27 Jul

'What is the Difference Between a Modern Award and an Individual Contract?' by Amelia Diskoros, LegalVision

Employees have specific terms and entitlements that, as an employer, you must provide for them. You can find these entitlements in multiple documents, such as the Modern Award or an individual contract. Therefore, you must know the differences. Modern Awards differ from individual employment contracts; they can apply on an industry level or occupational level. The Awards cover a range of different terms and conditions including pay, break entitlements, allowances, and notice periods. Individual contracts should not undercut the terms of a Modern Award and act in addition to the National Employment Standards.

What is a Modern Award?

Modern Awards came into effect on 1 January 2010. It is an industrial instrument that sets out terms and conditions of employment. These terms are in addition to the National Employment Standards (NES). The NES consists of 11 minimum entitlements required for all employees, like pay, breaks, and leave.

Modern awards are based on an industry or occupation. Moreover, they apply to businesses and workers who perform the work that is defined by the award.

However, even if a Modern Award applies to the industry in which they work, managers and high-income employees may not be covered by the award.

For most employers and workers, a Modern Award will set out all of the minimum terms and conditions of employment. Alternatively, a registered agreement can be created to set out employment conditions. Therefore, a Modern Award is typically no longer applicable. However, if the base pay rates in an agreement are lower than those in the appropriate Modern Award. Then, the Modern Award’s base pay rates will apply.

Additionally, the Fair Work Commission must approve these registered agreements before being actioned. Examples of registered agreements include enterprise agreements or collective agreements.

What if a Modern Award Does Not Apply?

An award or registered agreement will not cover all employers and employees. The National Minimum Wage and the NES will serve as the minimum terms and conditions of employment in these cases.

What Are Employment Contracts?

Employment contracts are legal documents that outline the terms and conditions of employment, such as the employee’s role, entitlements, and duties. It should include (but is not limited to) the following information:

  • job title;
  • hours of work;
  • remuneration; and
  • notice periods.

They can also specify agreements for conditions to protect your interests and limit your exposure. These interests can include post-employment restraints, intellectual property, and confidentiality.

Terms in the employment contract cannot be less favourable than the NES or any applicable Modern Awards. Contractual terms that are less favourable will not be enforceable and come with significant legal risk.

Modern Awards and Individual Contracts

The Fair Work Commission created Modern Awards, whereas employers prepare individual employment contracts. Employment contracts can record important terms and obligations that the Modern Awards do not cover. Typically, Modern Awards do not cover confidentiality, intellectual property, and restraints.

However, the existence of an employment contract does not negate an employee’s right to the minimum working conditions set out in a relevant Modern Award and NES. The Modern Award or NES standards overrule any employment contract that offers fewer entitlements than the appropriate Modern Award or NES. All employers and employees should remain informed on the Modern Awards, any accompanying transitional arrangements, and any future modifications, such as the annual minimum wage.

For example, Sally is a casual retail sales assistant with no experience. The General Retail Industry Award states that she should be paid at least $26.76 per hour according to her ordinary hours of work. However, her employment contract states that her wages are $20 per hour. Therefore, Sally’s employer underpays her by being inconsistent with the Award. Sally is legally entitled to $26.76 per hour and is eligible for back payment of any underpayment made.

Key Takeaways

Modern Awards are classified according to industry or occupation. They operate in addition to the National Employment Standards. Individual contracts differ from Modern Awards as they can cover terms like confidentiality, intellectual property, and post-employment restraints. Modern Awards set out minimum standards for your employees and your individual contracts cannot undercut any of the applicable Modern Award standards, including pay rates.

If you need assistance in drafting your employment contracts, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

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