The Fair Work Act 2009 (FW Act) introduced mandatory individual flexibility terms into modern awards and enterprise agreements (EA) to provide employers and employees the ability to alter certain award terms or enterprise agreement terms.

The primary intention of flexibility terms is to provide employers and employees the flexibility to meet organizational needs and individual employee’s personal needs while ensuring the employee is better off overall than they would have been had no flexibility arrangement been entered into.

What is a flexibility term?

The FW Act requires every modern award and enterprise agreement to include a flexibility term.

A flexibility term enables an employer and an individual employee to agree on an Individual Flexibility Arrangement (IFA) which varies the effect of certain terms contained in modern awards and terms contained in enterprise agreements in order to meet the genuine needs of the employer and the individual employee whilst ensuring the employee is better off overall.

IFAs under modern awards

Each modern award contains an “Award Flexibility” clause which provides that an IFA may only vary the effect of certain award terms, including:

• arrangements for when work is performed
• overtime rates
• penalty rates
• allowances
• leave loading.

It is not possible to make an IFA that purports to vary any other provision of a modern award.

An IFA can only be made after an employee has commenced employment and has become covered by a modern award.

An employer cannot insist upon an employee agreeing to an IFA as a condition of employment, nor can an employer discriminate or take adverse action against an employee for refusing to agree to an IFA.

Once the IFA is made, it has effect as if it were actually a term of the modern award for the individual employee to whom it applies.

IFAs under enterprise agreements

All EAs must contain a flexibility term. If an EA does not contain a flexibility term then the model flexibility term referred (pro-forma term) contained in the FWA regulations will be deemed to be imported into the EA.

Unlike modern awards, an IFA made under an EA can vary the effect of any of the terms of the EA that are referred to in the flexibility term contained in the EA. The IFA agreed to under the flexibility term must be about permitted matters and not unlawful matters, as if the arrangement were an EA.

The breadth or limited scope of the flexibility term will be determined by the outcome of negotiations for the EA.

As with modern awards, once the IFA is made, it has effect as if it were an expressed term of the EA for the individual employee subject to the IFA.

What are the minimum requirements for the IFA to comply with the FWA?

The IFA must be:

• genuinely agreed to by both parties
• in writing
• signed by the employer and employee (and the employee’s parent or guardian if the employee is under 18 years of age)
• not require the approval or consent of a person other than the employer and individual employee
• state each term of the modern award or enterprise agreement that the parties have agreed to vary the effect of
• detail how the application of each term has been varied
• detail how the IFA results in the individual employee being better off overall in relation to the individual employee’s terms and conditions of employment;
• state the date that the IFA commences to operate
• include a provision allowing the agreement to be terminated in writing by agreement at any time or by either party giving written notice to the other of not more than 28 days (in the case of EA).

The points outlined above are the standard requirements to be included in an IFA.

It is important to check the specific provisions of the flexibility term under the relevant modern award or EA to ensure correct compliance. This is particularly important when determining the required notice period for unilateral termination of an IFA.

A copy of the IFA must be given to the employee and the employer should keep a copy on file as part of the relevant employee’s time and wages records.

Most modern awards also require that where the employer seeks to enter into an IFA, a written proposal must be provided to the employee.

If the employee’s understanding of written English is limited then the employer must take measures (including translation into an appropriate language) to ensure that the employee understands the proposal.

There is no requirement to lodge the IFA with the Fair Work Commission or to otherwise obtain approval from the Fair Work Commission in order for the IFA to commence operation. However, if an employer does not ensure that an IFA is made in accordance with the FWA and the relevant binding industrial instrument, the employer may incur civil penalties of up to $63,000 per breach.

What does ‘better off overall’ mean?

The ‘better off overall’ assessment referred to above involves comparing the employee’s financial entitlements under the IFA with the financial entitlements the employee would otherwise have received under the applicable modern award or enterprise agreement. The employee’s personal circumstances and any non-financial benefits which are significant to the employee can also be considered. In undertaking the comparison, the IFA must result in the employee being better off than if they had not entered into the IFA.

When does the IFA come to an end?

The IFA will continue to operate until:

• the employer and employee mutually agree to terminate the agreement
• either party gives not more than 28 days written notice, or the required notice as stipulated in the relevant modern award* or enterprise agreement to terminate the arrangement
• the industrial instrument (e.g. award or enterprise agreement) no longer applies to the employee.

* The decision of the Full Bench of the Fair Work Commission in Modern Awards Review 2012 – Award Flexibility [2013] FWCFB 2170 (15 April 2013) issued an amendment to all modern awards that contain the model flexibility arrangement term which extended the notice period for unilateral termination of IFAs from 28 days to 13 weeks. This variation took effect on 4 December 2013.

However, any IFAs entered into under a modern award before the aforementioned date, may be terminated in accordance with the relevant model IFA terms by giving not more than 28 days’ notice or at any time, by written agreement between the employer and the individual employee.

What are some of the advantages and disadvantages of entering into an IFA?

IFAs have the potential to reduce the administrative burden on employers by simplifying payroll calculations. There is also the possibility of achieving increased staff retention if the employer is able to offer additional flexibility to employees allowing them to balance their work and personal lives.

Employers requiring further information should contact CCIWA’s Employee Relations Advice Centre on (08) 9365 7660, email [email protected] or visit CCIWA’s website at www.cciwa.com.