INDIVIDUAL FLEXIBILITY ARRANGEMENTS

Engaging in flexible work practices can prove to be beneficial for both employees and employers. Section 3 of the Fair Work Act 2009 (Cth) (‘the Act’) lists its objective as being to ‘provide a balanced framework for cooperative and productive workplace relations that promotes national economic prosperity and social inclusion for all Australians’. A recent Full Bench of the Fair Work Commission (‘FWC’) decision acknowledged that obtaining such balance required balancing the interests of business and unions, work and family and fairness and flexibility. Pursuant to this objective, the Act attempts to improve flexibility by the implementation of Individual Flexibility Arrangements (‘IFAs’), allowing for necessary variations to Modern Awards and Enterprise Agreements to facilitate the requirements of employers and individual employees.

More recently there has been a push to increase the scope of IFAs and their discretion to vary more than is currently allowed, for example implementing preferred hours and minimum engagement periods within IFAs. To date much of this has been unsuccessful. However, with the Full Bench decision, which considered some fifteen applications to vary the standard award flexibility provisions in ten Modern Awards, some relief for employers and employees has been realized with an increased notice period of thirteen weeks required to terminate an IFA. This development provides much needed stability for all involved.

How do you create an Individual Flexibility Arrangement?

Most Modern Awards contain a standard flexibility provision, allowing an employer and an individual employee to agree on an arrangement varying the effect of specified parts of the award.

Section 144(4) of the Act provides that the standard flexibility term must specify which clauses of the Modern Award may be varied by an IFA. Currently the only matters which may be addressed and varied by use of an IFA are:

  1. When work is performed (for example hours, rostering, breaks and notice periods);
  2. Overtime rates;
  3. Penalty rates;
  4. Allowances; and
  5. Leave loading.

 
When entering into an IFA the following must be taken into consideration at all times:

  1. The employer must ensure that the employee has understood and agrees to the IFA;
  2. The employer must have concern for the cultural differences impacting the employees understanding of the IFA;
  3. An employee entering into an IFA must be an existing employee of the employer (i.e. it cannot be offered to a prospective employee);
  4. Neither an individual employee nor the employer may be coerced or forced to enter into an IFA; and
  5. An employee cannot be treated adversely for refusing to enter into an IFA.

 
For an IFA to be effective it must be in writing and signed by both the employer and the employee. In the event the employee is under the age of 18, it must also be signed be the employee’s parent/guardian. Further, both the employee and the employer must receive a copy of the executed IFA.

In all circumstances it is the employer’s responsibility to ensure that the proposed IFA satisfies the BOOT test and meets all requirements under the Act.

The BOOT test

In order to be effective, entering into an IFA must result in the employee being better off overall than had the employee been if an IFA was not entered into. In order to establish that the BOOT test has been passed employers will normally need to show what the employee would have received financially had they not been under an IFA, and what they would receive when engaged pursuant to an IFA.

Further, the Full Bench decision provided that the BOOT test is assessed at the time the IFA is entered into, and not throughout the term of employment.

Penalties

IFAs do not need to be registered or approved by the FWC, however in the event an IFA is incorrectly drafted and implemented there are penalties for the employer.

In the event an IFA is entered into incorrectly the terms of the IFA will continue to apply to the employment relationship as if the IFA was entered into correctly. This is to ensure that whilst it is essentially invalid, the employee still enjoys the benefits and advantages provided to them as a result of the IFA, had it been entered into correctly. However, in the event the employee desires to terminate the IFA they may do so on the grounds that they are being disadvantaged. Should this occur the employee may take action against the respective employer for damages and penalties applicable in the circumstances.

In the event an employer fails to ensure that an IFA is made correctly, and entered into following correct procedure, monetary penalties will apply as follows:

  1. Individual employers – $10,200; and
  2. Body Corporates employers – $51,000

 
Termination of an IFA

Under standard circumstance an IFA may be terminated unilaterally by either the employer or the employee with written notice. Following the recent Full Bench decision an IFA may only be terminated with thirteen weeks’ notice. Prior to the Full Bench decision IFAs could be terminated upon four weeks’ notice.

There are clear benefits for both employers and employees when entering into IFAs. They may assist not only by providing administrative ease to employers and allowing them to retain employees they otherwise may have lost, but allow employees flexibility whilst being assured that they are receiving the minimum entitlements, and in fact are better off overall than had they not entered into an IFA. Whilst they appear simple to prepare, in reality there are some pitfalls to their implementation and execution. Employers must tread carefully in this respect and ensure that all IFAs satisfy the BOOT test, follows legislative requirements and are entered into correctly. There are significant penalties for employers should this not be followed.

Pointon Partners has extensive experience in advising on the above issues, including the preparation of IFAs.

If you have any queries or require any assistance in this area please contact Michael Bishop of our office on 03 9614 7707.

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