Today a five member Full Bench of Fair Work Australia (FWA) heard an Australian Industry Group application to clarify the absorption clause in modern awards.

During the development of modern awards, Ai Group vigorously argued in support of an absorption clause to enable employers to offset any additional costs arising under modern awards into over-award payments. In response to Ai Group’s arguments, FWA inserted the following model clause in nearly all of the 122 modern awards:

“The monetary obligations imposed on employers by this award may be absorbed into over-award payments. Nothing in this award requires an employer to maintain or increase any over-award payment.”

Two weeks ago the Office of the Fair Work Ombudsman (FWO) released a Guidance Note interpreting the absorption clause as requiring employers to obtain the agreement of each individual employee before absorbing any additional costs into overaward-payments.

“As Ai Group argued at the hearing today, the approach in the FWO’s Guidance Note is unworkable and would result in an unfair, costly and complex burden being imposed on business”, Heather Ridout, Ai Group Chief Executive said today.

“The absorption clause is an essential mechanism to alleviate the cost impacts of award modernisation” Mrs Ridout said.

In conjunction with Ai Group’s application, a union application to clarify whether changes in overtime penalties under modern awards are to be phased in was heard by the Full Bench.

The Full Bench has reserved its decision.

Download a copy of Ai Group's submission.