Costs and benefits
From an employee perspective there is very little benefit to be gained from entering into an IFA. It is open to employees to negotiate access to additional flexibilities either through an informal over-award arrangement or common law contract provided that the arrangement does not undermine the terms and conditions contained in the relevant enterprise agreement or modern award.
The key difference between these arrangements and IFAs is that the operation of the BOOT enables IFAs to include terms that are less beneficial provided that the employee is financially better off overall where as other arrangements must not derogate in any respect from specific entitlements contained in a modern award of enterprise agreement. For example it is possible to make an IFA that permits the employer to pay a higher flat rate of pay than the award rate which incorporates allowances, penalty rates and overtime provided that the employee is ultimately better off overall. To the extent that IFAs enable employees to make arrangements of this nature (that involve trading off minimum terms and conditions of employment) the benefit to employees is likely to be minimal.
Moreover, in practice, the capacity of employees to negotiate individual flexibility arrangements that leave them better off overall is limited. Many employers are either unwilling to accommodate requests for flexible hours and/or require that their employees sacrifice job security in exchange for the desired flexible. For example, it is common practice among retail employers to offer flexible working arrangements to employees on the condition that they move from permanent to casual employment.
We are not aware of any empirical research focusing on the extent to which individual agreements (as opposed to other forms of industrial regulation) actually lead to more flexible work arrangements. However, in our experience employers are generally unwilling to provide employees with employee-focused flexible work arrangements (such as flexible hours, working from home, time off in lieu, job sharing and part-time work arrangements) unless compelled to do so either through an award or collective agreement, even where the proposed flexibility could be implemented on a cost neutral basis. Not surprisingly this reluctance on the part of employers has an impact on the extent to which employees seek to negotiate individual flexibilities and the content of those flexibilities sought. The 2012 Australian Work Life Survey Index (AWALI) survey reveals that a quarter of all workers and a third of full time workers are not content with current arrangements but have not requested flexibility. Many of these ‘discontent non-requesters’ say that flexibility is simply not available to them (either because they are not convinced their employer will allow it, or their job does not allow it, or flexibility is simply not possible).602 The flexibilities sought by employers typically relate to cost-cutting measures and/or an increased managerial control for example in relation to rostering.
Access to flexible work practices that benefit employees (such as banking of hours, flexible start and finish times, job sharing, arrangement for employees to change from full time to part-time employment and working from home) are much more likely to be obtained on a collective basis either through changes to the award safety net or collective bargaining. Indeed the prevalence of these work practices is a testament to Australian Unions and the capacity to improve living standards through collective action.
The enforcements arrangements in relation to IFAs are not satisfactory. As noted above, there is no obligation on the negotiating parties to inform anyone that an IFA has been made and consequently there is no way of systematically identifying unlawful IFAs at the negotiation stage.
In order to ensure that IFAs are not being abused it is necessary for those with enforcement powers to conduct large-scale audits to identify employers/employees that have an IFA in place and obtain a copy of the arrangement. This is a time-consuming and costly exercise regardless of whether the task is performed by the FWO or by union officials exercising entry rights pursuant to the FW Act. It is also an inefficient means of ensuring that IFAs are made in accordance with the legislative requirements as it is necessary to repeat the process at regular intervals in order to deter non-compliance.
The 2012 Review Panel recommended that the FW Act be amended to require an employer, upon making an individual flexibility arrangement, to notify the FWO in writing (including by electronic means) of the commencement date of the arrangement, the name of the employee party and the modern award or enterprise agreement under which the arrangement is made.
In our view, notification alone is unlikely to achieve a satisfactory level of compliance. It is necessary for the content of proposed IFAs to be scrutinised and for this reason, we propose that parties should be required to obtain compulsory pre-approval advice from a relevant union or alternatively, where there is no union that is eligible to represent the employee and willing to provide such advice, an independent authority, such as the FWO.
Can individual statutory arrangements ever work?
The imbalance of power that exists in the employee/employer relationship necessitates industrial regulation that protects employees from exploitation and provides access to decent work. This requires minimum standards and collectivism. We doubt that it is possible to completely compensate for a lack of collectivism through higher standards. If one was to venture down this path, the protections that would need to be place in order to enable employees to negotiate bespoke agreements in the absence of collectivism would at the very least include:
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a non-contestable safety net that establishes appropriate minimum standards that apply to all employees;
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a threshold test for agreements that ensures individual arrangements do not derogate in any respect from the conditions of employment that would otherwise apply to the employee concerned under the terms of a modern award or enterprise agreement OR otherwise undermine the safety net and fundamental right to collective bargaining; and
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genuine consent evidenced by compulsory pre-approval advice from a relevant union or alternatively, where there is no union that is eligible to represent the employee and willing to provide such advice, an independent authority.
