AM2014/64, Transcript of Proceedings [2015] FWCTrans 506 (31 August 2015)

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PN317

JUSTICE ROSS: May I have the appearances, please. In Melbourne?

PN318

MR M BUTLER: If the Commission pleases, Butler, initial M. I appear for the Association of Professional Engineers, Scientists and Managers Australia.

PN319

MR S CRAWFORD: If it pleases the Commission, Crawford, initial S, from the AWU.

PN320

MR S MAXWELL: If the Commission pleases, Maxwell, initial S, for the CFMEU.

PN321

MR B FERGUSON: If the Commission pleases, Ferguson, initial B, for the Australian Industry Group.

PN322

MR R CALVER: If the Commission pleases, Calver, initial R, for Master Builders Australia.

PN323

JUSTICE ROSS: In Sydney?

PN324

MS S TAYLOR: If the Commission pleases, Taylor, initial S, appearing for the Australian Manufacturing Workers Union and on this occasion also for the vehicle division of the Australian Manufacturing Workers Union.

PN325

MR N WARD: If the Commission pleases, Ward, initial N, continuing my appearance for Australian Business Industrial and the New South Wales Business Chamber.

PN326

MS M ADLER: If the Commission pleases, Adler, initial M, for the Housing Industry Association.

PN327

JUSTICE ROSS: Anybody else? Anyone in any other location? No? All right. Thank you. This hearing is to deal with two matters which were unresolved in our decision of 13 July 2015. That is the absorption clause question and the calculation of casual loadings in awards which provide for an all‑purpose allowance.

PN328

A summary of submissions was published on 25 August in respect of the absorption issue and a further summary was published on 26 August in respect of the casual loading issue. It might be convenient to deal with the two matters separately. Let's deal with the absorption matter first. There were a range of questions asked of the various parties in the summary document. Perhaps if we begin on the absorption question with Ai Group.

PN329

MR FERGUSON: Thank you, your Honour.

PN330

JUSTICE ROSS: Without wanting to constrain you, if you have got any corrections to the summary and then address yourself to the questions, and what else you wish to say.

PN331

MR FERGUSON: There are no corrections. There is one, I suppose, point of clarification that I'll come to perhaps as I walk through the document.

PN332

JUSTICE ROSS: Sure.

PN333

MR FERGUSON: I'll remain seated.

PN334

JUSTICE ROSS: Sure. That's fine.

PN335

MR FERGUSON: The first question that I think is relevant to us arises on page 10, which is the question about what the employer parties make of the ACTU's submission in relation to section 323.

PN336

JUSTICE ROSS: Yes.

PN337

MR FERGUSON: It is the section of course of the Act that deals with the obligation to provide payment, amongst other things, at least monthly.

PN338

JUSTICE ROSS: Yes.

PN339

MR FERGUSON: In our view, we don't see that there's anything in the absorption clause that purports to allow an employer to absorb monetary amounts in periods greater than a month or across periods greater than a month, or for that matter beyond pay periods where it would be required under the award in any event. In essence, the way we construe it is that what it does is permit absorption within a relevant pay period.

PN340

Now, it may be different to the purpose served by annualised salary arrangements, but we only see it as serving a function within a pay period. We don't see that there's anything in the clause that lets you escape the operation of section 323. It would still do its work, so there's no issue - - -

PN341

JUSTICE ROSS: It might be convenient to sort of jump ahead a bit and ask you what does the clause do.

PN342

MR FERGUSON: Yes. Let me tackle it a few ways. One of the issues that we have suggested is that it removes any award‑derived barriers.

PN343

JUSTICE ROSS: What are the award‑derived barriers?

PN344

MR FERGUSON: Awards will commonly be structured so that they describe the various payments that are payable; so they will often have a provision that says you have to pay a weekly wage or it may, after the exposure draft process is concluded, say that you have to pay an hourly rate, but then it will prescribe other amounts that are payable. Different approaches are taken. It will say, for example, specific allowances are payable and that a specific penalty is payable and so forth.

PN345

What we say is that if they're crafted in a way that says you have to pay those separate types of amounts, this clause lets you ensure you're not failing to comply with those awards by paying amounts such as an all‑up rate of pay like a weekly rate, which is in satisfaction of all the monetary amounts, even though you may not - - -

PN346

JUSTICE ROSS: The common law principle of set‑off allows you to do that.

PN347

MR FERGUSON: We'll come back to that, because I think the issue there is that, yes, we would argue that the common law principle allows you to do that generally and I'll elaborate on that point, but that operates still subject to what the express provisions of the award might say. If the awards says you have to pay a loading, then, yes, to comply with the award our view would be you do have to pay a loading.

PN348

There is an interaction, for example, with the pay slip provisions of the legislation which, if I take the bench to those briefly, regulation 3.46, that regulation provides at 3.46(1)(g) - it says:

PN349

A pay slip must specify any amount paid to the employee that is a bonus, loading, allowance, penalty rate, incentive based payment or other separately identifiable entitlement.

PN350

JUSTICE ROSS: Yes.

PN351

MR FERGUSON: Our contention is, firstly, that if you're adopting the approach that we say is actually quite common of just paying a lump sum, if you will, in a relevant period and saying that's in satisfaction of all applicable entitlements, you're not paying the actual loadings and so forth, so you wouldn't specify those on the pay slip.

PN352

Rather, what you're doing is you're paying an amount of money that's equal to the amount that would equate to all the award‑derived obligations and the absorption clause allows you to absorb those monetary obligations into that payment so it facilitates that approach.

PN353

JUSTICE ROSS: I don't see how the award clause - how does it do anything different to what you can do at common law? You can pay an over‑award payment and it can be in satisfaction, depending on the contractual arrangement, of a range of loadings and penalties. There's nothing in the award that stops you doing that.

PN354

MR FERGUSON: Well, if that's right, then that brings me to the second point - if you're not with us on that - as to what is the difference between what this achieves and what the common law principle achieves. I think the issue here is, firstly, we'd say that the common law principles around set‑off as it applies in the industrial context, if I can call it that, aren't as clear as some of the parties have suggested. They are certainly very complex.

PN355

What we say one of the functions of this clause is, is it very clearly and simply provides that an employer can absorb these monetary obligations into any over‑award payment. It says it there clearly in terms of making it simple and easy to understand. Also it potentially is broader than what is available under the common law approach in any event, because - - -

PN356

JUSTICE ROSS: Okay. If it's broader, why should we regulate this issue at all?

PN357

MR FERGUSON: Because we're saying what you're doing is regulating the effect of an award obligation or an award clause. Now, what you're doing is - - -

PN358

JUSTICE ROSS: You want us to regulate the extent to which an employer can set off award minimum entitlements against over‑award payments.

PN359

MR FERGUSON: Yes, we do want you to regulate -- -

PN360

JUSTICE ROSS: Why should we regulate that?

PN361

MR FERGUSON: Because, in our view, it would reduce the regulatory burden. It would be a fair and relevant - - -

PN362

JUSTICE ROSS: Okay. It might do all that, but why should we get into the business of regulating the arrangement between an employer and their employees in relation to the set‑off of an over‑award payment?

PN363

MR FERGUSON: We say this is only permissive in the sense that we're not saying - - -

PN364

JUSTICE ROSS: No, but you're not saying that, Mr Ferguson. That's the problem. You're not saying it's permissive. You're saying - well, other than to say it's permissive in that the employer can absorb any obligation under the award into over‑award payments, irrespective of what their contractual arrangement might be.

PN365

MR FERGUSON: Sorry, that's not the intent. What we're saying is that the clause will allow you to absorb it into any over‑award payments, but not irrespective of any contractual obligations you may have.

PN366

JUSTICE ROSS: So is it governed by the contractual arrangement?

PN367

MR FERGUSON: Yes, but we - - -

PN368

JUSTICE ROSS: Then why are we getting involved in it?

PN369

MR FERGUSON: Because we say it's permissive in the sense that an employer is free to reach a contractual arrangement which says that they will maintain an over-award payment in some sense, and it does nothing to circumvent that. And we've adopted the same logic that the bench took in that decision, where we sought previously to vary the absorption clause.

PN370

So we're not trying to disturb an arrangement they have in place. The question arises where a monetary amount is paid but it's not specifically attributable to any particular purpose. It's not appropriated to any particular purpose.

PN371

JUSTICE ROSS: Isn't that a matter to be sorted out between the employer and the employee?

PN372

MR FERGUSON: We say that under the - we say it shouldn't be dependent on express agreement.

PN373

VICE PRESIDENT HATCHER: So if you look at clause 2.2, does the first sentence establish a right? And if it doesn't, what is its purpose?

PN374

MR FERGUSON: We say the first sentence does establish a right. We say that the first sentence allows you to absorb it into any other monetary amounts paid.

PN375

VICE PRESIDENT HATCHER: Just for an example, if you have a contract of employment, whether express or inferred, where it says, for example, "You will get everything you do under the award, plus $20 a week," and that's the contract; the effect of 2.2, if it's a right, would be to override that contract.

PN376

MR FERGUSON: No. That's where we say "may" is permissive.

PN377

VICE PRESIDENT HATCHER: It's either a right or it's not. If it's not a right, it doesn't serve any purpose, does it?

PN378

JUSTICE ROSS: It's "may". It's, "May, at the election of the employer." Is that what you're saying?

PN379

MR FERGUSON: Yes.

PN380

JUSTICE ROSS: It's a right the employer has ‑ ‑ ‑

PN381

MR FERGUSON: It's "may" subject - it's "may" dependent on a contractual agreement. If there's an amendment - we say that's the logic of what - is consistent with that previous Full Bench decision.

PN382

If there's some re-drafting of the clause that is necessary, then so be it, but what we're saying is that this deals with a situation where it's not precluding an employer and employee from agreeing to provide a contractual arrangement to maintain an over-award payment, but saying where there isn't one, if you've given - if you, the employer, have paid an amount of money which is in excess of any monetary entitlements the person would get under the award and you haven't said to the person that, "This is going to include an over-award component," then a fair and relevant safety net would not require you to pay a greater amount than what you're already paying.

PN383

VICE PRESIDENT HATCHER: But that's necessarily an interference in whatever agreement there is between the employer and employee to pay something in excess of the award. And I would have thought 134 commands us to get out of that space.

PN384

MR FERGUSON: Which is why say it doesn't interfere where there is an actual agreement. This is dealing with there is no agreement apart from the fact that a monetary amount is paid. And it's not appropriated to any particular entitlement.

PN385

JUSTICE ROSS: Yes, but the clause doesn't say any of that. You say the clause gives rise to a right, exercisable by the employer to absorb any monetary obligation under the award into any over-award payment.

PN386

MR FERGUSON: We do. And admittedly we draw on the logic from that second Full Bench decision, which said that it was intended to be permissive and not disturb the common law principles like Turner Roofing, if I can call them that. We understood that key principle to be was that it's permissive in the sense that not disturbing contractual arrangement where you've agreed.

PN387

Where there is no agreement that's appropriated to a particular purpose, we say that this just clarifies that that is in satisfaction - all that amount is in satisfaction.

PN388

JUSTICE ROSS: No, it doesn't clarify it. It's where there's no agreement to offset it against particular provisions. It provides a default position that allows the employer to offset it. Well, the same question arises. Why not just leave it to the parties to sort out on a contractual basis? Why would we get into regulating over-award payments at all?

PN389

Because, I mean, the counterpoint to this is the AMWU wants to go the other way, I suppose, but the question arises in relation to both. Assuming there was power to do it, why should we get involved in tipping the balance one way or the other in what are over-award payments and are not the focus of the safety net?

PN390

MR FERGUSON: The intent from our perspective is that it makes clear what the role - interaction of the safety net - what the role of the safety net would be in those circumstances. We've obviously advanced a view that, put simply, if you're paying a person a monetary amount which is in excess of all of the award entitlements, the award shouldn't somehow operate to require that in a particular circumstance the person get more than that unless there has been an express agreement between the parties that there will be an over-award component to the individual's remuneration.

PN391

Because we're dealing here primarily with what the status of the award obligations are, we say that's a relevant consideration. And it's a sensible proposition, because we know that in practice - we would say in practice many employers to adopt the approach of paying a larger quantum of money rather than looking at all the nitty-gritty in every pay period of the award. They're sure that they're paying more, but they don't expressly say that this is in satisfaction of every particular amount, they just pay a larger amount.

PN392

JUSTICE ROSS: If we removed it, then they would be required to clarify the contractual arrangement and say, "This is in satisfaction of the individual amount." That's what would follow.

PN393

MR FERGUSON: We would say there would be a role still for the common law principles to argue to some extent that they could already rely on the set-off, although we think that's quite complex, because you can get into difficult questions about whether there is a sufficient correlation between the purpose of the payment and the purpose of the award entitlement.

PN394

But that might be one solution, is that yes, you can resolve this through contractual arrangements, but we don't think that an approach which requires parties to go into drafting formal contractual arrangements is a sound one. It would be an unreasonable regulatory burden. This is an opportunity for the award system to provide a simple means of dealing with an occurrence that arises regularly.

PN395

JUSTICE ROSS: It's a simple means that favours the interests that you represent.

PN396

MR FERGUSON: It does favour that.

PN397

JUSTICE ROSS: It just opens up a debate. The unions can say, "Well, there shouldn't be any offsetting against overtime or anything - or a particular provision." Because once you're down the path, then you're into a merit argument about, well, if we're going to regulate it, to what extent should we regulate it? You want it regulated to allow you to do whatever you want.

PN398

MR FERGUSON: We want it regulated so that the award doesn't require ‑ ‑ ‑

PN399

JUSTICE ROSS: No, you want to go further than that. You want to regulate it to the extent that any monetary obligation imposed by the award can be absorbed into over-award payments, and that goes beyond the set-of principle. And you want that to be the default position.

PN400

MR FERGUSON: We do.

PN401

JUSTICE ROSS: There's an uncertainty - look, I can't see how it wouldn't override whatever contractual arrangement is in place.

PN402

MR FERGUSON: I concede that issue as a drafting issue when you say it: what, in the words, gives effect to what we perceived of that previous Full Bench? I appreciate that. But I think you've succinctly established that that's what we do want. We don't want the clause, though, to disturb contractual arrangements with a party has said that they will in some way provide for an over-award payment

PN403

VICE PRESIDENT HATCHER: But that's exactly what the clause allows you to do. For example, if you have an employee are transfers employee X to a remote location and they make an agreement that the employee will get $50 a week as a remote area allowance on top of all award obligations, that's their express agreement.

