Fair Work Commission – 4 Yearly Modern Award Review


Posted By on 3/08/16 at 2:47 PM

The Fair Work Commission (FWC) is required to conduct a 4 Yearly Modern Award Review (Review), and whilst this process is still occurring, the FWC has released a number of key changes as part of its Review which will impact on many major industries such as construction, manufacturing and banking.

Whether these key changes have an impact on your business will depend on whether your employees are covered by the varied Modern Awards and Enterprise Agreements that are underpinned by the varied Modern Awards, particularly if those Enterprise Agreements have or will soon expire. In addition to these key changes, Unions and employer representatives have taken the opportunity to seek amendments to certain Modern Awards.

Here are the key changes to date.

Annual leave

The Full Bench’s decision on annual leave in the Review varies a number of Modern Awards by introducing model terms. The model terms (which will apply to the majority, and in some cases, all Modern Awards) provide employers (and their staff) with the ability to manage excessive leave balances, cash out annual leave, grant leave in advance and pay annual leave in usual pay cycles.

So far, the FWC has released “draft determinations” based on the below variations, and parties who were interested in these annual leave variations had until Monday 11 July 2016 to provide further submissions. As such, we expect for the revised variations of the affected Modern Awards to be finalised and released by the FWC shortly- so stay tuned and watch this space!

Here is a summary of the new model terms relating to annual leave:

i. Cashing out of annual leave

The Full Bench has ruled that the majority of Modern Awards will be updated to include a new model term dealing with the cashing out of annual leave. It was noted in the Full Bench’s decision that the evidence showed that there was a significant demand for a provision in awards allowing the cashing out of annual leave.

The new model term will provide that an employer and employee can agree to cash out accrued paid leave. However, this is subject to the following safeguards:

  1. no more than 2 weeks’ paid annual leave can be cashed out in any 12-month period (in the case of part-timers, this is based on their weekly ordinary hours);
  2. specific requirements for record keeping and the content of any agreement relating to cashing out of annual leave will apply;
  3. the agreement to cash out a particular amount of accrued paid annual leave must be signed by the employee’s parent/guardian if the employee is under 18 years of age; and
  4. notes will be inserted at the end of the model term providing that the employer must not place undue influence or pressure on an employee to cash out their leave entitlement nor knowingly mislead the employee about their rights under this new provision.

ii. Excessive annual leave accruals

The Full Bench has redrafted the clause initially proposed by industry and employer groups to provide a model term dealing with the taking of excessive annual leave.

Significantly, under the new model term, employers can direct employees who have accrued more than 8 weeks leave (or 10 weeks for a shiftworker), to take one week or more paid annual leave. The remaining annual leave entitlement must not be less than six weeks accrued annual leave.

Prior to issuing any direction, employers must arrange a meeting with the employee, with the aim of genuinely trying to agree upon steps to eliminate or reduce the excessive annual leave accrual.

If agreement cannot be reached, either the employer or employee can provide written directions on the taking of the leave.

The Full Bench has determined that around 80 of the 122 Modern Awards will be varied to insert this revised excessive annual leave term.

iii. Granting leave in advance

Industry and employer groups initially sought to vary 48 Modern Awards to include a provision allowing an employer and employee to agree to paid leave in advance of the employee having actually accrued the leave entitlement (but the Full Bench has since extended this to include 116 Modern Awards).

Any agreement regarding the granting leave in advance will need to put into writing. If the employment ends before the employee has had the time to accrue the leave, the employer will be able to deduct any money payable to an employee on termination.

iv. EFT and paid annual leave

The Full Bench determined that the 51 Modern Awards which currently require the employer to pay an employee for annual leave prior to the employee taking the leave will be varied to insert a revised EFT and paid annual leave model term.

The revised model term will provide that employees who are paid by electronic funds transfer may be paid in accordance with their usual pay cycle while on paid annual leave. The revised model term will not change the status quo with respect to employees who are paid by cash or cheque.

Annualised Salaries

Following the Full Bench’s decision in December 2015 decision dealing with a number of proposed variations to the Pastoral Award 2010 (which included a variation sought by the National Farmers’ Federation to insert an annualised salary term into that award), a broader review of annualised salary terms in Modern Awards will be undertaken as part of the Review.

Currently, only 19 of the 122 Modern Awards contain an annualised salary term and the safeguards in those terms vary quite considerably.

On 31 May 2015, Justice Ross issued a statement referring existing annualised salary terms in Modern Awards to a Full Bench for review and determination.

Although Justice Ross noted that it should not be assumed that the referral of these matters to a Full Bench will result in a standard annualised salary term to be included in all awards, it seems highly likely that a standardised model term might be introduced into a number of additional Model Awards that currently do not contain such a term, so definitely one to keep an eye on!

The Full Bench is expected to issue further directions on annualised salaries shortly.


Many employer groups, Unions and other parties to the Review have submitted that the treatment of casuals be revised as part of this process. Whilst there has been no decision made by the FWC regarding a change to the way casuals are treated, here is an example of some changes that have been proposed:

  • Regular casuals be “deemed” to permanent after six or 12 month, rather than requesting to be converted to casuals (proposed by the AMWU);
  • Clarification on how to calculate casual loading for Modern Awards that include an “all-purpose allowance”;
  • Insertion of a casual minimum engagement period i.e. a minimum amount of hours that a casual employee must be employed for.

Whilst the FWC has not decided to amend the relevant Modern Awards to include the above, it is important to be aware of the proposed changes.

Stay tuned and be ready…

While some of you are no doubt monitoring the Review, hopefully this summary will provide a useful checklist of some key changes resulting from the Review (as well others which are proposed to eventuate).

As always, we’d be happy to talk through any of the changes/proposed changes (including implementation) so please do just give us a call!

KHQ Lawyers - Michael Cochrane

Michael Cochrane Principal Solicitor

Michael draws on a wealth of industrial and employment law experience, together with his corporate background, to provide strategic and pragmatic advice to his clients focussed on delivering strong... Read More