Fair Work Commission to rule on an historically significant application seeking fundamental changes to piece work arrangements in the horticultural industry

An imminent decision¹ to be handed down by the Full Bench of the Fair Work Commission will likely have major implications for primary producers and labour hire providers to the horticulture industry, which is already under real strain due to chronic labour shortages attributable to the pandemic.  

In December 2020, an application was lodged by the Australian Workers’ Union to vary the Horticulture Award 2020 (Award).

The application seeks to amend the longstanding and unique piece work provisions in clause 15.2 of the Award (Piecework Clause).

The application was heard in July 2021, after the Fair Work Commission received numerous submissions from interested parties including state governments, unions, primary producers and employer groups.  

In anticipation of this important decision being published, we summarise the main arguments for and against amending the Piecework Clause, and discuss a potential ‘middle of the road’ outcome which may ultimately appeal to the Fair Work Commission.

Application to vary

The Piecework Clause presently permits the parties to an employment relationship to enter into an agreement for the employee to be paid a piecework rate fixed according to the volume of fruit or vegetable product picked by that person in lieu of being paid minimum hourly rates of pay. 

The piecework rate must be set at a level to enable an ‘average competent employee’ to earn at least 15% more than the otherwise applicable minimum hourly rates of pay (individual employees are not guaranteed any wage outcome). 

The application seeks to controversially amend the Piecework Clause in two material respects:

1. To introduce the concept of a floor whereby all employees will be guaranteed to be paid not less than otherwise applicable minimum hourly rates of pay, regardless of an individual employee’s competency and level of productivity.
2. To require that employers record hours of work performed by employees under piece work agreements, something which is not presently required under either the Award or the Fair Work Act 2009 (Cth).

Judicial consideration of the Piecework Clause

Importantly, the Piecework Clause was recently interpreted by the Federal Court in Fair Work Ombudsman v Hu (No 2)²  and on appeal in Fair Work Ombudsman v Hu³ (Hu Judgements).

The following key principles can be collectively drawn from the Hu Judgments:

• The Piecework Clause: 
  • is a protective provision designed to provide a safeguard for pieceworkers; and
  • requires the piecework rate to be fixed by agreement – in practical terms, this will almost invariably mean that the employer fixes the rate, and the employee decides whether to accept it.
• The Piecework Clause requires the minimum piecework rate to be determined by the following method:
  • ascertain the hourly rate for the type of employment and the classification level of the employee (including any casual loading) under the Award, and add an uplift of 15% (Uplift Rate);
  • identify the hypothetical ‘average competent employee’;
  • determine the hypothetical hourly pick rate of the ‘average competent employee’ performing the work at that particular place of work and time (ACE Pick Rate); and
  • divide the Uplift Rate by the ACE Pick Rate to determine the minimum piecework rate applicable for each item of produce picked.
• The average competent employee is not necessarily ‘proficient’ but at least ‘suitable, sufficient for the purpose, adequate’ and must be selected from the pool of competent employees. An employee who is not competent, for example, an employee who is still in training, must be excluded when determining the ‘average competent employee’.
• To determine what such a hypothetical employee will be able to earn, factors both personal and external to the hypothetical employee must be considered. These factors include:
  • personal characteristics, such as diligence, aptitude, and experience; and an assumption that training and induction has been provided;
  • other personal characteristics such as age, strength, and stamina;
  • the general level of experience of the available workforce considered as a whole; and
  • external factors which may include density, quality, size of the product, the prevalence of unhealthy product which may be affected by growing conditions, as well as the nature and quality of the equipment provided.
• The determination of the ACE Pick Rate is not an arithmetical exercise, but rather a predictive, theoretical exercise. For fruit and vegetable pickers, the ACE Pick Rate would be dependent upon the average quantity of produce an average competent employee would pick per hour.
• Finally, a piecework rate must not only be set at an appropriate level at the time the agreement is entered into but must also be adjusted by the employer if the piece work rate subsequently becomes inadequate for whatever reason. For example, if the minimum hourly rates prescribed by the Award increase during the period of employment or the many other variables associated with the fixing of the rate materially change.

The Hu Judgements also dealt with the legal consequences of non-compliance with the Piecework Clause. A piecework rate which is set at a rate less than the rate required by the operation of Piecework Clause is a breach of the Award and a contravention of the Act. The only recompense for the employee is that they are entitled to an award of compensation calculated as the difference between the piecework rate that was paid and the piecework rate that ought to have been paid (not compensation in accordance with the minimum hourly rates of pay set by the Award).  

Case for varying the Award

The case for varying the Award was largely made by the AWU and another interested party, the United Workers’ Union (Union Parties).  

Rationale for adopting a wage guarantee or ‘floor’

The principal case advanced by the Union Parties was allegedly compelling evidence of widespread industry practice of setting the piecework rate too low, in breach of the Piecework Clause, resulting in pieceworkers being overwhelmingly paid less than the minimum hourly rates applicable to timeworkers.

