterproductive.[13]

Major interest groups

The Queensland Government opposes the policy. Initially there were reports that Queensland was threatening to withdraw from the national industrial relations system, but this was quickly withdrawn.[14] However, there are reports that the Queensland Government will challenge the legislation in the High Court.[15]

Trade unions have supported the Bill. The president of the Australian Council of Trade Unions, Ms Ged Kearney, is reported as saying that it would ‘go some way to preserving job security…’ and that privatisation and outsourcing were feeding the growth of insecure work in the public sector.[16]

Employer groups have criticised the Bill. The Australian Industry Group believes that the proposal could have a substantial impact on many private sector employers in industries such as social and community services, and that it would reduce job opportunities for state public sector employees. The Group noted that there were problems with the existing transfer of business provisions and that these had not been addressed.[17]

The Australian Confederation of Commerce and Industry (ACCI), in a letter to the Minister dated 26 September 2012, opposed the proposed amendment. It described the proposal as an unreasonable interference in the rights of a state government as an employer, and argued that it compromised the ability of a government to restructure its public sector. The ACCI also stated that the Bill interfered with the rights of private businesses, especially as it would impose new obligations on those already contracting work from the state government. ACCI further argued that the Bill ignored a longstanding recognition that the terms and conditions of the public and private sectors differ because the public sector is not exposed to competition. It warned that such action could spark retaliatory action, and that any jurisdictional battle would create uncertainty for business.[18]

The Australian Mines and Metals Association argued that the new laws would make it harder for former public servants to keep their jobs in the outsourced functions, and that this was a flaw in the existing transfer of business arrangements. The Association also considers that the legislation was an intrusion into the administration of state governments.

Financial implications

According to the Explanatory Memorandum the Bill has no financial implications.[19]

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.[20]

The Parliamentary Joint Committee on Human Rights had no comment on the Bill as it is ‘unlikely to raise human rights issues’.[21]

Key issues and provisions

Key provisions

Under Part 2-8 of the Fair Work Act, employees’ entitlements and conditions are preserved when a transfer of business takes place between two national system employers. Proposed Part 6-3A, inserted by Schedule 1 of the Bill, is an equivalent transfer of business regime that will apply to preserve employee conditions where there is a transfer of business from a state public sector employer to a national system employer.

Schedule 1—Transfer of business from a state public sector employer

Schedule 1, Part 1—Main amendments

New Part 6-3A of the Fair Work Act—Transfer of business from a state public sector employer

Item 1 of Part 1 of Schedule 1 of the Bill inserts new Part 6-3A into the Fair Work Act. The new Part 6-3A is entitled Transfer of business from a state public sector employer and consists of nine Divisions. As the proposed regime set out in this new Part is in many respects identical to the current transfer of business regime in Part 2-8 of the Fair Work Act, this Digest provides only a brief overview of the proposed provisions. For further detail the reader is referred to the Explanatory Memorandum.

New Division 1—Introduction

Proposed section 768AB in new Division 1 provides that for the purposes of New Part 6-3A ‘employee’ means a national system employee and ‘employer’ means a national system employer.

New Division 2—Copying terms of state instruments when there is a transfer of business

Proposed section 768AD in new Division 2 is one of the central provisions in new Part 6-3A. It describes when there is a transfer of business from an old state employer to a new employer. It is closely modelled on the corresponding provision (section 311) in Part 2-8 of the Fair Work Act.

In broad terms the new transfer of business rules apply where:

·         the employment of a person who is a state public sector employee[22] of the old employer has terminated

·         the employee transfers to a new employer within three months of their employment terminating with their old employer

·         the employee performs the same or similar work for the new employer as they did with their old employer and

·         there is a connection between the old employer and the new employer as described in any of proposed subsections 768AD(2) to (4). Broadly, there will be a connection where the old employer transfers assets or outsources work to the new employer, or the new employer is an associated entity of the old employer.[23]

New Division 3—Copied state instruments

New Division 3 of new Part 6-3A creates a mechanism to protect an employee’s terms and conditions of employment when they transfer from their old state employer to a national system employer. In simple terms, the transfer of those terms and conditions is achieved by creating a new federal instrument for each employee, called a ‘copied state instrument’. This new instrument copies the terms and conditions in the state award and/or state employment agreement that applied to the employee immediately before the time of termination of employment with the old employer.[24] Such copied instruments are created immediately after the termination time of the employee (proposed sections 768AI and 768AK) but do not apply before the employee becomes employed by the new employer (proposed section 768AN).