PN404

This clause allows the employer unilaterally to absorb a future award increase into that amount and overrides a private contract of employment, does it not? And if that's right, on what basis under 134 can we get into that space?

PN405

MR FERGUSON: We hadn't read it as being able to disturb an existing arrangement where a contractual arrangement has been put in place to say that there will be a maintenance of an over-award payment, probably because we've read it in the context of that second Full Bench decision that reviewed this as permissive.

PN406

VICE PRESIDENT HATCHER: It's permissive in the sense that it gives the employer a right to do or not do something at its election, but it can't be avoided that that election, if taken up, would override what the parties might have agreed to contractually.

PN407

MR FERGUSON: I take your point. We hadn't wanted to preclude the possibility of the parties to commit to contractual arrangements that maintain over-award payments. That's not how we read it, and that's not how we read reference to "may", but I understand the point that that is what it could do. We don't say that that would be necessarily permissible under section 134. I suppose what we had argued on section 134 - section 139, if I can go to that point, I think that's where your Honour is taking me.

PN408

We've said this is, in essence, a clause about the status of award terms that are dealing with matters that are validly part of the award, pursuant to section 139. So it must be about matters that are capable of being dealt with in the award, because we don't see this is regulating the over award space, we see it as regulating the status of the award obligations, saying that they can be satisfied by the over award payment, even if it's not in the exact nature that's prescribed by the award.

PN409

So the award says you have to pay a loading, pay an allowance, et cetera. If you don't actually pay a separately identifiable amount, the monetary obligation that you've paid is, nonetheless, sufficient to satisfy those prescriptive award obligations. Because in practice, we know that questions arise where people say, "Yes, you're paying this weekly wage". There's been, arguably, no discussion about what the purpose is. You're just giving them an amount. An employees or unions will say that extra amounts should be paid on top of that.

PN410

JUSTICE ROSS: If there's been no discussion about the amount then you wouldn't be able to set it off. And you want us to interfere and allow it to be set off.

PN411

VICE PRESIDENT HATCHER: Can I take you to a related question? What happened when the Australian Fair Pay Commission, in that three and a bit year period? There doesn't seem to have been any absorption clause.

PN412

MR FERGUSON: I'll come back to that in one second. I think in the Turner Roofing principles, I think on that point you raised with me, they suggest that it would be (indistinct). They suggest - - -

PN413

JUSTICE ROSS: Suggest what?

PN414

MR FERGUSON: So the first principle is if no more appears than (a) work was done, (b) that work was covered by the award. So I'm dealing with paragraph 21. I don't know if you have that decision. I've got some copies, but not enough for everyone. I only have four copies extra to hand up.

PN415

JUSTICE ROSS: But this is the one that was dealt with in the Full Bench decision and it's just the summary that's - - -

PN416

MR FERGUSON: Yes. I think it's replicated in the summary as well.

PN417

JUSTICE ROSS: Isn't it in the background document?

PN418

MR FERGUSON: I think it might be. I just went to this because I had it capped, but there will be another paragraph I'll take you to. Paragraph 21, the first point is that no more appears than that (a) work was done; (b) that work was covered by an award; (c) a wage was paid for that work, then the whole of the amount paid can be credited against the award entitlement for the work, whether it arises ordinary time, overtime, weekend penalty rates or any other monetary entitlement under the award. So on one view, what we've argued is that this absorption clause reflects that proposition.

PN419

JUSTICE ROSS: Then why do we need it?

PN420

MR FERGUSON: Firstly, it makes it clear and simple to the parties who are reading the award that they can do this, because we know that in practice, people will raise the question of do I need to maintain over award payment when the award wages go up? That's something that occurs every year commonly, so it adds clarity to the party. We know that the initial award proceedings argue about award modernisation and unions argue that there should be an obligation to maintain over award payments. It is a live issue.

PN421

And we say part of the function is that it clarifies for parties who are not lawyers and not necessarily familiar with all of these decisions that it is available to them. So if it is consistent with this, then we'd say include it to clarify it and make the award simple and easy to understand in terms of modern awards objective.

PN422

Secondly, I don't think the decisions are necessarily that clear. When you go through it - I'm sorry, I'll do it by reference to this decision - but if you turn to paragraph 42, the decision is explaining what unfolded in the decision of Australia and New Zealand Banking Group Limited v Finance Sector Union of Australia [2001] FCA 1785, and in particular, paragraph 40 deals with what the Full Court of the Federal Court's logic was on peer. Within paragraph 42, it says half way through it, in relation to set-off:

PN423

The court held that, whilst there must be a close correlation between the nature of the contractual obligation and the nature of the award obligation before one could be settled against the other, it was a matter of looking to see whether both the award entitlement and the contractual payments arose out of the same agreed purpose.

PN424

So there seems to be some tension with that and then, the principle that was endorsed by the Full Bench, as articulated in paragraph 21. And what we say is it demonstrates the complexity around these sorts of issues. And the award clause would clarify that you can do what the principles that have been endorsed by the Full Bench say you can do. They may go further. The award clause, as drafted, may go further than we anticipated, by allowing - - -

PN425

VICE PRESIDENT HATCHER: It does, doesn't it? If you go back to paragraph 21, clause 2.2 would cover the scenario in subparagraph 1, but it would also cover the scenario in subparagraph 2, wouldn't it?

PN426

MR FERGUSON: I think that's the point where I'm conceding that we had it read as allowing you to disturb or precluding you from entering into a legitimate contractual arrangement to maintain an over award payment. And if some further redrafting is required, then so be it.

PN427

JUSTICE ROSS: But then that requires some sort of exploration of the range of possible contractual arrangements there might be. That is, we're getting to a whole space which is not really within our remit.

PN428

MR FERGUSON: Not if all we're doing is clarifying that this clause does not enable you to override a contractual arrangement between the parties. I haven't given thought to specific wording, because the Full Bench - - -

PN429

JUSTICE ROSS: You're still going to have a level of complexity, even if that's what it said, because then you have to ascertain what is the intent and the contractual arrangement between the parties?

PN430

MR FERGUSON: There's going to be a level of complexity, but less than requiring the employers and employees to grapple with all of these decisions and the common law principles, we would say.

PN431

JUSTICE ROSS: No, they are going to have to grapple with them, because if the intention is not to disturb the contractual arrangements, you have to ascertain what the contractual arrangements are. You see what I mean?

PN432

MR FERGUSON: Of course, but not necessarily the principles, but I understand there's still going to be a level of extra complexity. Obviously, as I said, we read this in the context as the Full Bench decision that said it was not intended to disturb the principles, in the sense that, it wasn't going to preclude the parties from reaching other agreements hence made.

PN433

But I understand the point; there is going to be additional complexity if you want to carve that out. But it is a clause that would give effect to at least one, when clearly, it's a very complex issue. I don't think I can take it that much further.

PN434

The other point that we tried to advance, and you may be against me on this, was that when you read each of the award clauses, some of them do dictate that you pay specific separate amounts. And obviously, the payslip provisions work on the basis that if you're paying those there is lower obligations, which, in practice, could be avoided if people were able to not pay the loading, not pay the allowance, but just pay a total amount, which is, nonetheless, equal to what the employee would receive in monetary terms.

PN435

So there is no question of taking something away from people in terms of the safety net entitlements, at least in terms of the monetary quantum they receive. And we say that's making sure the award terms are aligned to the obligation to make sure it's a minimum safety net and that there's no unintended consequences of saying somebody is giving them a payment like this, they're now going to get a windfall gain and get an allowance on top, when you already serving a very high - - -

PN436

JUSTICE ROSS: I'm not sure I'm following the payslip issue. Are you saying that if the absorption clause does not appear in the modern award, then that somehow affects what you have to put in the payslip?

PN437

MR FERGUSON: If the award requires you to pay separately identifiable amounts like loadings and so forth, then yes, that's our concern.

PN438

JUSTICE ROSS: But how does the absorption clause change your obligations under the payslip requirement?

PN439

MR FERGUSON: It would only change it if the absorption clause works to satisfy those obligations or to mean that you did not have to pay separately identifiable amounts because they were absorbed, but I understand what issue is raised.

PN440

JUSTICE ROSS: I'm not sure I understand the point I'm raising. I'm just having trouble seeing the connection between the two. I understand the proposition about if there's an over award contractual arrangement to subsume all of these allowances in this over award payment, and I don't know that we need to form a view about this, but you say that then the payslip just has to set out the total amount.

PN441

MR FERGUSON: Yes.

PN442

JUSTICE ROSS: Assuming that's right for the moment, what difference does it make whether there's an absorption clause in there or not?

PN443

MR FERGUSON: Because if the award required to be paid separate amounts, or separately identifiable amounts, be it an hourly rate or weekly rate plus a loading, plus an allowance and that you have to pay those allowances as separately identifiable components, then we say the payslip requirements would dictate that you actually had to identify them on the payslip. But our view had been that the absorption clause would mean that you didn't have to pay separately identifiable amounts because the absorption clause would let you absorb all of those obligations into a higher all up rate of pay.

PN444

VICE PRESIDENT HATCHER: Which you can do at common law now anyway.

PN445

MR FERGUSON: Unless there's something in the award which suggests you can't and that's our concern. And as we said, the common law situation is not that straight forward. Well, I think the only issue I can raise is that obviously the common law, we say, on one view of the principles as enunciated at point 1, does deal with all these issues, but as I said, we think that if there's not a correlation between the purpose, the payment and the purpose of the award entitlement, then this award clause would have work to do. It would expand the operation of the common law.

PN446

Whether you think that's appropriate for a safety net or for the Modern Award to deal with is a secondary issue, but we think there is work to do. There's work to do in that substantive sense, but there's also, obviously in our view, work to do in terms of providing a clear and simple method of arranging these things that is far less onerous than having to identify all the bits and pieces for the actual employee, or in a payslip or otherwise.

PN447

VICE PRESIDENT HATCHER: Sounds to me what you really want is a clause which would say something like this. If an employer in a given pay period pays an employee an amount which is equal or more than the amount that would be required under this award, the award obligations are satisfied.

PN448

MR FERGUSON: That's right. That's right. And then, you know, potentially whether you'd need something else to – well, I think that's sufficient, actually. And I suppose that brings us to the AFPCS point. I don't think there was any provision for that. I think that's right in those AIC decisions about, as you say, the wage increases. I don't think there was any provision for absorption. I don't think there was necessarily the capacity for that body to deal with that issue. I don't think that takes this matter much further because- - -

PN449

SENIOR DEPUTY PRESIDENT HAMBERGER: Yes, it does, because if there was nothing in place during that three and a half years and the world didn't come to an end, why is it necessary to do something about it now?

PN450

MR FERGUSON: Well, because we've said that there are elements of the Modern Award's objective which support the proposition that awards should include this.

PN451

SENIOR DEPUTY PRESIDENT HAMBERGER: Yes.

PN452

MR FERGUSON: That obviously wasn't a relevant consideration at the time. I'm not suggesting the world came to an end.

PN453

SENIOR DEPUTY PRESIDENT HAMBERGER: No, no, look there might be elements of the matters we have to take into account that support it. The question is whether it's necessary to give effect to the Modern Award objective. The objective is not in the considerations, it's in the minimum safety net proposition.

PN454

MR FERGUSON: Look, I appreciate that, and distinguishing the two, we say it is the Modern Award's objective that in part, it is the justification for it. And we've obviously argued that considerations would be such that they'd say it was necessary and that necessary to confine it to a minimum safety net type standard. But that's obviously a matter for the Bench.

PN455

SENIOR DEPUTY PRESIDENT HAMBERGER: I'm just trying to understand, how is it necessary for us to regulate this area now when it wasn't regulated for three and a half years and there doesn't seem to be – parties seem to have managed? Well, there's no evidence of any issue during that period.

PN456

MR FERGUSON: Well, there's no evidence. There's no evidence of anything.

PN457

SENIOR DEPUTY PRESIDENT HAMBERGER: No, no, well we're entitled to say, if there's no evidence of any issue, then on what basis would we conclude there was an issue?

PN458

MR FERGUSON: I can't point to an issue. Obviously we've tried to make arguments why, having regard to the considerations that arise now that weren't relevant, it should be necessary, but the only proposition I could make on the section of the act, from memory the system is very different. I think the section, and I'll come back to it, perhaps after the others have spoken. It's section, I think 178, but I'll clarify it, provided that the wages that were part of the pay scales formed the basis for the guarantee in the AFPCS, which said that you had to receive at least the minimum hourly rate.

PN459

So it almost enabled some sort of absorption, potentially anyway, because you could provide more than that. But- - -

PN460

SENIOR DEPUTY PRESIDENT HAMBERGER: That's the same thing now. Awards provide minimum rates of pay. It only sets the minimum.

PN461

MR FERGUSON: That's right. Look, I can't say that the world came to an end during that period. It obviously is an entirely different system, that it didn't provide for absorption. I don't know that that body even could provide for absorption. I think all it was empowered to do was to increase the rates, but nonetheless, we'd say there are sensible, merit-based considerations having regard to the Modern Award's objective, for including it now. It's a simple system, it shouldn't just do what was in place under that regime, which was very different, and where the pay scales didn't even form part of the awards. They were a separate and discreet instrument, but I can't take that much further.

PN462

SENIOR DEPUTY PRESIDENT HAMBERGER: No.

PN463

MR FERGUSON: I take the Bench to question – to page 14. We don't say that – that's the question, "Does any party contend that the absorption clause excludes by any provision in subdivision (d), provision (3), part 2(2)?" No, we don't.

PN464

In relation to question 3, we say that that assertion's correct, we're not asserting to determine that it must be included in the Modern Award or that it's permitted or required by section 55, Part 2(2).

PN465

In relation to question 4, and this is in relation to section 129(1), I think we've dealt with it in our written submissions and I probably elaborated then. Obviously we say that the inherent nature of it is about the matters that are in the award now and such must be about things that can validly be included in the award.

PN466

In relation to question 5, we don't say it's a machinery term. We've addressed question 6 in our written submissions and it's only put in the alternative, in any event.

PN467

SENIOR DEPUTY PRESIDENT HAMBERGER: 7, 8 and 9, I think we canvassed.

PN468

MR FERGUSON: Yes. I think we have.

PN469

SENIOR DEPUTY PRESIDENT HAMBERGER: What do you say about the take home pay order? What's the source of power for that?

PN470

MR FERGUSON: Yes, we struggle to see what the source of power is, to be frank. It may be something that we respond to if the unions do identify something, but we don't see what the source of power for the take home pay order is, on reflection.

