Latest news – Key changes to Modern Award; AGM contingency warning; How to manage your reputation

[Australasian Law Management Journal,Finance & Accounting,General Management,Strategy & Leadership] March 25, 2020

Law firms need to be across changes to Modern Award

By Ben Duggan, Director, DW Fox Tucker Lawyers

The Fair Work Commission (FWC) has finalised its consideration of Annualised Wage Arrangements as part of its four-yearly review of the Modern Award.

A key change to the current arrangements is the move towards two model clauses for annual salary arrangements that will introduce the following requirements:

  • the obligation for employers to notify employees of details of their annual salary arrangements;
  • record-keeping obligations in relation to the annual salary arrangement for employers; and
  • the need for employers to conduct a reconciliation each year.

A number of modern awards, including the Legal Services Modern Award, which applies to law clerks and administrative staff, contains an Annualised Wage Arrangement term which will be impacted by the introduction of these changes, which start from the first pay period from March 1, 2020.

Private law firms that commonly use Annualised Wage Arrangements will need to comply with these changes from this time. We discuss the proposed key changes to Annualised Salary Arrangements to be introduced by these changes below.

The statutory framework

A modern award may include a number of terms that are identified in the Fair Work Act (Cth) 2009 (FW Act), including:

Annualised wage arrangements that:

(i) have regard to the patterns of work in an occupation, industry or enterprise;

(ii) provide an alternative to the separate payment of wages and other weekly entitlements; and

(iii) include appropriate safeguards to ensure that individual employees are not disadvantaged.

The FWC is, in turn, required to conduct a four-yearly review of the terms of modern awards in accordance with section 156 of the FW Act.

Two new model clauses

In its four-yearly review of modern awards, the FWC has sought, where possible, to introduce model clauses across modern awards.

As such, the FWC’s proposal to introduce two model Annualised Wage clauses across those modern awards that contain such clauses should not be a surprise. The two model Annualised Wage clauses are in substantially the same form, with Model Clause 1 to be introduced into those modern awards where employees work reasonable stable hours and Model Clause 3 to be introduced into those modern awards where the hours are highly variable.

Model Clause 1 (the form of which is set out below) has been selected from these clauses for introduction into the Legal Services Modern Award.

Employer groups are disappointed with the form of the two model clauses that propose the introduction of new requirements, in particular record keeping and reconciliation requests, that will increase the compliance requirements on employers who utilise Annualised Wage Arrangements.

The FWC rationale for the proposed introduction of a reconciliation requirement was that a number of Annual Salary Arrangements clauses in existing model awards were not drafted in such a manner as to ensure that employees were not disadvantaged as required by section 139(1)(iii) of the FW Act.

A reconciliation requirement was thought to be the most effective means of ensuring that there was no employee disadvantaged by an Annualised Wage Arrangement entered into under a modern award.

The FWC also concluded that a record-keeping requirement was a necessary incident of the requirement to conduct an annual reconciliation. An opportunity was provided for interested parties to lodge further limited submissions in relation to the proposed introduction of these new requirements following an interim decision of the FWC at the end of February 2019.

The AiG, the ASU and several other interested parties have made further submissions during March and April 2019 that deal with several issues, in particular, the need for and nature of transitional provisions.

The FWC has determined in response to these submissions to make a slight alteration to the record-keeping obligations under the two model Annualised Wage clauses, which require an employee acknowledgement of the hours that they work and the breaks that they take from work is required to be obtained by the employer for each roster period.

 Key requirements

The key requirements which shall apply to law clerks and administrative employees engaged on a full time basis with an Annualised Wage Arrangement are as follows:

  • the employer to notify in writing the details of the employees Annualised Wage Arrangement;
  • the identification of the clauses in the Legal Services Modern Award that are being satisfied by the Annualised Wage Arrangement;
  • the identification of an outer limit of the hours that would attract penalties or overtime which the employee may be required to work over a pay period or roster cycle for the Annualised Wage Arrangement;
  • the payment to an employee for any additional hours worked outside of the outer limit within the pay period or roster cycle;
  • the obligation on an employer to keep records of an employee’s start time, finish time and unpaid breaks with an employee acknowledgement of the accuracy of the record;
  • an annual reconciliation every 12 months of an employee’s Annualised Wage Arrangement to ensure that the Annualised Wage is at least equal to the amount the employee would have received under the Legal Services Modern Award.

Comment

A number of private law firms use annual salary arrangements for their employees, including award-based law clerks and administrative employees in their business. This is primarily for administrative and payroll convenience.

The FWC’s conclusion that there is a need to introduce additional requirements, in particular, notification of the details of the components of the salary, record-keeping and reconciliation requirements for annual salary arrangements will increase the administrative burden of these arrangements for employers, including private law firms, who use these arrangements.

Law firms are likely to continue with annual salary arrangements despite these proposed additional requirements diminishing some of the advantages to them in entering into such arrangements.