Copied state awards apply to transferring employees for five years or such longer time as ordered by Fair Work Australia (proposed subsection 768AO(2)). After that time the transferring employees will revert to the ordinary arrangements that apply at the new employer’s workplace. Copied state agreements cease to operate when they are terminated, which may happen before or after the nominal expiry date[25] of the agreement (proposed subsection 768AO(4)).

New Division 4—Interaction between copied state instruments and the NES, modern awards and enterprise agreements

New Division 4 of new Part 6-3A sets out the interaction between copied state instruments and the National Employment Standards (NES)[26], modern awards and enterprise agreements. A general principle applied is that a term of a copied state instrument has no effect to the extent that it is detrimental to an employee, in any respect, when compared to an entitlement of the employee under the NES (proposed section 768AQ).

New Division 5—Variation and termination of copied state instruments

New Division 5 of new Part 6-3A sets out the circumstances in which a copied state instrument can be varied and/or terminated. In general, proposed section 768AX allows Fair Work Australia to vary a copied state instrument (upon application or on its own initiative) in a number of circumstances, including to resolve ambiguities, uncertainties or conflicts and to better align the instrument with the working arrangements of the new employer. Otherwise, variations can be made in the same way as variations to ordinary state awards under the arrangements for transition to the Fair Work system (proposed section 768AW).

New Division 6—FWA orders about coverage of copied state instruments and other instruments

New Division 6 of new Part 6-3A provides for Fair Work Australia to make orders that modify the usual coverage of a copied state instrument.

New Division 7—FWA orders about consolidating copied state instruments et cetera

New Division 7 of new Part 6-3A allows Fair Work Australia to consolidate the various workplace instruments that may apply in a new employer’s workplace.

Proposed section 768BD provides that Fair Work Australia may make a consolidation order, which is an order that a copied state instrument for a particular transferring employee is also a copied state instrument for other transferring employees, having regard to a number of matters listed in proposed subsection 768BD(3). The matters listed include: the views of the particular additional transferring employees; the views of the new employer; the possible disadvantage to those employees; and whether the new employer would incur significant economic disadvantage if the order was not made. Proposed section 768BG is an equivalent provision allowing consolidation in relation to non‑transferring employees.

New Division 8—Special rules for copied state instruments

New Division 8 of new Part 6-3A consists of a collection of special rules for copied state instruments for transferring employees. Amongst other things, these rules include:

·         providing model terms for dispute resolution where none exist in the copied instrument (proposed section 768BK)

·         allowing an employee’s accrued entitlements to be preserved on transfer when the entitlement has not already been paid out by the old employer (proposed section 768BL to section 768BQ) and

·         allowing Fair Work Australia to make remedial take-home pay orders where the take‑home pay (as defined at proposed subsection 768BR(2)) of a transferring employee is reduced because a relevant copied state award expires (that is after at least five years) and the employee moves to a modern award (proposed section 768BR to section 768BW).

New Division 8 also contains consequential and necessary modifications to the Fair Work Act, the Fair Work (Registered Organisations) Act 2009 and the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 as they operate in relation to copied state instruments (proposed section 768BX to section 768BZ).