PN471

SENIOR DEPUTY PRESIDENT HAMBERGER: I mean, it seems to follow, from what the ACTU is saying in their submission, and we put them on notice that if there is no relevant source of power, then on the face of it, it has to be excluded. And in fact, the CFMEU, I think goes further and says it should be excluded. But the ACTU's proposition is that the absorption clause and the take home pay provisions were transitional and Fair Work Australia, at that time, had power to include such transitional arrangements, pursuant to the Ministerial request.

PN472

There is no power now, accepting that what you say about 139, et cetera - leave that aside for the moment. It seems to follow from their argument that whilst we might have adopted the pragmatic approach that no one was arguing it, well now people are and now we are focussed on it, what is the source of power? You're saying that, from your perspective, there doesn't seem to be one.

PN473

MR FERGUSON: There doesn't seem to be one so it should come out now. We, of course, put absorption in a different category because - - -

PN474

SENIOR DEPUTY PRESIDENT HAMBERGER: No, no, I appreciate that.

PN475

MR FERGUSON: Yes.

PN476

SENIOR DEPUTY PRESIDENT HAMBERGER: You argue on two points. You, I think, have come to the reluctant conclusion that it is a transitional provision in the face of the overwhelming material in the decisions. But you've said that's not the end of the matter and I think that's fair enough.

PN477

MR FERGUSON: Yes.

PN478

SENIOR DEPUTY PRESIDENT HAMBERGER: It's still a question of whether there's power to do it and whether it's necessary to be done, irrespective of whether it's a transitional - - -

PN479

MR FERGUSON: No, it - - -

PN480

JUSTICE ROSS: And I suppose the same issue arises with the take-home pay orders; what's the source of power?

PN481

MR FERGUSON: It's exactly that, and then the same process that follows. But I don't think you get past the source of power issue, because we can't identify how it is.

PN482

JUSTICE ROSS: Yes, okay. I follow.

PN483

MR FERGUSON: I think in relation to question 11, I don't want to take that a lot further. It's not apparent to us that there is a clear connection between the two clauses. I think ‑ ‑ ‑

PN484

JUSTICE ROSS: Except that you argue that as long as the take-home pay order is there ‑ ‑ ‑

PN485

MR FERGUSON: And I think ‑ ‑ ‑

PN486

JUSTICE ROSS: ‑ ‑ ‑ that seems to be, "Well, as long as they're getting something, we want something," but there doesn't seem to be any link between the two.

PN487

MR FERGUSON: No, I don't think - as I've looked at it further, I don't think there is a connection. I think in part we have to move to what the ACTU's submissions in a different forum that said the two were connected.

PN488

JUSTICE ROSS: Yes.

PN489

MR FERGUSON: In terms of if they're agreeing that it's connected, then, well, maybe it should stay.

PN490

JUSTICE ROSS: No, fine.

PN491

MR FERGUSON: But when you look at it again and clearly without that context, there is no apparent connection other than the fact that both obviously have to - there has to be a power for both.

PN492

JUSTICE ROSS: Yes.

PN493

MR FERGUSON: And we say there's no power for take-home pay orders, but for the reasons you've identified we say there is, and that it's necessary for the reasons I've said, but also those in the submissions, and I don't want to demur from those to include absorption. I think that brings me to the end of absorption unless there are any further questions.

PN494

JUSTICE ROSS: All right. Mr Calver, anything you want to say about absorption?

PN495

MR CALVER: Your Honour, at 10 to 8 this morning Mr Ferguson rang me and we discussed this matter until 8.30, and so most of what he has provided to you is a synthesis of that discussion.

PN496

The only point that I would make is that Master Builders' view of this matter beyond what Mr Ferguson has put is that the linkage with the take-home pay orders, sir, is that in relation to any increases or decreases that might have arisen from the making of the modern awards, the adjustments to minimum wages allowances and other entitlements would be able to be corrected on the employee's side by take-home pay orders.

PN497

The increases were subject to transition, but under the common law, of course, would be subject to the law of set-off. And in that context, whilst it's called set-off and it derives from contractual principles, it has, in Master Builders' submission, taken a different path, some of which is evident from the authority you've been discussing with Mr Fergusson.

PN498

But essentially the proposition - the ratio decidendi from Ecob v Poletti, which I had an exchange with the then President about during the making of the modern awards and from which this clause derived, the proposition is clear that:

PN499

An employer is not permitted to set off against an award requirement a payment in excess of award requirements in other areas.

PN500

The exchange that you had with Mr Ferguson in our view encapsulated that, so that the example I have written here, I will just share: assuming an employee were paid X‑dollars an hour more than the award required, current authority prevents that excess amount being set off against an underpayment because of, for example, non-payment of an allowance.

PN501

And in the context of the give and take of the take-home pay orders as against an absorption provision, that was a matter which allowed the equalisation of that factor from the law of set-off during the time when there could be an increase or a decrease because of the making of the modern award.

PN502

Sir, our primary submission is that if you have take-home pay orders you should have an absorption provision. That's where we think there is a nexus. If the take-home ‑ ‑ ‑

PN503

JUSTICE ROSS: Where's the power to include the take-home pay orders?

PN504

MR CALVER: In the current context we don't think there is one, but if one exists, then the other should exist, but in line with the current provision. The second proposition is that if there is to be the deletion of this current absorption clause, we would say that there should be no absorption clause because the transition from that provision to the one proposed by the AMWU will only cause confusion and is more restrictive in its ambit.

PN505

So if this one goes, the AMWU one should not be inserted from that. The answers to the other questions, as I said, following my discussions with Mr Ferguson, fell from him. If it please the commission.

PN506

JUSTICE ROSS: All right. It does seem, though, that the last sentence of the AMWU's clause is what Mr Ferguson says his clause does; that is, absorption which is contrary to the terms of an agreement or an employee's contract of employment is not required. So he's saying that the current clause is not intended to disturb an agreement to the contrary.

PN507

MR CALVER: Where the contract of employment, as in many instances is the case, your Honour, doesn't prescribe the detail in respect of which the over-award payment is made, then in the absence of the broad statement that appears in 2.2, the law of set-off would otherwise apply.

PN508

JUSTICE ROSS: Yes, but where, for example, the arrangement is that, "Look, you're getting $20 a week more, and that is in satisfaction of the minimum wage in the award, but not the electrician's licence allowance." Let's say that the - and you're paid that in addition; well, as we've discussed with Mr Ferguson, on 2.2 the employer would be permitted to absorb the - - -

PN509

MR CALVER: I don't think that would be so because - - -

PN510

JUSTICE ROSS: If that's not so, then what your problem with the last sentence in the AMWU's proposal?

PN511

MR CALVER: As I say in my reply submission, if you say it's is not required, it implies in some instances it might be required; it's the use of the word require. Our advice to members, which I have in front of me, we say that:

PN512

Whenever an over-award payment is directed towards particular components of work, as opposed to work as a whole, agreement from the affected employees will be required to enable an absorption of any increases in monetary obligations under the on-site award into existing over-award payments.

PN513

And we cite in our advice, Poletti v Ecob No 2. So we think that that is the current legal position.

PN514

JUSTICE ROSS: All right. Thanks, Mr Calver. Can I go to the employers in Sydney. Mr Ward.

PN515

MR WARD: Thank you, your Honour. I think my clients are the odd people out in this matter, so I will - - -

PN516

JUSTICE ROSS: No, I think the ACTU agrees with you.

PN517

MR WARD: I will lean to the right of the bar table. Your Honour, can I start with question 7 and then deal with question 10 and then deal with the rest, because I think your Honour it is very keen for is to focus on 7, and 7 asks this question: what is the legal effect of the absorption clause? What work does it do?

PN518

Can I start answering that by saying this, we say there is power to retain in a modern award a pre-existing transitional clause. I'm going to develop that submission in a moment, but I want to deal with a specific answer to question 7 first. The bench would not be surprised that my clients have the view that you should not involve yourself in over-award payments, and more importantly, in the context of section 139, you cannot.

PN519

We also have expressed the view that the clause that is currently being debated is not, on a proper characterisation, a set-off clause that one might find in an employment contract that reflects the principles in Poletti v Ecob, Pacific Publications and James Turner; which begs the question, then: what work does the clause really do? And in all candour we would say probably not a lot.

PN520

What it seems to do is to affirm the discretion that vests in an employer at common law anyway, and that is the right of the employer, subject to how the contract of employment is crafted, to absorb over-award payments against anything that happens in a modern award.

PN521

It does something else as well. The second limb of the clause does this. It tells you what the award does not do, and in that sense it tells you that the modern award, in effect, does not require the employer to increase actual rates of pay as a consequence of the modern award. So really it's an affirming role and a confirmation of what it doesn't do and no more than that. The understanding of that really comes from understanding its history as a transitional provision and in many respects the Bench I think have already made some comments on this.

PN522

If I can take you to page 12 of the Bench's summary. The Bench quote at paragraph 44 on page 12 an extract from the 2009 Australian Industrial Relations Commission decision AIRC Full Bench 5 November. Very importantly in the middle of that is this statement from the Bench. "It would not be appropriate, even on a transitional basis to require" I emphasise the words to require "an employer to maintain overall payments we have decided to provide for absorption." I leave the quote there.

PN523

The very beginning of this clause was about an acknowledgement that the award shouldn't be structured in a way to require the employer to maintain over award payments or as it were, potentially to increase actual rates of pay. That's the heart of what the clause is trying to do. It wasn't trying to create a set off clause in the contractual sense whatsoever. So we start from the proposition that what is its real purpose. It's modest, it's to affirm the pre-existing right the employer holds and it's to say very clearly what the modern award does not do. And we say that, and that's our answer to question 7.

PN524

Can I come to question 10, because it's related. It's this question of, well where's the power to have this in a modern award? We need to draw a distinction here between the power that was originally vested in what was then the Australian Industrial Relations Commission, later the Fair Work Australia, the original power that was vested to create the clause, whether or not that power is sufficiently alive to allow it to be retained, that's an entirely separate proposition to whether or not there is power under the Fair Work Act to include a new clause dealing with this matter. They're actually separate propositions and I want to deal with the earlier proposition first.

PN525

The Bench will be aware that the award modernisation process part 10A commenced operation under the Workplace Relations Act 1996. Various provisions of that Act dealt with part 10A around 570 of that Act. The Bench will also be aware that at that time, a ministerial request issue varied many times. The ministerial request, the path of the request came out of part 10A in the Workplace Relations Act. There was then the commencement of the Fair Work Transitional Provisions and Consequential Amendment Act 2009. That Act had the following affect:

PN526

1. It was actually the instrument that repealed the Workplace Relations Act - and that's in schedule 1 of the Consequential Amendment Act.

PN527

2. By force of schedule 5 of the Consequential Amendment Act, it allowed the Tribunal to continue the part 10A process.

PN528

I just want to take the Commission briefly to schedule 5 of that Act. Schedule 5, part 2(2) is in these terms and I'll just briefly read it, I quote, Subsection 1:

PN529

The Australian Industrial Relations Commission is to continue and complete the award modernisation process provided for by part A of the Workplace Relations Act.

PN530

Subsection 2:

PN531

For that purpose, part 10A of the Workplace Relations Act continues to apply on and after the Workplace Relations Act repeal day in accordance with this part.

PN532

Subsection 3 then says

PN533

Without limiting subitem 2, we request under section 576(C) of the Workplace Relations Act, continues to apply and after the Workplace Relations Act repeal date and may be varied in accordance with that section.

PN534

I leave the statute there.

PN535

The effect of that was by force of the Consequential Amendment Act was to allow certain parts of the Workplace Relations Act to effectively carry on, but by force, not of the Workplace Relations Act, but by force of Consequential Amendment Act, and in doing that to allow the force of the ministerial request to continue to operate.

PN536

JUSTICE ROSS: But it only continued for the time that the part 10A process continued, didn't it?

PN537

MR WARD: I'm not quite sure of that. This is the area where I probably won't have an entirely satisfactory answer. It's unclear to me whether or not a provision that's placed in an award as a consequence of the part 10A process, it would appear that in relation to transitional provisions, that the original power that was vested in the Tribunal to create them, did not have a drop dead date. That is to say that once a provision of a transitional nature is put in an award, there was nothing in the Consequential Amendment Act that said that provision ceased to have operation at a certain time.

PN538

What there was however, was this, and it might be important for some (indistinct) already decided to do, which it might need to consider undoing. Schedule 5, part 2(7) created the basis upon which the Tribunal was entitled to review and vary transitional provisions in modern awards and it's in these terms:

PN539

(1) If

PN540

(a) modern award includes review terms under which the Fair Work Commission may review transitional arrangements included in the award, and the review terms and the transitional arrangements were included in the award in the part 10A award modernisation process

PN541

Can I just pause there? When the award was made, the award was made with two sets of transitional provisions in it, that was it was made with the ones we are debating now, the take home pay transitional provisions and a variety or others, but it was also made with a set of clauses which vested the ability for the Tribunal to review those transitional provisions.

PN542

Perhaps somewhat unfortunately the Bench took the view when they looked at take home pay, that they would take those out. We tend to be of the view in this way:

PN543

1. If you have a transitional provision in an award today, that dates back to the part 10A process, you are allowed to keep it.

PN544

2. If you do have such a clause in an award, you would need to keep the original provisions which allow this Commission to review that back transitional clause, pursuant to section 7 of part 2 of schedule 5 of the Consequential Amendment Act because that's actually the door you have to walk through to decide later on whether or not you're going to keep it or delete it.

PN545

But it would seem to us, that if you have a pre-existing transitional clause, you could make a decision to keep it. As to whether or not you review it later on, you would also need to have kept in the modern award, those clauses you inserted as part of the part 10A process to review transitional clauses.

PN546

I hope that wasn't unduly confusing, but that seems to be where the original power vests from. It seems to be available to form the view that something that went in as part 10A transition can stay, but the ability for the Tribunal to review it, delete it, do what it wants to it on an ongoing basis, only arises from the award provisions placed in the modern award originally to review those transitional provisions arising from schedule 5 part 2(vii). Now, as I said earlier I think the bench formed the view that they would take those review clauses out after the take-home pay decision.

PN547

If the bench formed the view that I'm right and it wanted to keep the take-home pay clause in, and/or keep the absorption clause in that's worded today, we would respectfully suggest that the review clauses relating to those would have to stay in as well. That's our view on that. Obviously we've written in our written submission that we've got a very different view if one wanted to put this clause in afresh now and we've already indicated in our written submissions that the hurdles in 139 and 142 would mean that you simply couldn't have it in there.