MODEL CLAUSE 1

X. Annualised Wage Arrangements

X.1 Annualised wage instead of award provisions

(a) An employer may pay a full-time employee an annualised wage in satisfaction, subject to clause X.1(c), of any or all of the following provisions of the award:

(i) clause X – Minimum weekly wages;

(ii) clause X – Allowances;

(iii) clause X – Overtime penalty rates

(iv) clause X – Weekend and other penalty rates; and

(iv) clause X – Annual leave loading

(b) Where an annualised wage is paid the employer must advise the employee in writing, and keep a record of:

(i) the annualised wage that is payable;

(ii) which of the provisions of this award will be satisfied by payment of the annualised wage;

(iii) the method by which the annualised wage has been calculated, including specification of each separate component of the annualised wage and any overtime or penalty assumptions used in the calculation; and

(iv) the outer limit number of ordinary hours which would attract the payment of a penalty rate under the award and the outer limit number of overtime hours which the employee may be required to work in a pay period or roster cycle without being entitled to an amount in excess of the annualised wage in accordance with clause X.1(c).

(c) If in a pay period or roster cycle an employee works any hours in excess of either of the outer limit amounts specified pursuant to clause X.1(b)(iv), such hours will not be covered by the annualised wage and must separately be paid for in accordance with the applicable provisions of this award.

X.2 Annualised wage not to disadvantage employees

(a) The annualised wage must be no less than the amount the employee would have received under this award for the work performed over the year for which the wage is paid (or if the employment ceases earlier over such lesser period as has been worked).

(b) The employer must each 12 months from the commencement of the annualised wage arrangement or upon the termination of employment of the employee calculate the amount of remuneration that would have been payable to the employee under the provisions of this award over the relevant period and compare it to the amount of the annualised wage actually paid to the employee. Where the latter amount is less than the former amount, the employer shall pay the employee the amount of the shortfall within 14 days.

(c) The employer must keep a record of the starting and finishing times, and any unpaid breaks taken, of each employee subject to an annualised wage arrangement for the purpose of undertaking the comparison required by clause X.2(b). This record must be signed by the employee each pay period or roster cycle.

X.3 Base rate of pay for employees on annual salary arrangements 

For the purposes of the NES, the base rate of pay of an employee receiving an annual salary under this clause comprises the portion of the annual salary equivalent to the relevant rate of pay in clause X – Minimum weekly wages and excludes any incentive-based payments, bonuses, loadings, monetary allowances, overtime and penalties.

 

Law Council advises contingency plans for AGMs

Companies planning their annual general meeting or other general meetings during the current pandemic should be considering developing contingency plans, according to the Law Council of Australia.

This follows the release of a guidance note, developed by the Law Council in partnership with the Governance Institute of Australia and the Australasian Investor Relations Association. Law Council President Pauline Wright says companies will need to make sure that arrangements for an AGM provide a reasonable opportunity for shareholders to participate in the meeting, including having a reasonable opportunity for shareholders to ask questions, make comments and to vote.

“While noting that each company’s situation will be different, having plans in place is imperative,” Wright says. “This includes checking relevant provisions of the company’s constitution and coordinating with share registries, making sure shareholders are kept regularly updated and are given the maximum opportunity to have their say.”

This guidance comes as the Federal Government announces that it will lessen the threats of actions that could push businesses into insolvency, an approach which is fully supported by the Law Council of Australia. These measures include providing temporary flexibility in the Corporations Act 2001 to provide targeted relief for companies from provisions of the Act to deal with unforeseen events that arise as a result of the coronavirus health crisis.

“It is important that businesses have a safety net to make sure that once the crisis has passed, they can resume normal business operations,” Wright says. “We welcome these measures to assist otherwise profitable businesses that may find themselves facing financial distress during this time. These changes will make sure that companies have the confidence to continue to trade and keep the economy going.”

The guidance note can be found here.

 

 

Organisational reputation getting harder to manage

An annual survey of senior leaders has found that the culture of an organisation is increasingly critical to its reputation.

The 2020 Reputation Reality report, prepared by SenateSHJ in partnership with the Governance Institute, surveyed 278 senior executives from Australia and New Zealand. The results show that integrity, relationships and quality of products and services are the three most important drivers of reputation. Culture is fourth on the list – but impacts all of these.

Two-thirds of senior executives surveyed say that reputation is more important to manage now than it was three years ago, but is harder to manage than other types of risk. SenateSHJ managing partner Darren Behar says many senior executives now recognise that culture underpins reputation.

“The biggest reputational crisis of 2019 were all in some way the result of culture,” Behar says. “It is a surprise that culture ranks only fourth in the list of drivers of reputation given the growing awareness of its importance and the high-profile discussion about culture within regulators, industry bodies, government and boardrooms across the country. We would expect it to continue to rise in importance.”

Governance Institute of Australia CEO Megan Motto says it is up to an organisation’s senior management team to ensure they are setting the benchmark for culture and ethical practices. “The CEO and senior management of an organisation have the most influence on the culture and overall ethical practices of the business,” she says. “Good culture is critical for long-term value for shareholders and stakeholders, and to attract and retain the talent to be innovative.”

Other key findings from the report include:

  • almost 80 per cent say risks affecting their organisations have increased in the past three years;
  • chief executives are nominated as the number one trusted source of information in a crisis;
  • almost three quarters rank stakeholder engagement as a crucial area in which to invest;
  • less than a third of organisations surveyed test their crisis communication plans annually; and
  • less than a quarter of organisations are ‘very confident’ in managing digital and social media channels during a crisis.

Click here for the report.