Comment

Most of these special rules are simple and consistent with existing practice and should not cause problems. One exception is to do with redundancy entitlements. Paragraph 121(1)(b) of the Fair Work Act excludes small business employers (those with fewer than 15 employees – see section 23 of the Fair Work Act) from the obligation to pay redundancy pay. Proposed paragraph 768BM(5)(b) provides that this does not apply for a period in cases covered by this Bill - that is, redundancy entitlements are to be retained on transfer, so that even a small business employer might be forced to make redundancy payments to a transferring state public sector employee covered by new Part 6-3A of the Fair Work Act, in the 12 months from the time that the employee commenced work with that small business.

Another issue that might arise relates to the cessation of copied state awards. Proposed subsection 768AO(2) provides that copied state awards expire after five years (or such longer period as provided by Fair Work Australia) from the employee’s termination with the old state employer. Proposed subsection 768BR(1) provides that such cessation is not intended to result in a reduction in take-home pay. Proposed subsection 768BR(3) provides that where there is such a reduction, Fair Work Australia can make an order in effect to maintain the existing salary. It would seem that five years is an extraordinarily long time to guarantee a pay level. There is no similar provision in the Fair Work Act for other transfers of business.

New Division 9—Regulations

Proposed section 768CA in new Division 9 of Part 6-3A provides a regulation-making power to deal with copied state instruments. Note that the Scrutiny of Bills Committee has commented on this provision.[27]

Schedule 1, Part 2—Other amendments

Part 2 of Schedule 1 of the Bill includes numerous consequential amendments to the Fair Work Act, the Fair Work (Registered Organisations) Act and the Fair Work (Transitional Provisions and Consequential Amendments) Act. The more significant amendments include:

·         items 4 to 43 of Part 2 of Schedule 1, which make amendments to definitions and insert new definitions within section 12 of the Fair Work Act in order to reflect the new transfer of business regime in proposed Part 6-3A. The amendments include new definitions of ‘state public sector employee’ and ‘state public sector employer’ and

·         item 68 of Part 2 of Schedule 1, which inserts proposed subclause 2(1A) into Schedule 1 of the Fair Work (Registered Organisations) Act to enable certain state registered associations to apply to Fair Work Australia for transitional recognition in the federal workplace relations system.

Other issues

The first issue in considering this Bill is whether it is a trespass on states’ rights. Of the states that referred their industrial relations powers to the Commonwealth, all (apart from Victoria) chose not to refer the power to regulate the employment of state and local government bodies. The Bill may not attempt to regulate such employment, since the copied state instruments exist only after termination of employment. However it could be argued that the Bill does impinge on the ability of states to terminate employment. (On the other hand, the action of the Queensland government in overriding provisions in existing instruments was unusual.) Further, the Bill will apply to former employees of the Western Australian Government, even though Western Australia has not joined the national system.

The main justification for the Bill is that it extends to a particular group of employees a very widely held protection, that protection being the right to retain the benefit of existing terms and conditions of employment in circumstances where there is a transfer of business. Extending such protection might seem more urgent in the light of the Queensland Government’s overriding of protective provisions in existing agreements. However, it is notable that local government employees would currently appear to be left without such protection.[28]

The Bill would transfer accrued liabilities such as eligibility for long service leave and redundancy payments from the state government to new employers. It is not clear whether there are new employers who have already signed contracts to provide services who will now be caught by increased costs.

Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2500.

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ISSN 1328-8091

[1].              See Part 2-8 of the Fair Work Act, which is accessible at: http://www.comlaw.gov.au/Details/C2012C00643

[2].              Australian Government, Towards more productive and equitable workplaces: an evaluation of the fair

              work legislation, Department of Education, Employment and Workplace Relations (DEEWR), 15 June 2012, viewed 9 November 2012, http://www.deewr.gov.au/WorkplaceRelations/Policies/FairWorkActReview

[3].              Victoria was the first state to refer power, facilitated via the Fair Work (State Referral and Consequential and Other Amendments) Act 2009. For the other states, apart from Western Australia, referral of power was via the Fair Work Amendment (State Referrals and Other Measures) Act 2009. This is discussed in S O’Neill and M A Neilsen, Fair Work (State Referral and Consequential and Other Amendments) Bill 2009, Bills Digest, no. 168, 2008–09, Parliamentary Library, Canberra, 2009, viewed 14 November 2012, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query%3DId%3A%22legislation%2Fbillsdgs%2FW6UT6%22