PN548

JUSTICE ROSS: Aren't those submissions relevant to the question of whether it's retained as a transitional provision?

PN549

MR WARD: I'm not entirely sure that they are, your Honour.

PN550

JUSTICE ROSS: As merit matters, not as power; if we accept what you say that there's power to retain them, as transitional provisions under part 7 of the schedule to the transitional provisions act, isn't it relevant in considering whether or not we'd retain them whether there would be power to include them afresh, whether they're necessary?

PN551

MR WARD: I think - can I say this - I think your Honour has just offered me about three propositions. I'm going to disagree respectfully with probably the first few but not the last. I think the question the bench would need to ask itself about anything in a modern award dealing with transition that was validly placed in the award as part of 10(a) is simply this: is it still necessary in relation to the transition process? Does it still have work to do? If you form the view that it's effective operation to manage the transition process is now exhausted, then you take it out. You don't have to get into a debate about 134. It's role was to facilitate the transition from one system to another. When the time comes that that role is exhausted, it just goes.

PN552

JUSTICE ROSS: Do you say that the absorption clause is still necessary in relation to the transition process?

PN553

MR WARD: IN all candour, your Honour, I'm deeply struggling to say it's necessary. WE took the slightly pragmatic view in our written submissions, which was the pragmatic view we took with take-home pay and I think his Honour the Vice President was quizzing me in that matter about our view on the take-home pay clause and we really came down to this: in 2015 I couldn't imagine a circumstance where practically the take-home pay clause would still have any work to do but the ACTU were very anxious about it going. I think I said to his Honour, well, perhaps just leave it in a little while longer.

PN554

If it's got nothing to do it's quite harmless; it can come out later on. We're taking the same pragmatic view here. We can't see it having a lot to do but if it's causing any parties any anxiety and concern, given that its' in there already, leave it in there a little while longer and when we come to do a final mop-up on this and take-home pay and take them out we'll take it out at that time. So ours is more a pragmatic view rather than an ability to tell you that it's necessary to allow some finalisation of transition. We could not make that submission, your Honour, just as we could not have made that submission in relation to the take-home pay. That is purely pragmatism on our part.

PN555

Can I then answer the other questions if the bench are comfortable with that? Can I deal with - my apologies, if the Commission could bear with me? I go to page 10 of the Commission's summary and there's two questions on that page. One of them is not for us. The second question goes to section 323. In a way, with respect to the ACTU their submission is a tad mischievous and it's a bit of a red herring because the clause in the modern awards today could not in any proper sense be called a set-off and yet paragraph 32 you summarise what is effectively the ACTU positing the proposition, well, if it is a set-off there's a problem with 323.

PN556

So in a way, it's a really almost academic question because we're not dealing with the set-off clause. But in relation to 323 in our submission we think the ACTU's characterisation is misconceived of what the role of 323 is about and for abundant caution I'll just say that now. The Commission should not confuse section 323 with section 45. Section 45 deals with the section of the statute which requires compliance with modern awards. Section 323 is dealing in very clear terms with some very simple propositions. It deals with an obligation to insure that - and I'll use the phrase from the statute - amounts payable are paid in a certain way. The phrase, "Amounts payable," is very broad. It's large and if somebody contractually had an arrangement in place that satisfied Poletti v Ecob, James Turner, and they were paying by way of example an annualised salary, the phrase, "amounts payable," is simply broad enough to capture the fact that each month, whatever the annualised salary is to be paid should be paid.

PN557

So there is no great - there is nothing here that really helps an argument to defeat Poletti v Ecob or James Turner. Of course, the real work that 323 does is to insure that whatever those amounts payable are are paid in a certain way; that is to say, they're paid in money, they're paid in a certain time period and the like. So we tend to think that the ACTU discussion there is something of a red herring and not one that needs to be got into for answering the matter before you. IN relation then to question 1, which is at paragraph 45, our answer to that question is no. In relation to question 2 at paragraph 50, our answer to that question is no.

PN558

In relation to question 3 at paragraph 51 our answer to that question is yes, that is correct. In relation to question 4, that is not a question for us. It's a question for others. In relation to question 5 at paragraph 53, our answer is no, the absorption clause could not be said to be a machinery clause. Section 142(2) is quite informative in that it develops by way of example what is the true character of the machinery clause and when one looks at it, it seems to have no suggestion whatsoever that it is about in any way, shape or form rights, obligations or entitlements. It genuinely is just the practical, skeletal framework, the headings, the title page and so forth.

PN559

So there couldn't be any reasonable argument advanced to say that the absorption clause is a machinery clause. Question 6 on paragraph 30 again is not a question for us. I've answered question 7. In relation to question 8 on paragraph 62, we agree with the bench that the answer to the AFPC question is no. Our answer to question 9 at paragraph 62 - I think we've largely dealt with that in the sense that, to use the words in the question of question 9, the phrase there is why is it now necessary? If there was an argument that the bench should be creating something afresh then obviously we've said not only shouldn't you but you can't. It's simply a question of, well, why should we retain?

PN560

We've already dealt with that in our oral submissions this morning. But as I've said, I cannot say in all candour that absorption clause going forward would have a lot to do. We've dealt with question 10, which leaves question 11, which is this question of the interaction between the absorption clause and the take-home pay clause.

PN561

I am not entirely comfortable saying that there's a (indistinct) to. I would suspect though that the relationship has its genesis in the ministerial request and the Commission will be mindful that the Ministerial request at para 12, empowered the inclusion of transitional arrangements but very importantly as part of its objects in objects 2(c) and (b) advanced the proposition that, and I'll just quote:

PN562

The creation of Modern Awards is not intended to (c) disadvantage employees; (d) increase costs for employers.

PN563

And I suspect the answer is this that take home pay and absorption are the sort of yin and yang that give effect in some way to the object in 2(c) and 2(d). That is, well we didn't expect employers to raise, or require employers to raise actual rates of pay out of this process and by the same token we didn't expect employees to actually lose. And I think that's probably why you've got these two statements sitting broadly alongside each other in what is the commencement and transitional clause in Modern Awards.

PN564

Unless there are any other questions, those are our oral submissions.

PN565

JUSTICE ROSS: Thank you, Mr Ward.

PN566

MR WARD: Thank you, your Honour.

PN567

JUSTICE ROSS: Ms Adler?

PN568

MS ADLER: Thank you, your Honour. I just wanted to - reflecting on the discussion that's occurred this morning - I just wanted to put a more pragmatic view to the Bench and why we came to the view we did in our written submissions. What it comes down to for our members is that they want to know how an over award payment interacts with minimum wages, loadings and allowances prescribed by the Award. That's what they want to know.

PN569

They want to know however much more they're paying in the Award, how that works in relation to award prescribed entitlements. And we say that there should be something in the Award which helps them to understand that interaction. We would reject the argument of the ACTU that the principles as set off are quite clear and easy to understand. We would say that they're not. We would say that our members need additional information and explanation of how that works in relation to an Award. And, particularly, in relation to where entitlements, under the Award increase, and how that interacts with over award payments.

PN570

VICE PRESIDENT HATCHER: So how do you say the clause actually works, Ms Adler? That is what do you say is its actual legal effect?

PN571

MR WARD: Sorry, your Honour?

PN572

VICE PRESIDENT HATCHER: What do you say is the actual legal effect of the clause and that context? That is, what does it do?

PN573

MR WARD: The current clause?

PN574

VICE PRESIDENT HATCHER: Yes.

PN575

MR WARD: I don't know that we'd go as far as my friends in Melbourne have gone. Our advice to our members is that if you are paying an over award payment that you should indicate to the employee what that over award payment is in satisfaction of. So I don't know that we say it's as broad as perhaps AiG has suggested but for absolute caution you can specify how that over award payment is to apply. But our members don't see that on the face of the award. They take that advice from us.

PN576

VICE PRESIDENT HATCHER: That might be wise advice but it's not what the clause says. I'm really asking you what the clause does.

PN577

MS ADLER: As I said, your Honour, I don't know that the clause goes as far as what's been suggested in that it would satisfy any and all obligations paid under the award - any over award payment - and I think that's as far as I can take it, your Honour.

PN578

VICE PRESIDENT HATCHER: I mean, on the face of it, it appears to give an employer an absolute right to set-off against over award payments regardless of the circumstances and regardless of the contract of employment, doesn't it?

PN579

MS ADLER: We would say that it doesn't.

PN580

VICE PRESIDENT HATCHER: It doesn't?

PN581

MS ADLER: No. But it wouldn't override - well, it shouldn't override a contractual entitlement and that if some wording needs to be tidied up to come to that effect then we would say that that should be explored based on AiG's submission around section 139 and 142 and the power of the Commission to have - - -

PN582

VICE PRESIDENT HATCHER: But if its effect is unclear, as demonstrated by different submissions made today by employer groups as to what it means, then it can't be doing a lot of good for employers in terms of giving them guidance. That is if we - - -

PN583

MS ADLER: And - sorry, your Honour.

PN584

VICE PRESIDENT HATCHER: If we can't agree among ourselves what it means I hardly would think it's giving employers much use or help as to what their obligations are.

PN585

MS ADLER: And it comes to why our advice is for absolute caution to obviously put these things in writing and to obviously articulate how that over award payment is to apply to particular allowances and other entitlements under the award.

PN586

So our position is that there should be something in the award to deal with that interaction. Whether or not it takes the form of the current provision is a matter that we're not wedded to in light of the discussion that's happened this morning. But as I said we maintain the view that there should be something in the award to assist an employer when they're paying over award of payments and how that interacts with the entitlements under the award.

PN587

VICE PRESIDENT HATCHER: But that would be a clause not imposing obligations but, in effect, giving some sort of advice, wouldn't it?

PN588

MS ADLER: I don't think so, your Honour. I think it would be a provision that would suggest how award entitlements can be dealt with when over award payments are made.

PN589

VICE PRESIDENT HATCHER: I mean on your approach the clause would have to say, "Subject to the contract of employment you can offset over award payments." But saying that is not going to be of particular assistance to anybody is it? Because that just begs the question what does the contract of employment provide in the particular case.

PN590

MS ADLER: And then that would obviously be up to the parties to determine that. So I don't think there's any adverse consequence of having a provision to that effect. I think it would clarify that - if you have a contract of employment that specifies or relates to these things - then that would apply. If there's simply a lump sum amount that's not distilled into a written agreement as to how that applies then the provision in the award could indicate how that over award payment could be apportioned across different allowances and entitlements under the award.

PN591

I think your Honour might have put some wording out there earlier on this morning around whether potentially a provision suggesting that an over award payment can satisfy rates, loadings and penalties payable under the award. And you could include something in there around subject to contractual entitlements - or sorry, contractual arrangements being made.

PN592

COMMISSIONER BISSETT: Ms Adler, is the HIA's position that the clause should be retained in some way? Or that it's no longer necessary?

PN593

MS ADLER: It's our position that it should be retained in some way.

PN594

COMMISSIONER BISSETT: Thank you.

PN595

JUSTICE ROSS: Anything else, Ms Adler?

PN596

MS ADLER: That's all, your Honour, thank you.

PN597

JUSTICE ROSS: Are there any other employer interests on the absorption question? If not we may - is there an order amongst the union reps or who wants to go first? Ms Taylor?

PN598

MS TAYLOR: Your Honour, I'll go first. I have a brief and simple submission to make.

PN599

JUSTICE ROSS: Okay.

PN600

MS TAYLOR: And I'll go to question four first. We say that the current clause is not enabled under any provision of the Act, the various matters that the summary paper goes to and, in particular, section 139. Because it's not about any matter in particular and I think Mr Ferguson said this morning that the clause was not appropriated to any particular matter.

PN601

So we say that the current clause one is not operational and I'll address Mr Ward's submissions this morning about the ongoing operation of the clause but that is not to say that you could not draft a clause that could be within a matter about section 139. And we say that the clause that we propose could possibly - would be such a matter. Yes, the clause proposed does go to over award arrangements but it also does go to minimum rates of pay and award provisions similar to many other facets of life can be multi-dimensional, however if it was accepted that the clause was enabled under section 139, it still has the hurdle to pass under section 138 or section 142 if it was to be argued as an incidental matter.

PN602

And we have considered the material that's been put by various parties in this matter, and we no longer push our clause because we say it is unnecessary, and in particular we say it's unnecessary because of the requirements under the Act, section 535 and 536 and the regulation in relation to pay slips, and it bemuses me that so many submissions have gone this morning as to employers need to know what the arrangements are, where the pay slip regulations made that abundantly clear.

PN603

And just going back to support this premise in relation to the principles of offsetting as identified in James Turner and they are reproduced at page 17 of the Commission's summary, and, in particular, paragraphs 4 and 5. Now, paragraph 4 basically says that the periodic sum paid to an employee prima facie is for all responsibilities or obligations under the award. But, looking at the last line:

PN604

The sum is not deemed to be referrable only to ordinary times worked unless specifically allocated to other obligations arising with the employer/employee relationship.

PN605

Now, that is exactly the heart of the pay slip requirement, and the template pay slip produced by the Fair Work Ombudsman as a guide to employers identifies that, not only do you have to identify the gross payment, but because of the requirement to identify other monetary allowance or separately identifiable entitlements, the record must set out details of the payments, bonus, loading, rate, allowance or entitlement, so that every specific entitlement has to be given a monetary value under the current provisions of the Act. That makes it abundantly clear what is paid for ordinary hours out of the whole sum that may be paid, and what is paid for other obligations under the award.

PN606

So we say that absorption clause, in any form, is not necessary. But we also go to principle 5 of the James Turner, which says that each case depends on its own facts, and is to be resolved according to general principles relating to contracts and debtors and creditors, and therefore it would be dangerous and inconsistent with the principles to have an overarching clause which says that employers can do this, in the absence of looking at the specific facts, and in the absence of looking at the contractual arrangements.

PN607

In relation to the other questions that the Bench has raised regarding absorption, we don't disagree with any of the propositions made. In relation to Mr Ward's submission that the transitional provisions have no drop dead date and therefore continue, if I am understanding the submission correctly, we say that even if that were the case, the absorption clause has no work to do because the transitional provisions to which it relate has finished. It ceased, and therefore the absorption in relation to those matters has also ceased. The rates and allowances in the award now are the rates and the allowances to be paid. They are not the rates and the allowances arising out of the modernisation process. That's all I have to say, your Honour.

PN608

JUSTICE ROSS: What do you say about the take home provision? This is question 10.

