The LHA has observed the use of individual flexibility arrangements in an unlawful manner to avoid paying penalty rates.
An individual flexibility arrangement (IFA) is an agreement between an individual employee and their employer that is made in accordance with the flexibility term in their award or enterprise agreement. An IFA made under a modern award or the model flexibility term for enterprise agreements allows parties to vary clauses in relation to:
- arrangements about when work is performed
- overtime rates
- penalty rates
- allowances, and/or
- leave loading.
The Fair Work Act 2009 (Cth) prescribes rules about IFAs, including how they must be made, a requirement that they be in writing and signed, and rules for termination.
There are two important rules to remember when implementing IFAs:
- An individual employee and their employer must ‘genuinely agree’ to the IFA.
- The IFA must leave the employee ‘better off overall’ than they would have been had they not entered into the IFA. This involves weighing up the advantages and disadvantages of the IFA to the employee compared to their entitlements under their award or enterprise agreement.
The LHA’s approach to non-compliant IFAs
The LHA has reviewed providers’ use of IFAs to ensure they are not being used as an avoidance mechanism. Where we identify non-compliance with a flexibility term, it may result in:
- licence conditions imposed
- a notice to comply
- refusal of an application/renewal application
- licence suspension, or
- licence cancellation.
We recently conducted a review of a provider’s IFAs which removed employees’ entitlement to overtime penalties.
The purported benefit these employees received in exchange for their overtime penalties was expressed in their IFAs as follows:
“Working additional hours allows the employee to nominate to work additional hours or shifts which would not normally be available to them and therefore earn additional wages.”
The LHA considered that these IFAs did not comply with the flexibility term in the enterprise agreement under which they were made as they did not leave the employee better off overall.
In this case, the LHA decided to impose licence conditions to address the non-compliance. These conditions:
- required the provider to terminate all non-compliant IFAs and provide evidence to the LHA that this had occurred
- prohibited the provider from entering into new non-compliant IFAs, and
- required the provider to submit a copy of any new IFAs it made with its employees to the LHA, so the LHA could monitor the provider’s compliance in relation to its use of IFAs more broadly.
Where IFAs are misused, the licence holder may face licensing action up to and including cancellation of the licence.
We encourage all providers who are using IFAs in their businesses to review their practices to ensure they are compliant with the Fair Work Act 2009 (Cth) and the flexibility term under which their IFAs are made.
For more information about IFAs, please visit the Fair Work Ombudsman website.