A recent decision of the Full Federal Court of Australia may have a significant impact on your business. The effect of the decision is that Queensland employers that have used a “NAPSA” (explained below) to calculate their apprentices’ pay rate have potentially underpaid their apprentices. The estimate is that the total underpayment across Queensland may be well over $100 million.

The apprentice pay issue arose in 2016 when All Trades Queensland (ATQ) applied to have a new Enterprise Agreement approved by the Fair Work Commission. As part of its application, ATQ nominated the NAPSA as the comparator industrial instrument against which the BOOT (the better off overall test) could be determined. The NAPSA applied to the apprentices’ employment when ATQ’s previous enterprise agreement was approved.

Two unions - the CFMEU and the CEPU – opposed the NAPSA being used as the comparator industrial instrument. The unions claimed that the NAPSA no longer applied and that various modern awards were to be used.

The dilemma for many Queensland employers that had relied upon the NAPSA pay rate is that the modern award provided for a minimum hourly payment of $12.66 while the NAPSA provided for a minimum hourly payment of $8.75, a difference of $3.91 an hour. This is exacerbated by the fact that many Queensland employers were told by the Fair Work Ombudsman that the NAPSA applied and they follow that advice assuming that the Fair Work Ombudsman would be correct.

Quick recap and reminder

NAPSAs were old State based awards that, when the WorkChoices legislation was passed, became transitional federal industrial instruments. This was part of how Australia’s industrial relations system moved from a number of state based regimes to a single federally based system.

But NAPSAs were never intended to continue for ever. They were only a means of transitioning from state based IR law to federally based IR law. NAPSAs continued in effect when the Fair Work legislation replaced WorkChoices. The Fair Work legislation however, provided a “sunset clause” for the NAPSAs. Once the sunset date was reached the NAPSAs would cease to cover and apply to the apprentices’ employment. The modern award and its pay rates would instead cover and apply to the apprentices’ employment, in the absence of anything else such as an enterprise agreement.

The recent Federal Court decision was about whether the “sunset clause” had come into effect and ended the coverage and application of the NAPSAs.

Previously, the Fair Work Commission agreed with the unions that the sunset clause in the Fair Work legislation resulted in the NAPSAs no longer having effect from 1 January 2014 and that the applicable modern awards covered the various apprentices from that date.
Not satisfied with the Fair Work Commission’s decisions, and recognising the financial impact of the pay rate difference of $3.91 an hour upon employers that had applied the NAPS pay rates, the ATQ, Master Builders Queensland, Apprentice Employment Network and Housing Industry Association, applied to the Federal Court of Australia to overturn the Fair Work Commissions decision.
The Federal Court decided however that the Fair Work Commission decided the matter correctly, and that “the primary analysis provided by the Commissioner and the Full Bench… was correct”. The Federal Court concluded that the apprentices were, from 1 January 2014, covered by the modern award not the NAPSA.

This decision lead the ETU’s Queensland apprentice office to declare that there would be “wage claims from thousands of underpaid apprentices who were collectively owed more than $70 million”. The CFMEU is urging its affected members to register for back pay claims.

What does this mean for you?

Ultimately, the decision means that from 1 January 2014, any NAPSA that applied to apprentices in your industry group ceased to apply. In its place, the applicable modern award for your industry applied to your apprentices’ employment. If you calculated apprentice pay rates according to a NAPSA you most likely have underpaid your apprentices over the previous four years.

To determine if you do in fact have this problem, you need to urgently take the following steps -

Step one – check what industrial instrument or employment contract you used to calculate your apprentices pay since 2014. You do not have a problem if you paid in accordance with the pay rates in an enterprise agreement or modern award that covered your apprentices. You are likely to have a problem if you paid in accordance with a NAPSA pay rate. 

Step two – if you did not have an enterprise agreement covering the apprentices’ employment and you paid in accordance with a NAPSA, you should take advice about what modern award covers the apprentices and compare the rates of pay provided in the modern award against the NAPSA you used. This will determine if you have underpaid your apprentices and by how much.

Step three – check if you paid under an employment agreement. You may not have a problem if your employment contract paid the apprentices as much or more than the minimum payable under the modern award. Depending on the terms of your employment agreement, the higher employment contract pay rates may be able to be set off against any underpayment claim. 

Step four – if you have underpaid your apprentices, then consider what arrangements your business may need to make if a claim for underpayment is made by any apprentices or former apprentices.

It is better to arrange a payment plan with the affected employees rather than ignore their demands as if you do that, they are likely to bring on a claim in the Federal Circuit Court of Australia which also carries the risk of additional costs, penalties and interest.

The unions have made it clear that they will push for employers to make good on the underpayment and to pay the modern award rates owing over the past four years. Being prepared and having a plan to deal with the issue, over a period of time if necessary, should minimise the impact of claims against your business.

If you need advice about what industrial instrument applied to your business and your apprentices, then please contact us. We will be happy to provide advice and assistance in determining whether any underpayment applies to your business and to assist you in making plans to make good any underpayment on a commercially sensible basis.