PN609

MS TAYLOR: Well, the take home provision, as I understand it, was argued in relation to the transitional provisions. The ACTU's submission in relation to that matter was made in the context of the accident makeup pay transitional matter. So we say, at the moment, that there is no connection, and we also say that the ACTU argued that the award provision for take home pay had a broader role to play than the take home pay arrangements under the Transitional and Consequential Amendment Act. So if that argument was accepted, and I understood it was accepted, because the clause was determined to have an ongoing life, then there's no reason to remove it from the award.

PN610

JUSTICE ROSS: No, no, we're revisiting that issue now. So I'm asking you what the source of power is for the take home clause that's in the award.

PN611

MS TAYLOR: I'll have to take that on notice, your Honour.

PN612

JUSTICE ROSS: That's really what the question asks.

PN613

MS TAYLOR: Well, I don't have an answer for you.

PN614

JUSTICE ROSS: Okay. Anything else, Ms Taylor?

PN615

MS TAYLOR: No. Thank you, your Honour.

PN616

JUSTICE ROSS: Mr Maxwell?

PN617

MR MAXWELL: Yes. Thank you, your Honour. Your Honour, perhaps if I can deal with the questions and doing so just raise under paragraph 31 there's a question of the ACTU, and I know they're not here, but we say that the response to that question ‑ ‑ ‑

PN618

JUSTICE ROSS: Which question number was it?

PN619

MR MAXWELL: Well, it's not a question. It's a question under paragraph 31.

PN620

JUSTICE ROSS: I see.

PN621

MR MAXWELL: And the question is, does the ACTU also contend that the AMWU's amended clause is not permissible. We submit that, from our point of view, we say that the AMWU's amended clause is not permissible because it deals with over award payments and over award payments can't be regulated by a minimum conditions award, and we think that the extent to which awards deal with minimum conditions was made clear in the early decision of this Full Bench in [2015] FWCFB 4658 at paragraph 96 when they dealt with the issue of the penalty rate in terms of whether it's double time or 200 per cent of the rates in the award. So we say the Full Bench has clearly said that modern awards deal with minimum conditions of employment.

PN622

JUSTICE ROSS: What was the reference again?

PN623

MR MAXWELL: That was paragraph 96.

PN624

JUSTICE ROSS: Of?

PN625

MR MAXWELL: Of [2015] FWCFB 4658. That was the decision of this Full Bench of 13 July 2015. In regard to question 1 we don't dispute the summary set out in paragraphs 36 to 45 of the summary document. In regard to question 2 our answer is no. And I should say I'm surprised that a lot of our answers may be similar to those of Mr Ward, which is not so much unusual, so ‑ ‑ ‑

PN626

JUSTICE ROSS: I know that's given you both a degree of discomfort. It makes ‑ ‑ ‑

PN627

MR MAXWELL: In regard to question 3 we say yes it is correct. In regard to question 4 we agree with the ACTU's submission that the absorption clause is not permitted by section 139(1) as it doesn't resolve awards or not a matter dealt with in section 139(1). In regard to question 5 we say no, it's not a machinery term. And in regard to question 6, we agree with the submissions of the ABI and the ACTU.

PN628

In regard to question 7, the legal effect of the absorption clause, we say it has no legal effect, and our concern there is that we note that one of the requirements is that, to para-phrase, that the modern awards be simple and easy to understand.

PN629

Now, we note that the AiG refer to the decision in James Turner Roofing Proprietary Limited v Peters and that was also referred to by Ms Taylor. The paragraph that we would refer to the Bench to, from that section quoted under paragraph 61, is paragraph 2 of that decision where the Court said that:

PN630

However, if a whole or any part of the payment is appropriated by the employer to a particular instant of employment, the employer cannot later claim to have that payment applied in satisfaction of his obligation arising from under some other incident at the employment.

PN631

So a payment made specifically to ordinary time worked cannot be applied in satisfaction of an obligation to make a payment in respect of some other incident of employment such as overtime already paid, clothing or the like, even if the payment made for ordinary time was more than the amount due under the award in respect of that ordinary time.

PN632

We say that clearly the issue would depend on the circumstances of a particular case as to what basis the award payment was made for and that would be identified in the contract of employment or the letter of offer of employment in those cases.

PN633

If I can then deal with question 8. It is with some reluctance that I disagree with the summary paper and I did go back and check what the positions were in the previous decisions. I found that in regard to the Australian Industrial Relations Commission that they did deal with the issue of absorption in the wages and allowances review 2006 decision which is found in PR002006 and, in particular, in paragraph 64 of that decision they decided that the need for an award clause of the kind in principle 8C was no longer necessary.

PN634

At 8C the principles dealt with a question of absorption, so in the (indistinct) reviewed 2006 decision, they removed the absorption clauses from the awards that dealt with pay rates for - during that time we had the provision where there was wage rates set by the Fair Pay Commission and then there was wage rates set by the Industrial Relations Commission for, I think, the transitional award. So the transitional award, that contained the wages rates, had the absorption provision removed.

PN635

In terms of the Fair Pay Commission, whilst no mention was made about absorption or offsetting in the 2007 Australian Fair Pay Commission decision - sorry, in the 2006 decision. In the 2007 decision and the 2008 decision, there is a reference to offsetting in the executive summary. In the July 2008 Australian Fair Pay Commission, a wage setting decision, in reasons for decision on page 9 of the executive summary, they say and I quote,

PN636

The general wage setting decision 2008 only adjusts minimum rates of pay in special FMWs, the standard FMW and pay scales. This increase may be offset against any equivalent amount in rates of pay received by employees whose actual wages are determined by above minimum pay scale arrangements.

PN637

So there wasn't a requirement that there be an offsetting, that it may be so it's again municipal arrangements, but only in regard to wage rates.

PN638

JUSTICE ROSS: It's only said in the reasons. There's no legal instrument either by the AIRC or by the Fair Pay Commission that permits or refers to it in any way.

PN639

MR MAXWELL: That's correct and I will identify that just for the information of the bench and the parties. In regard to question 10, we say that the course should be deleted. In regard to question 11, we say that there is no connection as such. They are the submissions, other than that we rely on our written submissions.

PN640

JUSTICE ROSS: Thanks, Mr Maxwell. Anything from Mr Butler or Mr Crawford?

PN641

MR CRAWFORD: Your Honour, I'm content to rely on our written submissions of 17 August 2015 from paragraph 55 onwards. We say that the absorption clause should be deleted and that basically the issue should be left to the realm of the common law. That's effectively, as Mr Maxwell identified, what this Full Bench previously determined in relation to the references to time and a half and double time which currently appear in a lot of awards. So we say, for consistency, if this bench has decided that those references should be changed to 150 per cent and 200 per cent, it should also follow that the absorption (indistinct).

PN642

JUSTICE ROSS: Mr Butler.

PN643

MR BUTLER: Yes, your Honour and members of the bench. First of all I need to acknowledge that due to unforeseen circumstances I was not able to sight the summary that the Commissioner provided, so my submission I think will address a couple of the questions but will be confined to two basic points.

PN644

Our concern is in respect to key areas. The impact of this award provision as it's currently written on the operation of common law contracts, and the potential, in our view, for such a clause to conflict with other award provisions. Addressing the first point first, as is generally understood, the use of common law contracts is a longstanding feature of professional employment, particularly in the private sector. These common law contracts that come in a myriad of shapes and sizes, typically provide for framing lines to salaries and in the ability to offset award entitlements where there is coverage under a modern award.

PN645

A number of the parties in their submissions and today have referred to various legal decisions that establish (indistinct) in particular the references to James Turner Roofing Pty Limited v Peters. And I think that what we would take from the common law principles that have been established over time, have been able to evolve and have been applied to a whole range of situations, is that there is an intention by the parties, an intention by the employee and the employer to even though in our view it can be very lopsided, you are to at least have some form of bargaining that takes place.

PN646

Our view is that this clause as it reads has the potential, and we would argue, even though this is contested, has the potential to impact on common law contracts that currently exist and, in our submissions, we cite examples of a number of these provisions.

PN647

The other aspect is the potential for conflict between this particular provision and the way it is currently stated, and other award provisions. Most awards that regulate professional employment, such as the Professional Employees Award and awards covering pharmacists and architects and surveyors and the like, usually provide for a range of flexible provisions. Some of these provisions can be light touch, like annualised salary clauses. But in the cases of professional employees award, for example, there are provisions which were included in our submissions, dealing with such matters as compensation for the working of excess hours or alternative methods of remuneration for annual leave loading.

PN648

These provisions, such provisions and others like them, provide for a flexible approach to the setting of remuneration for professional employees and these issues are usually worked out in the common law contract negotiations.

PN649

We would be concerned that if the current clause continues in its current form, that it may be in conflict with provisions in awards that are perhaps quite different to what normally applies in awards, whereas you might have a set allowance or a set rate. But where flexibility is allowed, implicit in that flexibility is the capacity of the employee to bargaining with their employer; albeit from our perspective that can be lopsided.

PN650

If I can just refer to one example, the overtime Professional Employees Award which we make reference to at paragraph 17 of our submission provides for compensation and remuneration, so it's not necessarily money; it provides or an annual review of what has been paid or compensated. Our concern that on the face of it the provision that's currently in the award, we would say it has been, and if it continues, could be interpreted to remove the capacity to negotiate; or at the very least there would be some conflict between award provisions.

PN651

We support the submissions of the other unions in that the clause should be removed. The common law contract system has operated very effectively. It's underpinned by the modern award system, which confers some rights to negotiate. If the commission was of a mind to enter into the area of the regulation of common law contracts, which I think is comprehended by this clause.

PN652

If it stays, then we would say that that clause still would have a lot more work that would be required to be done to build in safeguards, particularly rights to negotiate.

PN653

JUSTICE ROSS: Thanks, Ms Butler. Anything in reply to anything that has been put in relation to the absorption issue?

PN654

MR FERGUSON: One point. In relation to an issue raised by Mr Ward as to the power to deal with absorption and, I might say, the power to deal with take-home pay provisions. I think the only issue that needs attention - one issue that needs attention, really, is how to reconcile the existence of a power, if one does exist, with the operation of section 136 and section 137 of the current Act.

PN655

Section 136 subsection (1) provides that,

PN656

A modern award must only include terms that are permitted or required by

PN657

and then it goes on to reference various provision of the Fair Work Act itself. So that provision in itself seems to dictate that the awards can only include the provisions that have a source of power within this Act, rather than a source outside of it.

PN658

And then, of course, section 137 says that, "A term of a modern award has no effect to the extent that it contravenes section 136." So I think the concern we would have is even if there is a power under the transitional legislation - I'm not satisfied that there is, and I think Mr Ward raised that it was a bit less than confident - but this issue would mean that it would have no effect in any event, and that indeed it's not possible.

PN659

JUSTICE ROSS: So you say to the extent there was a power under the Transitional and Consequential Provisions Act, that has been extinguished by sections 136 and 137.

PN660

MR FERGUSON: That's right. Yes, or no effect under 137. And we don't concede that there was a power under the transitional legislation in an ongoing sense. But we don't want to be definitive on that point.

PN661

JUSTICE ROSS: So your argument, then, has to rest on 139(1).

PN662

MR FERGUSON: Yes.

PN663

JUSTICE ROSS: And what follows ‑ ‑ ‑

PN664

MR FERGUSON: And we put the alternative in relation to 142(2), but ‑ ‑ ‑

PN665

JUSTICE ROSS: ‑ ‑ ‑ about the modern award objective, if you get over 139(1).

PN666

MR FERGUSON: That's right. But if we're wrong on that, then obviously the issue arises it's a transitional provision, and for all the justifications that it was included before, that it could stay. And conceivably there may well still be employers relying on that clause for the same purpose. But we don't think there is a power because of the operation of this section.

PN667

I'm just trying to be less than 100 per cent committed on the operation of the transitional legislation because I don't have it in front of me.

PN668

JUSTICE ROSS: Anything further?

PN669

MR WARD: Can I just make a response to that?

PN670

JUSTICE ROSS: Sure.

PN671

MR WARD: We considered whether or not it could be argued that the Fair Work Act, by implication, repealed the Consequential Amendments Act in whole or part. It seems - it's one of those arguments that normally might be available (indistinct) because if that was the case, they both came into operation effectively on the same day, and it would seem if the Fair Work Act did, by implication, repeal the Consequential Amendments Act, it effectively made the Consequential Amendments Act to have no work from the day it was made. So we just struggled with going to where Mr Ferguson just went.

PN672

JUSTICE ROSS: Ms Taylor, you indicated that you weren't in a position at the moment to answer the question about the source of power to retain the take-home pay order clause; this is question 10. We would give you leave to - if you wish to say something about that - to do so by 4 o'clock tomorrow. It will be posted on the web site. If anyone wants to say anything about it, they can say something about it.

PN673

Given the ACTU is not represented here, we would ask that you draw their attention to that question in the event they wish to say something; and then parties will have an opportunity to comment on that.

PN674

MS TAYLOR: Thank you, your Honour.

PN675

JUSTICE ROSS: Okay. That deals with the absorption question.

PN676

MR MAXWELL: Your Honour, I just notice that I think I may have given an incorrect reference to the 2006 wages and allowances review decision. The paragraphs are paragraphs 65, and it refers to principles 8(d) and principle 8(e).

PN677

JUSTICE ROSS: Okay. Thank you. Who would like to go first on the casual loading issue?

PN678

MR CRAWFORD: I'm happy to, your Honour. Just turning to the questions in the discussion paper. The first one is: does the provisional decision result in any substantial change to any modern award? We say yes, it certainly does. In our submission of 17 August 2015 from paragraph 30 onwards - does the bench have that?

PN679

JUSTICE ROSS: Yes.

PN680

MR CRAWFORD: We've identified a number of awards where we - and I don't know if this is necessarily debated by the AiG or not. I don't think in the initial submissions about exposure drafts that it was necessarily argued, even for these awards, that there was an issue about the calculation of the casual loading.

PN681

In any event, we've identified the Aluminium Industry Award, the Cement and Lime Award, the Concrete Products Award, the Pre-mix Concrete Award, the Quarrying Award, and then the Building and Construction General On-site Award, which I may - I will let Mr Maxwell speak more about.

PN682

But aside from the Aluminium Industry Award, we say that the other awards we've identified there clearly currently require the casual loading to be calculated on what, in the exposure drafts, is termed the ordinary hourly rate because they refer to one 38th of the weekly ordinary time rate of pay.

PN683

We say the weekly ordinary time rate of pay would clearly have to include all-purpose allowances, such as an industry allowance; meaning those awards - there's no reference to, for example, one 38th of the rate specified in the classification clause, and that wording does appear in the awards that I think the AiG have focused upon.

