How flexible are individual flexibility agreements?

by | 1 July 2011 | Bulletin, Employment

Employers thinking that award requirements can be avoided by using an Individual Flexibility Agreement (IFA) may be disappointed. Unlike the old Australian Workplace Agreements (AWAs), IFAs are less secure and narrower in their application. An IFA can vary certain award terms to “meet the genuine individual needs of the employer and the individual employee” but only as long as the employee is “better off overall” compared to their award conditions. An IFA:.

  1. Can only be offered to an existing employee;
  2. Must be in writing, signed by the employer and employee and include the start date;
  3. Can only vary award terms relating to working hours, overtime and penalty rates, allowances and leave loading;
  4. Must state each term of the award which is to be varied and how it is varied;
  5. Must detail how the employee is “better off overall” compared to the applicable aw;
  6. Can be terminated by either the employer or employee on 4 weeks notice;
  7. Does not need to be registered with Fair Work Australia.

 

 

When is an employee “better off overall”? Common examples given are:

  1. An employee starting and finishing work earlier in order to pick up children from school;
  2. The ability to bank RDOs rather than take them regularly so they can be taken during school holiday periods;
  3. Paying a higher flat rate of pay to incorporate allowances or average overtime, as long as the employee is ultimately paid more than would have been the case under strict award arrangements.

 

So, it appears that:

  1. there must either be a clear non-financial or financial benefit to an employee to meet this test; and
  2. IFAs can clearly be used for minor award variations but it is less certain whether major departures from award conditions would be valid.

 

Whilst IFAs do not need to be registered with the authorities, the danger is that an employee will either terminate the arrangement and/or make complaint to the Fair Work Ombudsman or Fair Work Australia who may rule that the IFA is invalid and require retrospective award payments to be made. In extreme cases, employers risk prosecution for coercion.

IFAs will have their uses but they should be used on an individual rather than group basis. There may be other means of achieving the same goal, such as including a set off provision in an employment agreement so that a higher flat rate of pay offsets any higher award entitlements such as for overtime. Otherwise, caution should be exercised in using IFAs (particularly pro formas) and in seeking to rely on intangible benefits to employees, such as time off in lieu policies instead of overtime payments.