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Interpreting Coverage Clauses in Modern Awards

Reading time: 8 mins

Modern Awards set out minimum employment conditions for various industries and occupations. Within these awards, coverage clauses define the scope of application of the Award.

Modern Awards can either apply to an industry or an occupation. Interpreting these coverage clauses can be difficult and it’s important to seek advice from an employment lawyer. An employer may be liable for underpaid wages and other legal consequences if a Modern Award is incorrectly applied to a person.

This article takes a deep dive on interpreting coverage clauses in Modern Awards.

Why does it matter whether a Modern Award covers an industry or occupation?

There are currently more than 100 Modern Awards. They are mostly industry-based and there are some specific occupational groupings.

Coverage clauses in Modern Awards outline the specific industries, occupations, and geographical areas to which the award applies. They clarify who can get the basic work conditions and protections mentioned in the relevant Award. Employers and workers should review these clauses to see if their job falls under a specific award.

The coverage of an employee by a Modern Award is it important as it may:

  • entitle the employee to the benefit of a range of minimum terms and conditions of employment in addition to those in the National Employment Standards (NES);
  • set a standard for using the “better off overall test” when approving a work agreement that includes the employee.
  • entitle an employee to apply to the Fair Work Commission (FWC) for relief in connection with an alleged unfair dismissal, regardless of the employee’s income level.

 

Penalties apply if an employer contravenes a modern award. The maximum penalty is 60 penalty units or for a serious contravention, 600 penalty units.

Employers needs to be aware of which awards cover their staff. Not recognizing Award coverage can lead to penalties and orders to repay money owed to employees. For example, if an employee has been underpaid wages or does not receive other entitlements.

labour hire

Key Elements of a Coverage Clause

Industry Scope

Modern Awards often categorise industries based on the nature of their work. This is because usual employment conditions often differ between different industries. The coverage clause will state which industries the Award covers.

This ensures that employees within those industries receive the prescribed minimum employment conditions.

Occupational Categories

Within each industry, awards may further categorise employees based on their occupations. This helps tailor the provisions to the specific needs and challenges of different roles within a given industry.

Employers must place workers in specific job categories mentioned in the Award in an industry with an Award. The employee must also come within the classification structure in the Award.

Even if the coverage clause does not officially include the classifications, they still assist in determining award coverage.

You can typically find job classifications in the pay clause or a schedule to the relevant Award. Generally, there will be a list of indicative duties and responsibilities for employees at each classification level. Employees should perform some of the duties mentioned in the general description. However, it is not mandatory for them to perform all these duties.

Classification definitions may also refer to an employee’s skills, qualifications and years of experience.

A list of indicative job titles may also be provided for each classification. These should be taken as a guide only. When an employment lawyer wants to know which Award applies, they consider the person’s role, not just their job title.

Classifications are also important because an employee’s minimum rate of pay depends on their classification level. Some Awards have different pay levels and allow for moving up between levels each year based on service.

Geographical Limitations

Some Awards may have geographical limitations and may only apply to employees working in specific regions or States. Employers with multiple locations should be aware of these limitations to ensure compliance with the relevant Award.

Employer Size

In certain cases, coverage clauses may consider the size of the employer. Small businesses have different rules and exceptions. Employers must know these differences to follow the right conditions.

Modern Award

When does a Modern Award cover a person?

The FW Act states that a Modern Award applies to workers, employers, groups, or outworker entities.

Less commonly, Award coverage can also arise by operation of:

  • a provision of the FW Act or the Fair Work (Registered Organisations) Act 2009 (Cth);
  • an order made by the FWC under the FW Act; or
  • an order of a court.

 

To decide if an Award applies to someone, we need to look at the coverage clause and job classifications. If a person is described in the coverage clause as someone to whom the Award may apply, but the person’s role does not fall within one of the job classifications in the Award, then the person will not be an Award-covered employee.

The FW Act distinguishes between the coverage and application of industrial instruments.

For the purposes of the FW Act, a Modern Award applies to a person if:

  • the Modern Award covers the person (ie under the coverage clause and, if applicable, the duties of the employee’s role falls within the designated job classifications);
  • the Modern Award is in operation; and
  • no other provision of the FW Act has the effect that the Modern Award does not apply to the person.

 

The key circumstances in which a Modern Award covers, but does not apply to, a person are as follows:

  • If an employee has an enterprise agreement, they and their employer are not subject to a Modern Award.
  • A Modern Award doesn’t apply to a “high income employee” who has accepted a written guarantee of annual earnings.
Modern Award

Steps to Interpreting a Coverage Clause

Review the Award Document

Employers and employees should start by obtaining a copy of the relevant Modern Award. Reading through the document thoroughly will provide insights into the coverage clause and its specific provisions.

Consult with an Employment Lawyer

Interpreting coverage clauses can be complex, especially when dealing with specific industries or occupations. Getting advice from an experienced employment lawyer can help you understand if and how a Modern Award applies.

Consider Recent Changes

Modern Awards are subject to periodic updates and amendments. It’s essential to stay informed about any recent changes to the Award that may impact coverage or conditions.

Collect Relevant Information

Employers should gather information about their industry, business size, and geographical locations to determine whether the coverage clause applies to their specific circumstances.

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Key takeaways

  • Interpreting coverage clauses in modern awards is a critical step for employers and employees in navigating Australia’s industrial relations landscape.
  • Both parties must understand the rules to follow and create fair and productive workplaces.
  • Stay updated on laws, get advice when needed, understand coverage terms, and have a good work relationship.

Frequently Asked Questions

Do Modern Awards apply to labour hire workers?

In addition to employers and employees, award coverage usually extends to:

  • labour hire employees who perform work in the industry covered by the award (and the labour hire agencies); and
  • Trainees and apprentices hired by a company’s training service to work in an industry covered by the award.

Before assuming an employee is award-free, check if they fall under the Miscellaneous Award classifications. This applies to employees without a specific industry or occupation award. Performing a role traditionally covered by awards makes that step particularly important for the worker.

Modern awards generally exclude independent contractors from coverage, focusing instead on employees.

The Fair Work Ombudsman (FWO) has itself acknowledged that interpreting Modern Awards is often confusing for employers and employees. The FWO found problems when employers assess coverage between multiple awards and some of them don’t have interaction clauses.

About the Author

Farrah Motley
Director of Prosper Law. Farrah founded Prosper online law firm in 2021. She wanted to create a better way of doing legal work and a better experience for customers of legal services.

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