PN684

But in the awards we've identified there, I mean, I'm not sure if anyone is going to actually debate that the term "ordinary time rate of pay" would not capture all-purpose allowances. I mean, if they do, I may have to reply, but in my submission that's reasonably clear.

PN685

I have referred in our 17 August 2015 submission repeatedly to the High Court case in Scott v Sun Alliance Australia Limited [1993] HCA 46, where they refer to the ordinary pay. They basically say it is the rate of pay per ordinary hours of work. So again, we say that that reiterates that the term "ordinary time rate of pay" must include all purpose allowances. So as I said, our question 1 is clearly, yes.

PN686

I don't know if I'm getting much favour with it, but I still press the argument that in no current modern award, in our view, does it require that the casual loading only be applied to the minimum classification rate specified in that award. We say that approach would clearly conflict with other terms in the award, which refer to allowances being paid for all purposes.

PN687

We say, and this was largely acknowledged in this Full Bench's previous decision, that it has been well understood what all purpose allowances mean for a very long period of time. I'd suspect before this process started, there would have been a pretty consistent answer to what is an all purpose allowance, and that is, the allowance is paid for all purposes. You include it when you're undertaking any rate calculations under the award.

PN688

This Full Bench largely recognised that when they stated in their 15 July decision that, historically, all purpose allowances have been taken into account when calculating loadings and penalties. And of course, the casual loading is a loading, so we say it has been well understood that you would always include an all purpose allowance when you're calculating a casual loading.

PN689

We do accept that references in the current awards to the loading being calculated or basically being added to one 38th of the, for example, classification rate prescribed in clause whatever, we do that is not helpful to our argument. We can understand why, primarily, the AiG have effectively jumped on those words to try and argue something different to what we say is the clear, historical approach.

PN690

We say that, even in those awards, what you have is conflict between the casual loading provision and the allowance provision. The allowance provision clearly stating that the allowance is paid for all purposes, including, we would say, when calculating casual loading.

PN691

So we say, even in those, what I would term unhelpful awards, for my argument, I say there is ambiguity. That being the case, that ambiguity should be resolved by affording the more beneficial entitlements to the employee. But that is not the only principle that I say would be relevant. I think it is well established that awards have to be read as a whole and they're not read in a vacuum.

PN692

The historical terms and contexts have to be taken into account. I say when you do that, it is well understood by industrial parties, what the term or purpose means. It hasn't really been debated much over the years and I know that the independent party, the Fair Work Ombudsman, obviously has a pretty clear understanding of what that term means. Because when they do their rates calculations online, even in what I term the unhelpful awards, they apply the all purpose allowance first and then add the 25 per cent loading to that amount.

PN693

So moving on to question 2: is the provision decision inconsistent with any previous decision of the Commission and, if so, what is to be made of this? We say the answer is firstly, yes. We refer specifically to the Full Bench decision on 19 December 2008 in AIRC FP 1000. That was a seven member Full Bench in the award modernisation proceedings.

PN694

At paragraph 50, that Full Bench referred to a general rule, being that where penalties apply, the penalties and the casual loading are both to be calculated on the ordinary time rate. So that comes back to my previous point that, on High Court authority, the understanding of the term "ordinary time right" is quite clear, and that term would always include allowances paid for all purposes, such as an industry allowance.

PN695

So the award modernisation Full Bench actually effectively specified, in 2008, that the casual loading should be calculated on the ordinary time rate. Obviously that Full Bench would have been well conscious of all purpose allowances, because they've applied for many, many years.

PN696

The second aspect of question 2 is what should be made of this? We say that, simply, the 2008 decision should be followed by this Full Bench. The jurisdiction decision for the four yearly review of modern awards made it clear that previous Full Bench decisions will be followed, unless there is cogent reasons not to do so. We don't believe any cogent reasons have been identified by any of the employer parties to depart from that 2008 decision.

PN697

The only merit argument I've detected is from the AiG, whereby they say that the problem with applying the casual loading to the ordinary hourly rate is that that means that casual employees end up receiving a higher allowance rate than a permanent employee. I think they've referred to previous decisions. I don't have the quotation in front of me, but it's in the AiG submissions. That was a case about an enterprise agreement, interpreting in reasonably similar terms what we're dealing with in what I term the unhelpful awards.

PN698

My position on that is a casual employee is not getting a higher all purpose allowance rate if the casual loading is applied to the ordinary hourly rate. What they are getting instead is a 25 per cent loading on the minimum rate payable under that award. So all employees are getting the same classification rate, the same all purpose allowance rate, but casual employees are then getting a 25 per cent loading on that minimum rate. And that is consistent with the idea that casual employees should cost 25 per cent more than a permanent employee.

PN699

My other point in response to that argument from AiG is that it doesn't really work for shift workers, because I don't think it is generally debated that the shift loading is applied to the all purpose rate, comprising the classification component and the all purpose allowance.

PN700

So on AiG's argument then, does a shift worker end up getting a higher all purpose allowance than a day worker? I say the answer is no, the shift worker gets a 15 or 30 per cent loading, generally speaking, on the minimum rate. The extra amount they are receiving is the shift loading. It is not any additional allowance amount. I say the same applies with the casual loading. What casual employees are getting is not any additional all purpose allowance, it is a 25 per cent casual loading on the minimum rate prescribed in that award.

PN701

VICE PRESIDENT HATCHER: In the specific awards you've identified, which have industry or disability allowances, are they payable on annual leave under the NES?

PN702

MR CRAWFORD: Obviously that issue has been looked at by this Full Bench previously and that will be under awards that all purpose allowances will be taken into account. Potentially the answer is no, because the definition of base rate of pay in the Fair Work Act does seemingly exclude allowances. Yes, but the NES definitions apply, subject to what the modern award says. And the NES and the modern award comprise the safety nets. We would say you have to take both into account.

PN703

VICE PRESIDENT HATCHER: Rather than check in those specific awards, are the allowances payable on annual leave, you say, simply because they're described as all purpose, or is there something more specific?

PN704

MR CRAWFORD: I'd have to take that on notice to have a proper look, but I believe the annual leave clauses in those awards, because a lot of them in the current award refer to you getting what you would have ordinarily receive ordinary hours during annual leave. That is a pretty common provision in most current awards I've looked at, but I can go away and have a look at the wording in the annual leave provision of the awards I've identified, if that will assist, but I strongly suspect that will be the wording that I'll find.

PN705

Still on question 2, I say there is no cogent reason that has been identified for this Full Bench to depart from the 2008 award modernisation Full Bench decision that the casual loading should be calculated on the ordinary time rate. To the contrary, I say there are actually cogent reasons why this Full Bench should not depart from that decision.

PN706

Firstly, if the casual loading is not calculated on the ordinary hourly rate, a casual employee in those awards will not receive 25 per cent more for working ordinary hours than a permanent employee. The calculation varies, but it reduces the casual loading. I say it's roughly around 24.2 per cent. It varies from award to award, but I say that is an outcome that should be avoided. The idea is reasonably simple; that a casual employee should receive and cost 25 per cent more than a permanent employee.

PN707

In awards with an all‑purpose allowance, if we start calculating the casual loading on only the minimum, it would never be an instance whereby a casual employee would be paid 25 per cent more than a permanent employee, because industry allowances are paid for all purposes. They're paid to all employees, so under no circumstance will a permanent employee in those awards receive less than the classification rate in the all‑purpose and the industry allowance.

PN708

If the casual loading is only applied to the classification rate, under no circumstance will a casual employee receive 25 per cent more than the minimum rate that is clearly payable to a permanent employee in that award. We say that is contrary to the idea of a casual loading. Does the bench have a further submission I put in, dated 20 August 2015? It has rates calculations for the Concrete Products Award specifically.

PN709

JUSTICE ROSS: Yes.

PN710

MR CRAWFORD: So the point I was making with that additional submission is that in the relevant awards, applying the casual loading to only the minimum classification rate will greatly complicate the calculations that have to be undertaken because in the exposure drafts at the moment, the calculation is pretty easy. It's straightforward. For example, in an award whereby the time and a half rate for a casual employee is 175 per cent, you just get the permanent ordinary hourly rate which includes all‑purposes allowances and you times that by 175 per cent.

PN711

If in those awards the casual loading is only calculated on the minimum classification rate, that will mean the 25 per cent is on the classification rate and then presumably the remaining 50 per cent of that 175 per cent is calculated on the ordinary hourly rate, including the all‑purposes allowances. You'll see from my document that means you have to do two separate calculations on two different rates and then you have to add them together, and then you derive what would be the casual employee 175 per cent rate. That type of calculation will be required, I say, for all awards whereby the casual loading is not paid for all purposes.

PN712

On the provisional view of this Full Bench, the calculation may be a bit easier for awards where the casual loading is paid for all purposes, because you will be able to basically say the classification amount, times it by 25 per cent, add the all‑purposes allowances - and that is the casual ordinary hourly rate - and then because that rate is paid for all purposes, you just times that by 150 per cent or 200 per cent or whatever.

PN713

For the awards where the casual loading is not paid for all purposes, the calculation becomes far more complicated if you start doing, for example, 25 per cent on the classification rate and the rest on the ordinary hourly rate.

PN714

VICE PRESIDENT HATCHER: If we're publishing awards which have all the amounts calculated at the back, anyway, what is the significance of that? I'm sure you're right, but if we're telling people what the hourly rate is for each shift for each classification, permanent, casual, so the number is there and they don't have to work it out, does this matter?

PN715

MR CRAWFORD: Your Honour, my understanding is that is not necessarily the case, because it is proposed to include an ordinary hourly rate that includes all‑purpose allowances paid to all employees for all purposes, but none of the exposure drafts I've seen propose to include separate rate schedules when you start taking into account other all‑purposes allowances that are only paid in some circumstances, like the first aid allowance may be paid for all purposes.

PN716

In those awards, I mean, it doesn't seem realistic to me for the Commission to publish rates taking into account every one of those contingent consequences. That being the case, employers inevitably will still have to do their own calculations and, from what I've looked at, there aren't a lot of awards where there is only the one, for example, industry allowance.

PN717

In a lot of awards I've looked at, there are other all‑purpose allowances that are paid in some circumstances; so I say that it's not realistic to specify every single rate payable in the awards. That being the case, calculations will be required and it will be far simpler based on this document here if the calculations are just kept to the ordinary hourly rate, including all‑purpose allowances.

PN718

When you look at the rates that arise from my calculations in that document, you'll see that there's not a massive financial difference in terms of outcome, but there is a difference. That being the case, surely simplicity should prevail given that this whole process is obviously trying to make the current awards simpler. Surely for those awards whereby the casual loading is not paid for all purposes, the financial amount is reasonably small. Surely simplicity should prevail and you should do the calculation on the same ordinary hourly rate.

PN719

Now, in terms of the financial difference, that increases for awards whereby the casual loading is paid for all purposes because of the compounding effect of the casual loading. The financial detriment to an employee if the provisional view is adopted, will be greater than what my examples here show in awards whereby the casual loading is paid for all purposes.

PN720

I've already mentioned how the Fair Work Ombudsman does their calculations. I think I heard comments from other parties. I won't go much further into that, but I do make the point that if - as AiG says - it's not even arguable under some of these current awards that the casual loading is applied to the ordinary hourly rate, well, that's a bit odd that an independent party, being the Fair Work Ombudsman, that obviously specialises in reading awards and developing rates, has interpreted the current awards totally different. To say it's not even arguable that a contrary interpretation could apply, I say is a bit of overreach.

PN721

The other point I wanted to make is this is not just a theoretical issue for the AWU. We do have members covered by awards such as the Asphalt Award. If you look at the Concrete Products Award, the case being run by Brickworks, they're actually saying in their submissions that at some of their sites the award applies. When I made inquiries about the cotton ginning industry, the two sites where we had members, there were not enterprise agreements so the award is applying possibly with common law contracts. Nevertheless, the award is relevant at those sites. This is not just a theoretical issue for the AWU. If the provisional view is adopted, our members stand to lose money.

PN722

On the flipside, my submission is I don't believe that any employers will incur additional costs, because I seriously doubt that any employers are currently paying below the minimum rates put out by the Fair Work Ombudsman. I mean, AiG may give different advice than their members, but the Fair Work Ombudsman is publicly putting out these rates as the minimum rates and those rates will just continue to be paid if the casual loading is calculated on the ordinary hourly rate. If the provisional view is adopted, presumably the Fair Work Ombudsman will reduce those rates and we say that will have a practical effect on our members.

PN723

Question 3 is more difficult, because I'm strongly arguing against the provisional view being adopted. If the provisional view is adopted, obviously my submission is that employees should not lose money. In any award whereby clearly the current award requires the casual loading to be applied to the ordinary hourly rate, well, yes, we would say there should be exceptions.

PN724

There doesn't appear to be any doubt in the Building and Construction Award that the casual loading is currently not just applied to the classification name. I mean, in that award it's actually clearly specified what the ordinary time rate is. But I'll let Mr Maxwell talk more about that.

PN725

But on question 3, our primary position is this: process should not reduce current rates of pay for employees and a lot of AWU awards have all-purpose allowances in them. A lot of those awards have happened to turn up in our group 1 and group 2, so hence this has become a significant issue for the AWU and we don't believe any of our members should have their current rate of pay reduced as a result of a potential decision in this case. That was all I wanted to put, your Honour.

PN726

JUSTICE ROSS: Thank you, Mr Crawford. Mr Maxwell?

PN727

MR MAXWELL: Thank you, your Honour. Your Honour, if I can start with question 1, "Does the provisional decision result in substantial change to any modern award?" We say it does where those awards currently have wage rates which include all-purpose allowances. Your Honour, I do have a document which shows what the effect would be of adopting the provisional view on a construction award. Now, whilst the parties may not fully agree with the calculations - I apologise to the people interstate that I don't have copies for. But I think if I go through the document, whilst they may not necessarily agree with the figures, I think it won't be difficult for them to agree with the principle point that I'm making is that if you adopt the provisional view point, it will lead to a reduction in the current casual rates of pay that are currently being paid.

PN728

What I've done in this document is I've identified the old wage group, the classification level which is under the CW structure; I've identified the hourly rate or the ordinary time hourly rate that is calculated in accordance with the award and which was defined in the variation and some variations that were made to the award by his Honour Senior Deputy President Watson who was part of the 2012 award review. I've then set out the existing casual rate, which is calculated by applying the 25 per cent loading to the ordinary time hourly rate. I've then done a calculation of what the casual rate would be, based on the provisional view of the Full Bench. So - and I've not included the former job loading in there. What I've is I've taken the 25 per cent of the minimum classification rate - sorry, 125 per cent of the minimum classification rate and added to that the industry allowance, the tool allowance and the special allowance which are the all-purpose allowances payable under that award.