[4].              Public Service Commission (Queensland), Chief executive directive No. 08/12: industrial instruments: employment security and contracting out provisions, 31 July 2012, viewed 30 October 2012, http://www.psc.qld.gov.au/page/corporate-publications/directive/release-date.shtml

[5].              Brisbane Times, ‘List: job cuts by portfolio’, Brisbane Times, 11 September 2012, viewed 30 October 2012, http://www.brisbanetimes.com.au/queensland/list-job-cuts-by-portfolio-20120911-25px8.html

[6].              See, for example, J Bajkowski and P Hemsley, ‘Queensland overhauls technology procurement’, Government News, 20 August 2012, viewed 30 October 2012, http://www.governmentnews.com.au/2012/08/20/article/Queensland-overhauls-technology-procurement/JEDCXAEUNL; A Bender, ‘Queensland to revamp “clunker” payroll systems’, Computerworld, 20 August 2012, viewed 30 October 2012, http://www.computerworld.com.au/article/433996/queensland_revamp_clunker_payroll_systems/

[7].              Inserted by item 1 of Part 1, Schedule 1 of the Bill.

[8].              Senate, Standing Committee for the Scrutiny of Bills, Alert Digest No. 13 of 2012, 31 October 2012, p. 13, viewed 9 November 2012, http://www.aph.gov.au/Parliamentary_Business/Committees/Senate_Committees?url=scrutiny/alerts/2012/index.htm

[9].              E Abetz, ‘Address to the Brisbane Club Workplace Relations Special Interest Group’, Brisbane, 26 September 2012, viewed 30 October 2012, http://abetz.com.au/speeches/address-to-the-brisbane-club-workplace-relations-special-interest-group-brisbane

[10].              For example, S Ley, ‘Second reading speech: Fair Work Amendment (Transfer of Business) Bill 2012’, House of Representatives, Debates, 1 November 2012, pp. 12 934–12 938, viewed 9 November 2012, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22chamber%2Fhansardr%2Fa99811dc-5385-4eff-88af-aa8ad29fe367%2F0058%22

[11].              A Bandt, ‘Second reading speech: Fair Work Amendment (Transfer of Business) Bill 2012’, House of Representatives, Debates, 1 November 2012, pp. 12 940–12 941, viewed 9 November 2012,

              http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22chamber%2Fhansardr%2Fa99811dc-5385-4eff-88af-aa8ad29fe367%2F0059%22

[12].              ‘Greens call for state public service protections inquiry’, Workplace Express, 23 October 2012.

[13].              B Katter, ‘Second reading speech: Fair Work Amendment (Transfer of Business) Bill 2012’, House of Representatives, Debates, 1 November 2012, pp. 12 954–12 956, viewed 9 November 2012,               http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22chamber%2Fhansardr%2Fa99811dc-5385-4eff-88af-aa8ad29fe367%2F0064%22

[14].              WorkplaceInfo, ‘Newman slaps down plan to take back Qld IR powers’, WorkplaceInfo, 25 September 2012, viewed 31 October 2012, http://www.workplaceinfo.com.au/legislation/state-and-territory/newman-slaps-down-plan-to-take-back-qld-ir-powers

[15].              M McKenna, ‘Newman threat to block law’, The Australian, 12 October 2012, viewed 31 October 2012, http://www.theaustralian.com.au/national-affairs/state-politics/newman-threat-to-block-law/story-e6frgczx-1226493969482

[16].              Workplace Express, ‘Government to extend transfer of business laws to state public sector’, Workplace Express, 21 September 2012.