In other words, in the absence of an iron clad and enforceable guarantee that the safety net in all respects remains in place and is improved upon, there is no incentive for employees to freely and genuinely agree to an individual arrangement. If experience is anything to go by, these guarantees would make such arrangements highly unattractive to the types of employers who historically have shown the greatest enthusiasm for them.
The 2012 Review Panel received a large number of submissions from employer organisations claiming that the use of IFAs is low because, in their view, IFAs do not provide meaningful flexibility. The Panel’s Report notes that:
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Many employers and employer organisations submitted that IFAs should be able to be offered as a condition of employment.603
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Some employers also submitted that the model clause should permit flexibility on a greater number of matters604, or all matters pertaining to the employment relationship605 or changes to the NES.606
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The capacity for an employee to unilaterally terminate an IFA with 28 days notice was cited by many as a key disincentive to use IFAs.607
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Another key issue employers identified with IFAs was the lack of certainty as to whether they pass the better off overall test (BOOT).608 Some submitted that the model term lacks clarity about what can be varied609, and some argued that the application of the BOOT was an unnecessary restriction on IFAs.610
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Finally, some employer submissions suggested that it should be permissible to use IFAs to implement identical arrangements across a group of employees.
The objections raised by employers in relation to IFAs relate to safeguards that are designed to prevent employers using IFAs to undermine the safety net and enable the employer and employee to freely negotiate the terms of an agreement to their mutual advantage. The only existing safeguard on IFA’s that employer organisations have not objected to is the requirement that an IFA must be in writing and be signed by the employer, the employee and his or her legal guardian if the employee is under 18.
Clearly there are some employers that are reluctant to use IFAs unless it is possible to exploit the arrangement to undercut minimum terms and conditions of employment. As long as the purpose of an IFA is to enable the parties to enter into an arrangement that genuinely accommodates individual’s needs and circumstances and ensure the employee remain better off overall, employer organisations will complain they are inflexible.
In 2015 the FWC published a Report on the Australia Workplace Relations Study (AWRS), a Australia-wide statistical dataset linking employer data with employee data. The Study has been designed to be representative of employers and employees covered by the FW Act. Among other things, the Report contains information about employer’s reasons for not entering into an IFA.
The results of the survey confirm that there are a variety of factors that explain why employers do not use IFAs. The most commonly cited reasons are that employers prefer to use informal or undocumented arrangements instead (43.2%) and that no employees wanted a flexible work practice (39.9%).
Importantly, only a very small proportion of employers indicated that IFAs do not provide sufficient flexibility (2.6%), are not reliable long term (0.6%) or are concerned about the risk of penalties if used incorrectly (0.5%). Indeed, nearly a quarter (20.8) of employers that hadn’t used an IFA believe there is sufficient flexibility in either award or enterprise provisions and 6.4% prefer to use common law contracts instead.
These findings suggest that one of the major reasons why IFAs are not being utilized is that there is simply no need for them. There is sufficient flexibility in other industrial instruments to enable businesses to operate effectively and tailor working conditions to individual employees in a way that does not detract from the safety net.
The survey results also indicate that a more significant impediment to the use of IFAs than the existing safeguards is that 5.3% of employers are either unaware that IFA provisions exist or don’t know understand how to use them.
The FW Act recognises that the most effective way of protecting employees from exploitative practices and ensuring access to decent work is to provide a guaranteed safety net of fair, relevant and enforceable minimum terms and prioritise to collective bargaining. The history of industrial regulation, both in Australia and internationally, demonstrates that a greater reliance on individual bargaining benefits employers over employees and, in the absence of adequate safeguards, results in workers being subjected to inhumane working conditions and living in poverty. For these reasons, unions are vehemently opposed to so-called reforms that promote individual bargaining at the expense of minimum standards, freedom of association and the right to collective bargaining.
The ACTU’s position in relation to IFAs is that they serve no useful purpose. There is ample flexibility within the existing award safety net and scope to alter minimum terms and conditions of employment where necessary in accordance with the modern awards objective. If business requires even greater ‘flexibility’ this is something that should be negotiated collectively with the workforce and their union, to ensure that workers’ interests are properly accommodated.
We recognise that common law contracts enable individuals to formalise arrangements that are in excess of award/agreement conditions and provide access to a broader range of remedies for breach. However, for the vast majority of employees, collective bargaining is a more effective means of securing fair wages and conditions.
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