PN729

I've calculated a new casual rate, I've identified reduction per hour and then identified what the new percentage would be.

PN730

VICE PRESIDENT HATCHER: So what's the new percentage?

PN731

MR MAXWELL: Well, the new percentage is if you apply the new casual rate to a percentage of the ordinary time hourly rate.

PN732

VICE PRESIDENT HATCHER: Right.

PN733

MR MAXWELL: So you'll see in regard to the ECW9, which is nominally a metal tradesperson, he'll be entitled to both the industry allowance and the tool allowance for the metal trades.

PN734

VICE PRESIDENT HATCHER: So how does the second one work?

PN735

MR MAXWELL: The second one works because under the calculation of the hourly rates under the award for carpenter divers, there is instead of using the 38 divisor, you use a divisor of 31 because of their requirement to work underwater. So that is why that one is completely at odds with all the other calculations because if you applied the 25 per cent to the minimum weekly rate that's identified in the award for the CW8 classification, the minimum hourly rate that is expressed in the award is based on the 38-hour divisor, not the 31 divisor.

PN736

So that's an example of where you get an even greater complication in terms of having to work out these wage rates. Perhaps if I can go to those classifications that people normally identified with and that's the trades, which are the CW3 classifications on the second page. You'll see there that if the job loading isn't included in the calculation and you only take the 25 per cent of the minimum rate and then add the allowances, the effective casual rate then for the trades classifications are reduced from 25 per cent down to 19.5 per cent and the allowances applied. So that just gives you an idea of the complication that would arise if you have to then try and work out the new wage rates to apply to the various classifications. Now, we say it has always been the case that in the construction award and in mobile phone hire award and the joinery building trades award that the casual loading has been applied to the all-purpose rate and the all-purpose rate has included the - sorry, the ordinary time rate has included the all-purpose allowances.

PN737

In our decision we refer to the - again the wages and allowances review 2006 decision where they dealt with the issue of the job loading and the leading hand allowances, where they said in that decision - and this is found in paragraphs 23 to 30, where they deal with that issue in [2007] ARC FB 439, that they decided that folder job loading and the leading hand allowances were part of the wage rate and were therefore covered by the Australian Fair Pay Commission wage rates rather than the allowances within the award. I've attached to our reply submission of 17 August the last pay-scale summary that was issued.

PN738

I must admit it's hard to track down these pay-scale summaries these days because there's actually no website where they're available. We had to go and chase them up through the Fair Work ombudsman to actually find them because, surprise, we don't actually keep copies of them. But you'll see that in that document on the third page they say in regards to wages that the basic periodic rates of pay in this pay-scale summary have been adjusted in line with the supplementary decision issued on 30 May 2007 by the Full Bench of the Australian Industrial Relations Commission, AIRC Wages Allowances Review [2006-2007] AIRC FB 439.

PN739

You'll see that further on in that document where they deal with the casual rates, which is on page 8 of that document, that the casual loading is applied to the employees' classification rate, which we say the wage rate is contained within that schedule. SO clearly even under the time of the Australian Fair Pay Commission they recognised that you apply the 25 per cent loading to the ordinary time rate that was calculated including industry allowance, tool allowance and other, all-purpose allowances. Your Honours and Commissioner, for completeness I would seek to also refer to the award modernisation decision in [2009] AIRC FB 345, which dealt with the making of the stage 2 awards as part of the award modernisation process, which included the building industry awards.

PN740

But in paragraph 43 of that decision, they dealt with this issue about whether awards should include minimum wages that comply to the all-purpose allowances or not. In that decision in paragraph 43 they asserted the following:

PN741

Some parties, particularly in the building, metal and civil construction group of industries, propose the inclusion in modern awards of rolled-up wage rates, i.e. rates comprised of minimum wages and all-purpose allowances such as industry allowances. IN our statement of 23 January 2009 we decided against such an approach in relation to the draft Electrical, Electronic, Communications Contracting Award 2010, despite submissions of the National Electrical and Communications Association and the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia (CEPU).

PN742

It remains our view that minimum classification rates should be shown separately from all-purpose allowances in modern awards. The combination of minimum classification rates and industry allowances would confuse minimum award payments of two different types, prescribed for different purposes.

PN743

It is essential that properly fixed minimum classification rates are retained and show separately in Modern Awards in order to maintain consistently properly fixed minimum classification rates. The development and maintenance of properly fixed minimum rates had been important underpinning elements of the Commission's award since August 1988.

PN744

I'll leave the quote there, but clearly, in that decision they decided on the structure of the wage rates in the Modern Awards and that the minimum classification rates were there for a different purpose and that therefore, in determining the actual minimum rates to be paid, you then had to look at what other all-purpose allowances were payable.

PN745

And so we say that, to be consistent with those decisions, you should not apply the casual loading to the minimum classification rate, you should apply the casual loading to the ordinary time rates which is what was referred to in the decision that was referred to by Mr Crawford of the AWU, where the Full Bench decided that penalty rates and loadings should be applied to the ordinary rate.

PN746

And we say that if it had been the intention of the Full Bench that the casual loading should be applied to the minimum classification rates, then they would have clearly identified that. They didn't, they used the term, "the ordinary rate", and the ordinary rates at the ordinary time, hourly rate, in our submission.

PN747

Your Honours, we believe that that deals with questions 1 and 2 identified in the summary paper. In regard to question 3, we say well that's only relevant if you decide on a general rule that is different to the general rule that we propose the Commission should adopt. If the Commission pleases.

PN748

SENIOR DEPUTY PRESIDENT HAMBERGER: I might mark your document Exhibit CFMEU1, Mr Maxwell.

EXHIBIT #CFMEU1 MINIMUM CLASSIFICATION RATES

PN749

SENIOR DEPUTY PRESIDENT HAMBERGER: Anything you want to add, Mr Butler?

PN750

MR CALVER: Sorry, your Honour, just in relation to CFMEU 1, if I may interpolate. Litigation is designed not to cause surprises. This document surprised me. Obviously Ms Adler will have a view of these rates. The rates, the CFMEU calculates, rates that (indistinct) calculates and rates that the Fair Work Ombudsman calculates are all different. And one of my submissions was that this is such a critical element of what the Full Bench is being asked to decide, that it resolve that dispute.

PN751

So I would like the opportunity, if I may, to put together those wage rates. I'm not available for the rest of this week. If this could be posted with that in mind to inform the Full Bench, it will inform the elements of the dispute. It will also give Ms Adler and others a chance not to be as surprised by the document.

PN752

SENIOR DEPUTY PRESIDENT HAMBERGER: Sure. Well, can you provide it electronically and we'll put it on the website and give parties till what, 4 pm next Thursday, to comment?

PN753

MR CALVER: Thank you, your Honour.

PN754

MR MAXWELL: Yes, that's all right.

PN755

SENIOR DEPUTY PRESIDENT HAMBERGER: Okay. Mr Butler, anything else? Ms Taylor, anything you want to add?

PN756

MS TAYLOR: Thank you, your Honour. Well, the AMWU adopts the submissions of the AW and the CFMEU, particularly the AWU's submissions in relation to previous High Court authority on what is understood to be ordinary time rate, reading awards as a whole and the conflict and ambiguity that arises in awards such as the Manufacturing Award, Graphic Arts Award and Food Manufacturing Award, where the casual loading is expressed as 138th and then referenced to the minimum rates table. And we support and adopt the submission of the CFMEU in relation to previous Full Bench authority about the importance of keeping minimum rates for classification purposes separate, to rates of pay that apply to – the rates that apply during working ordinary time.

PN757

In relation to question 1, we say that the question requires a consideration of not only change, but what is substantial and the AMWU has made the submission that any reduction in the rate of pay applying to casual workers is a significant and substantial change. We backed up that argument addressing each provision of section 134, the Modern Award objective and we note that that forensic examination against the Modern Award objective is missing in most of the employer's submissions. The AMWU contends that the provision approach will result in substantial change to the method applying to the calculation of a casual employees pay and we provided examples from the Manufacturing Award identifying the effective reduction of the casual loading in our submission of 3 August at paragraph 37.

PN758

The substantial change that flows from the provisional approach is that the 25 per cent loading to offset the disability and loss of entitlements arising from being a casual is effectively reduced.

PN759

And that's certainly identified in CFMEU 1. Well, the same impact, of course, with different amounts, depending on the allowances arises in the Manufacturing Award. And in relation to the proposal or the question from the Bench about the schedules overcoming this sort of complex calculation, the exposure drafts at the moment in awards, where the all-purpose allowances apply to some employees and on some occasions, is simply by a reference a note in the minimum rates, in the ordinary time rate table, indicating that if an all-purpose allowance applies, then it must be applied to the ordinary time rate.

PN760

The proposal that we could insert the various amounts for the all purposes allowances is very difficult. For example, in the Manufacturing Award at clause 32.1, there are approximately seven all-purpose allowances applying to different people in different situations. However, within those allowances, there are different amounts applying to different characteristics of people. For example, the leading hand allowance is a different allowance from three to 10 employees, 11 to 20 and more than 20. That situation arises in some of the other all-purpose allowances. So it would be a very difficult and complex schedule to add to the exposure drafts.

PN761

In relation to the Manufacturing Award and the expression, "ordinary time" rate and the casual loading, we adopt the submissions of the AWU in their written submission of August 3, paragraphs 15 to 25, where they go through the 2000 casual loading decision at T4 991, identifying where the reference to ordinary time rate occurs. So we say that the substantial change in – sorry.

PN762

In awards such as the Manufacturing and the Graphic Arts and the Food Award, the casual loading is described as being for all purpose. So the substantial change brought by the provisional view is that the casual loading which is expressed, to apply for all purposes, will not apply to all purpose allowances. And we say this outcome is inconsistent with the function of the loading which the 2000 Metals case decision determined was to translate between the types of employment, the standards provided by the Award safety net.

PN763

And the last point I'd made is in relation to the agreement referred to by the AWU in their submission, and also by the AiG, the Mechanical Maintenance Solutions. The AiG put the decision in that matter forward as evidence that the provisional rule was used in that particular matter. Well, the AWU has identified that that was an agreement and clearly, the provisions of the agreement may have led to that conclusion.

PN764

But what is clear from the decision in that matter, which is at 2014 FWC 9163, is that the dispute was about a particular allowance. And, in fact, the base rates in that agreement already included some all-purpose allowances which the casual loading was applied to. So we say that there is no comfort in that decision for the interpretation that the AiG seeks to bring to it.

PN765

We rely on the submissions of the AWU and CFMEU for question 2. In relation to question 3, we say that the Full Bench decision in 2008, which has been oft quoted here in relation to the general rule applying, is an indication that the Full Bench has determined that, even where a general rule may apply, there is certainly provision for different arrangements to apply in other Awards.

PN766

And in relation to that particular matter, for example, the general rule does not apply in the Manufacturing Award where the application of the casual loading to any other penalty arrangement is a compounded effect and there is not the two separate calculations to be made. But we do say that the decisions is nevertheless authority that you can have a general rule and it be varied or other circumstances arise in other modern awards. That's all I have, your Honour.

PN767

JUSTICE ROSS: Thank you, Ms Taylor. Mr Ward.

PN768

MR WARD: We'll be brief, I think it's important to note that we are effectively responding to the proposal from the Commission rather than being an applicant in the proceedings asking for something or supporting an applicant in the proceedings asking for something.

PN769

Our submissions have indicated already that consistency between awards is clearly administratively desirable and we don't walk away from that proposition.

PN770

In terms of the questions the bench have asked, I can go to question 1 to begin with. It is obviously searching in its nature and it poses the question of whether or not the proposal from the Commission results in a substantial change to any modern award. Obviously that requires a consideration of whether or not it represents change and then whether or not that change constitutes what the bench had in mind as being substantial.

PN771

I am struggling to answer that in an authoritative way but can I just give a simple example and I'll come back to the questions. If I can take one of the awards that the AWU referred to, which is the quarrying award. The quarrying award currently has within it an industry allowance of 3.25 per cent at the standard rate, the standard rate being grade 4. The award currently says that that industry allowance is paid for all purposes of the award and I don't argue with the AWU that currently that forms part of the weekly rate of pay upon which the casual loading would be calculated.

PN772

If you do the rough maths of that, it means that the industry allowance is currently worth about $24 a week against a weekly wage of $742.40. So if I then ask myself the question do I add them together and apply the 25 per cent, or do I just apply the 25 per cent to the weekly wage and not the industry allowance? The difference is if I add them together and applied the 25 per cent, I'd get $957.50. If I take the approach the Commission is now proposing, I get $952 which, roughly speaking, means the employee would be receiving a little more than a reduction of half a per cent in their earnings, weekly earnings, based on that.

PN773

Is there a change in that award? Yes, there is. Are there are a number of awards in that category? I don't think they're the majority. Our estimate is probably about 20 or them. Would that represent a change if the Commission's proposal is adopted? Yes, it would. Is a reduction in pay of that order substantial? Now, I'm sure that my union friends will tell me that any reduction in pay is substantial. I am not inclined to race in and say it's obviously substantial but I would suspect if the bench was proposing to increasing costs to employers by half a per cent, we'd probably be fairly vocal in opposition to that.

PN774

But that's the sort of question the bench is asking.

PN775

So do we concede that the awards will be changed? Yes, we do. We don't think they're the majority in any sense. It's probably in the order of what I said, sort of half to 1 per cent, potentially a reduction in pay for a casual. The bench asked itself whether or not that's a substantial matter.

PN776

Obviously if it is a substantial matter, the bench would probably revert its mind then back to the preliminary issues decision and rather than the bench advocate for the change, I think the bench would really say it's a matter for the employers to take up the cudgels for it and obviously that would then involve a proper evidentiary case to explain why the change would occur. We are not at that point here. That's obviously not what the conversation is about today, but I think that's our best way of answering question 1.

PN777

As to whether or not your proposal provisional decision is inconsistent with previous decisions, it must be axiomatic that when the Commission made modern awards such as the quarrying award, when it reviewed those awards in the 2012 review and allowed casual loadings to be paid on the simulation of, in that example, industry allowance and weekly rate, that they've made a decision saying that's what they are going to do and obviously if the bench proposed to do something it's inconsistent either directly or indirectly with those decisions. So we must acknowledge that the proposal that's being put forward by the Commission for some awards may very well be inconsistent with decisions made at the time the award was made or reviewed and reaffirmed in 2012.