[17].              I Willox, Transfer of business Bill would operate unfairly for employers and employees, Australian Industry Group, media release, 11 October 2012, viewed 30 October 2012, http://www.aigroup.com.au/portal/site/aig/template.MAXIMIZE/mediacentre/releases/?javax.portlet.tpst=576c3f2a4adc0f512aec2f100141a0a0_ws_MX&javax.portlet.prp_576c3f2a4adc0f512aec2f100141a0a0=index%3D8%26docName%3DTransfer%2Bof%2BBusiness%2BBill%2BWould%2BOperate%2BUnfairly%2Bfor%2BEmployers%2Band%2BEmployees%26viewID%3Dcontent%26folderPath%3D%252FLIVE_CONTENT%252FMedia%2BReleases%252F2012%252FOctober%252F&javax.portlet.begCacheTok=com.vignette.cachetoken&javax.portlet.endCacheTok=com.vignette.cachetoken

[18].              P Anderson (Chief Executive of the Australian Chamber of Commerce and Industry) to Bill Shorten, MP, Minister for Employment and Industrial Relations, 26 September 2012, accessed through a link in ‘Please reconsider – ACCI opposing transfer of business changes’, Workplace Express, 28 September 2012.

[19].              Explanatory Memorandum, Fair Work Amendment (Transfer of Business) Bill 2012, p. 3.

[20].              The Statement of Compatibility with Human Rights can be found at page 3 of the Explanatory Memorandum to the Bill.

[21].              Parliamentary Joint Committee on Human Rights, Examination of legislation in accordance with the Human Rights (Parliamentary Scrutiny) Act 2011: Sixth report of 2012, October 2012, viewed 16 November 2012, http://www.aph.gov.au/Parliamentary_Business/Committees/Senate_Committees?url=humanrights_ctte/reports/6_2012/index.htm

[22].              A state public sector employee, of a state, is defined as:

(a)              an employee of a state public sector employer of the state; or

(b)              any other non‑national system employee in the state of a kind specified in the regulations; and includes a law enforcement officer of the state. (This definition is inserted into section 12 of the Fair Work Act, by item 34, Part 2 of Schedule 1 of the Bill).

A state public sector employer of a state, means a non‑national system employer that is:

(a)              the state, the Governor of the state or a Minister of the state; or

(b)              a body corporate that is established for a public purpose by or under a law of the state, by the Governor of the state or by a Minister of the state; or

(c)              a body corporate in which the state has a controlling interest; or

(d)              a person who employs individuals for the purposes of an unincorporated body that is established for a public purpose by or under a law of the state, by the Governor of the state or by a Minister of the state; or

(e)              any other employer in the state of a kind specified in the regulations;

and includes a non‑national system employer of law enforcement officers of the state. (This definition is inserted into section 12 of the Fair Work Act, by item 35, Part 2 of Schedule 1 of the Bill).

[23].              Explanatory Memorandum, p. 8.

[24].              In simple terms, an award is an instrument that regulates terms and conditions of employment and is made under an industrial law by an industrial body; an employment agreement is an instrument that regulates terms and conditions of employment and is either made between an employer and its employees or a determination made by an industrial body where the employer and employees had not been able to reach agreement.

[25].              The nominal expiry date is the earliest date of: four years after the employee’s termination or the day the original state agreement would nominally have expired under the state industrial law (proposed subsection 768AO(5)).

[26].              The NES (set out at sections 59 to 125 of the Fair Work Act) cover maximum weekly hours, requests for flexible work, annual leave, parental leave, personal and carers’ leave, community service leave, public holidays, notice of termination and redundancy pay, long service leave and an information statement for new employees.

[27].              See above at p. 3 of the Bills Digest.

[28].              It appears that it would be possible for regulations to be made to bring local government employees within the definition of ‘state public sector employee’ (which will be inserted into section 12 of the Fair Work Act by item 34 of Schedule 1 to the Bill) and to bring local government agencies within the definition of ‘state public sector employer’ (which will be inserted into section 12 of the Fair Work Act by item 35 of Schedule 1 to the Bill). However, the Explanatory Memorandum to the Bill does not mention local government employees or suggest that it is intended that they be covered by the new provisions.