PN778

Question 3 really is not a question for us. There are healthy contestants in the construction and housing industry present in these proceedings who can keep Mr Maxwell honest. What it does suggest though, is that there may well be some awards which have some intricacy to them. I note cotton ginning is one which seems to have some suggestion that the industry allowances aren't paid for all purposes but also not. General construction might also be one of those strange awards that needs to be considered.

PN779

We will say this, we don't believe it's proper for any party to receive a windfall through what might otherwise have been thought of as administrative change. It's not proper for us to get that and it's certainly not proper for the unions to get it. We'd argue that probably now several occasions in this review, and we have to acknowledge and stand by that proposition. And so I think that's the best we can do to answer the Commission's questions.

PN780

JUSTICE ROSS: Thank you, Mr Ward. Ms Adler.

PN781

MS ADLER: Thank you, your Honour. Going to the questions in the summary document, in relation to question 1, I would echo the comments made by Mr Ward around what's meant by substantial change. And for the building award particularly, this raises other questions in that we say that there's still a controversy around the calculation of the casual rate of pay under that award. So it further begs the question of what a substantial change is, given that there are differing opinions as to how you calculate that rate.

PN782

And we have tried to address that in a draft determination we put to the Full Bench dealing with the part-time casual employment common matter.

PN783

Also I would echo the comments made by Mr Calver in relation to the document Mr Maxwell has provided and I think Mr Maxwell's comments around whether or not you agree with how the rate's calculated or words to that effect, goes to the point that there's still a controversy over how that rate is calculated. And I would take the opportunity to review that document and provide further comment by next Thursday, I think was indicated.

PN784

Mr Maxwell has referred to the insertion of a definition within the building award of ordinary time hourly rate, and indicates that you simply add the 25 per cent loading to that rate. What Mr Maxwell hasn't explained is that that ordinary time hourly rate definition can relate to either a calculation for a daily hire employee or a weekly hire employee. So it's not as simply as indicated, it's more complicated than that and that's part of where the controversy lies.

PN785

We'd also say that from a practical perspective, given the difficulties that we say exist, an employer can't just pick up the award and work out, on its face, what the casual rate of pay is. It's much more complicated than that. It's quite difficult. If you go to the terms of the award, it's not clear what the 25 per cent is calculated on. Whether it's the minimum rate, the daily hire rate or the weekly rate, and that's the difficulty that we are trying to address in front of the Full Bench in the casual part‑time matter.

PN786

In relation to the characterisation of the allowances themselves, which adds to the complexity, is that, for example, the special allowance and the industry allowance under the award, there's nothing in the text of those provisions which actually says that they are all‑purpose allowances or that they are payable for purposes.

PN787

For anyone to pick up that award, the only way that you know that they form part of that minimum wage calculation is because of clause 19 of the award, which specifies for a daily or a weekly hire, which allowances are included in that minimum rate calculation.

PN788

Moving to question 2 in relation to any inconsistencies with previous decisions, the CFMEU relies on two decisions principally, and also the decision during the 2012 modern award review decision, which I've already alluded to, in which the definition of ordinary time hourly rate was introduced.

PN789

The first decision that they rely on is the 19 December 2008 decision which has been referred to, and we would say that there's an assumption made that the term "ordinary time rate" was meant to include all-purpose allowances. We say that that's a bridge too far, and without more, shouldn't be given as much weight as being proposed by the CFMEU.

PN790

The second decision that's referred to by the union is a decision of the AERC Full Bench in 2007, which is a supplementary decision to the 2006 wage review. On looking at that decision, it looked at the interaction between the follow the job loading and the leading hand allowance. The Full Bench determined that the leading hand rates should incorporate the follow the job rate, and the decision concluded that the leading hand rate was an allowance.

PN791

We say that's different from what we're dealing with here, which is the casual loading, the purpose of which differs from the follow the job loading, which at paragraph 14 of that decision was said to purport to take into account the loss of wages for employees in the industry during periods of unemployment.

PN792

The casual loading has a different purpose. It provides compensation, as is taken from the terms of the award, for annual leave, personal carer's leave, community service leave, notice of termination and redundancy benefits, and public holidays not worked. So we're dealing with different issues.

PN793

So taking those two decisions into account that are being relied on, we would say that neither of those advance proposition put by the union, and that the proposed rule by the commission is not inconsistent with the decisions because it simply didn't deal with the matter.

PN794

In relation to the third question around whether or not there should be any exceptions to a proposed general rule, we would say that in circumstances where that is warranted, then that could be contemplated, but they would need to be significant evidence or material brought to justify one or a handful of modern awards being dealt with in a different way from the majority.

PN795

If the commission is minded to make a general view to apply across awards, then it should apply across awards unless there is some significant merit to take a different course. We say that in this case the long history of how award payments and allowances were used in the construction industry, we say that's not enough to justify a different treatment of the construction award in this case.

PN796

We say that the approach that the CFMEU adopts flies in the face of the desire by the commission - and I quote from the 13 July Full Bench decision:

PN797

To create an award system that can be read by both employers and employees without the need for a history lesson or paid advocate.

PN798

In a few the current approach under the building award requires both, and the adoption of the proposed rule by the commission would simplify the award and would enable an employer to pick up the document and work out what the casual rate of pay is. Those are my submissions.

PN799

JUSTICE ROSS: Thank you, Ms Adler. Speech, Mr Calver?

PN800

MR CALVER: Mr Ferguson wants to go first.

PN801

MR FERGUSON: I will just be very brief. In relation to question 1, we've identified in our submissions that there are a raft of awards where it is not a substantial change. I can't confirm that there are necessarily awards where there is, but there may well be, we just haven't done that work across all the awards. We certainly haven't done the work in terms of identifying the quantum of any change, but we accept that there may well be changes - substantive changes, if you will - to some of the awards.

PN802

In saying that, though, we don't necessarily accept all of the interpretations of the various awards that have been advanced on an individual basis today. We haven't envisaged this to be the opportunity to argue about the interpretation of each individual award, but we would seek to do so at a later point if necessary.

PN803

In relation to 2, the question about whether the provisional decision is inconsistent with any previous decisions of the commission, and if so, what is to be made of that; well, firstly I would say that we've dealt with that in some detail in our written submissions, particularly the submissions of 17 August at paragraphs 40 to 46.

PN804

Put simply, we say that there's certainly nothing inconsistent with the provisional decision with any decisions dealing generally with the issue about casual loadings and the interaction of these all-purpose allowances. We say too much is being made of the reference to ordinary time rate in the 2008 decision in particular, and that this issue wasn't something that was dealt with in any serious way in that decision.

PN805

But I suppose the point is even if it was an inconsistent decision, of course those decisions ought generally be followed, and the need for a stable system suggests that the awards won't lightly be varied, but there may well be cogent reasons for departing from a previous approach.

PN806

And, of course, we've identified some merit-based issues around the proposition that adopting a consistent approach has force because it results in a simple and easy to understand system, and reduces the regulatory burden. So we say that would be open to the commission and you wouldn't be prevented just because of the existence of a previous decision.

PN807

Then in relation to question 3, should there be exemptions; I think the approach we've taken - again, we've dealt with this in our submission, so I don't want to labour the point - is that we would see that there is forced to adopting a consistent approach across the awards, but we don't preclude the possibility that there may be a justification for an exemption in individual awards, and the best way to handle that would be at the award stage, for the parties to be afforded the opportunity to advocate why there should be a different approach, having regard to the modern awards objective and other relevant considerations, rather than simply what may be the case currently.

PN808

We say that's the dealt with at that stage and it should be the party that are advocating for an exception, that they should carry the onus for establishing that that's justified, because we do say there is force to achieving greater simplicity across the system, and we think that is open to the bench. There's nothing further, unless there are any questions.

PN809

MR CALVER: If the commission pleases, I confirm what Ms Adler put in relation to the notion of controversy exists. There is a dispute about how casual wages are calculated in the building and construction industry. The Fair Work Ombudsman believes that the nexus with history that my friend Mr Maxwell has emphasised, when the modern award was made, in respect of casuals was turned away from.

PN810

They do that, I believe - and I'm not intending to mislead the commission - I believe on the basis that there were restrictions that were in the National Building and Construction Industry Award and the On-Site Award being largely cut and pasted of that award. The restrictions that existed then have been removed and casual employment is more broadly available now.

PN811

So that in answer to question 1: will it result in a substantial change? Yes, because it will resolve the dispute in favour either of the CFMEU; Master Builders is taking the middle ground - this is evident from our submission to the Full Bench over which the Vice President resides; or the Fair Work Ombudsman.

PN812

Given the numbers that Mr Maxwell has put in CFMEU1, I should try and get our calculations and the Fair Work Ombudsman's to the Full Bench as well so that you can see the complexion of the numbers that are being advised. Having regard to the nature of the building construction industry, even though we have 33,000 members, that's probably only one third of the businesses in operation of whom rely on the Fair Work Ombudsman.

PN813

There is some evidence of arbitrage where our members will bring up the Fair Work Ombudsman to check our rates, and then will go with the lower rate that is provided - I'm being completely honest with the Full Bench in that regard - and so this act of controversy. We like the formula that you've proposed as a Full Bench because it would simplify matters. If there's an instrument of this place that is crying out for simplicity, it's the onsite award, with the greatest respect.

PN814

The second question: is it inconsistent with previous decisions? That depends upon whether or not the Fair Work Ombudsman is right. This Commission believes that the nexus with history has been set aside, having regard to the different complexion of the casual provisions in the building and construction onsite award now, compared with its clear predecessor, the National Building and Construction Industry Awards 2000. That is, again, an open question.

PN815

The unfortunate part is that when we dealt with definitions of reference rates before Watson SDP during the 2012 review, those reference rates that are set out in clause 3.1 do not, unfortunately, reference the casual ordinary time hourly rate.

PN816

I go to the very decision that you have before you in James Turner Roofing Pty Ltd v Peters [2003] WASCA 28, and I believe, even though it's obiter, in paragraphs 49 and 50 of that decision, the summary of the manner in which ordinary time breaks can be referenced by an instrument are nicely summarised.

PN817

They can be derived also from the Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union v Mechanical Engineering Services Pty Ltd (No 2) [2008] FCA 1249, 175 IR 351, Finkelstein J, paragraph 4. I do apologise; I don't have a copy of that case with me. I'm putting that in response to the AWU, so I have that reference, but I don't have that case with me.

PN818

The matter therefore, so far as the building and construction industry is concerned, is that there is a lacuna, there is an act of controversy or dispute. Your solution has caused us to re-agitate that dispute before you by providing a written submission on the casual matters. And the answer to the question, obviously, from our perspective, is conditioned by that dispute, your Honour.

PN819

Thirdly, by nominating the building and construction industry, again, the very dispute of which I speak reverberates even more. So what do we want? We want simplicity, we want an end to the dispute, and we want the rates that are calculated in a legal sense to comply as closely as possible with either the Fair Work Ombudsman's methods or master builders' methods. That may, for those who rely on the CFMEU rates, mean a reduction, but, for the sake of simplicity, we believe that that is a matter that should be taken forward.

PN820

VICE PRESIDENT HATCHER: Just to be clear, Mr Calver, your organisation, the HIA, have, in respect of the casual part-time case, filed applications to specifically resolve the interpretation problem you've identified as part of that case.

PN821

MR CALVER: Yes, sir.

PN822

VICE PRESIDENT HATCHER: So would it follow then that that specific problem should be looked at rather than being, as it were, accidentally solved by this broad brush issue?

PN823

MR CALVER: Your Honour, we believe that the sooner the dispute is resolved the better. Given that your, rather than accidental, considered approach to making this a condition across awards would resolve a dispute, it is quite live for this Full Bench. I mean no disrespect in saying that the longer we delay this matter, any back wages or the like that occur out in the real world will be exacerbated. So given that it is an active dispute, it would be very useful for it to be resolved as soon as possible.

PN824

JUSTICE ROSS: I think Mr Ward made a submission about parties not reaping benefits from what are meant to be administrative changes. That, for one way or the other, might be the result here.

PN825

MR CALVER: No particular party will reap the benefit and we cry out for clarity first, even if the clarity is in favour of the union. We cry out for that because it is ridiculous having three levels of wage rates for the inspectorate, master builders, the union. And HIA, I think, might even slightly different from our wage calculations. That is something that I do not submit with any sense other than dismay. I think, in answer to your question, the sooner the better, your Honour.

PN826

JUSTICE ROSS: Anything further?

PN827

MR CALVER: No.

PN828

JUSTICE ROSS: Anything in reply to anything that's been put?

PN829

MR MAXWELL: Your Honour, just very briefly, I should say, for the information of the Commission, that when the modern award was being made, we did look at trying to put in the actual rates of pay in the award and we had substantial agreement, I think, apart from the casual rates. But then, the employer decided they would go with the calculations done by the Fair Work Ombudsman and the parties walked away from it. So I think part of the problems of that award are the results of the parties' own doing rather than any particular wording in the award. I would also point out that the construction award, whilst it doesn't say what you apply the 25 per cent loading to in its calculation, in 14.6, for the calculation of the overtime and penalty rates for casuals, it does do so, because it says that:

PN830

Where the relevant penalty is time and a half, the employee must be paid 175 per cent of the ordinary time hourly rate prescribed for the employee's classification.

PN831

So clearly, the award has recognised that the ordinary time hourly rate, which was those which are defined, as per those definitions put in this part of the 2012 award review, are used for the calculation of penalty rates for casuals. So it was clearly that identification of the award. The only other point I'd make is that I'm surprised that the submissions of the HIA that seem to imply that you forget the arbitral history of awards. We submit that that goes against the findings of the Full Bench in the preliminary jurisdictional issues decision, which clearly identified that those matters would be taken into account as part of this award review process. If the Commission pleases.

PN832

JUSTICE ROSS: Thanks, Mr Maxwell. Anyone else? No. Thank you for your submissions. We'll adjourn and reserve them. We'll await the additional material that we've referred to in the course of the hearing.

ADJOURNED INDEFINITELY [1.08 PM]

LIST OF WITNESSES, EXHIBITS AND MFIs

EXHIBIT #CFMEU1 MINIMUM CLASSIFICATION RATES.................... PN748

Fair Work Commission Transcripts

AM2014/64, Transcript of Proceedings [2015] FWCTrans 506 (31 August 2015)