The Union Parties highlighted alleged evidence of abuse and exploitation of piecework arrangements by unscrupulous operators in the industry, including:

1. Various government reports and academic studies overwhelmingly demonstrated that the majority of workers in horticulture who are paid piecework rates receive well below the minimum hourly rates of pay in the Horticulture Award and below the national minimum wage.
2. Statistical evidence that temporary migrant workers now make up a significant proportion of the horticulture workforce, including many working in the working holiday visa program as a result of encouragement to work in horticulture for 88 days during their first year to qualify for a second year visa. Temporary migrant workers are frequently poorly informed about their employment rights, may have limited English language skills and tend to be more vulnerable to exploitation.
3. A general shift away from farmers hiring workers directly with labour hire operators having emerged as major employers of labour in the industry.

In addition, the Union Parties submitted that the Piecework Clause was unworkable and frequently misapplied by employers which contributed to the inadvertent setting of insufficient piecework rates. They argued that this was because:

1. Piecework rates are rarely fixed by agreement, and are instead imposed unilaterally on employees at the point of employment. 
2. The Piecework Clause requires a complex, predictive, theoretical exercise to be performed by an employer to ascertain the hourly rate that the average competent employee is able to earn at the piecework rate. This complex process to ascertain the hourly rate that the average competent employee is able to earn requires an ongoing assessment, taking into account shifting variables such as, product density, quality, size, health, growing conditions, the nature and quality of the equipment provided and changes in award minimum rates of pay. 
3. The application of the Piecework Clause commonly results in a failure to properly consider factors such as workers' personal characteristics, and external factors such as those associated with the product and environmental conditions. 
4. It is also rare that an assessment of the hourly rate that the average competent employee will be able to earn at the piecework rate is reviewed during the life of the agreement, particularly by reference to changes to relevant variables, such rates are often made on the basis of a set and forget mentality.

In summary, due to allegedly high levels of intentional and unintentional non-compliance with the Piecework Clause, the Union Parties argued that the Award did not currently provide a fair and relevant safety net of minimum terms and conditions of employment, as required by the modern award objectives prescribed by the Fair Work Act.  

The Union Parties submitted there was a strong case for a ‘floor’ to be inserted in the Piecework Clause, which was based on the minimum hourly rates of pay in the Award.

Rationale for imposing a requirement to record hours of work

The Union Parties additionally submitted that the proposed variation requiring hourly work records to be kept was warranted and justified, because a failure to keep such records practically inhibits the ability of an employee to determine whether they are being paid the minimum wages required under the Piecework Clause.

Case against varying the Award

The case against varying the Award was largely made by the Australian Fresh Produce Alliance (AFPA), along with other employer associations like the National Farmers’ Federation and some primary producers (Employer Parties).  

Rationale for adopting a wage guarantee or ‘floor’

The Employer Parties opposed the Application essentially on the dual basis that the variation would effectively abandon the longstanding concept of a safety net based on piecework rates, and that the Union Parties’ case was substantially overstated in terms of systemic industry wide non-compliance. 

They argued that the concept of a piecework based safety net with a 15% uplift remained sound and continues to meet the unique needs of the horticulture industry, where product is often highly perishable and must be picked within a narrow time window to maximise yield, quality and pricing. 

The Employer Parties pointed to reforms such as various state based regulatory schemes which have recently introduced mandatory licensing of labour hire providers which they argued will help improve the overall level of compliance with the Award (by removing rogue operators intentionally engaging in exploitative labour practices).

They also argued there would be unintended negative consequences (causing significant industry wide disruption) of abolishing a safety net based on piecework rates:

• employers will likely abandon piecework rates altogether and competent pieceworkers will be disadvantaged by the loss of the risk/reward bargain inherent in the Piecework Clause; 
• employers will not hire and/or will be forced to be far stricter in culling workers with low productivity; and
• economic productivity in the sector will be substantially reduced thereby placing more financial pressure on primary producers.

AFPA additionally submitted that, at its highest, all that the Union Parties’ evidence showed was that the application of the Piecework Clause may disadvantage employees because piecework rates are, in practice, being set too low.  It argued that this was not a reason to throw out the whole concept of a piecework based safety net, but rather it was a reason to vary the Piecework Clause in a more modest way to provide mechanisms that will contribute to improving its implementation.

Rationale for imposing a requirement to record hours of work

Unlike other Employer Parties, AFPA implicitly acknowledged that a limited variation introducing a mandatory requirement to record hours of work was fair and reasonable to ensure that the piecework agreements were properly implemented. 

Potential outcome – a middle of the road variation?

AFPA proposed an alternate form of variation be adopted, should the Fair Work Commission be persuaded that there was sufficient evidence to justify changes being made to the Piecework Clause.

AFPA’s alternate proposal has five major parts, which it submitted can be either combined or chosen from:

1. The Award could prescribe a specific process that must be used to determine the piecework rate along say the following lines:

• The employer must identify the cohort of competent employees, with ‘competent employee’ to be defined as someone who is suitable, sufficient or adequate to perform the work. This part of the variation will provide specific guidance to employers as to how to set the competency threshold having regard to the complexity of the work and other factors. Importantly, an employee could be deemed to be competent after they have been performing the task for a prescribed period (indicatively, four weeks as a catch-all outer limit);
• The employer must calculate (or, in the case of the initial setting of the piecework rate, estimate):
  • the total output of the cohort of competent employees in a relevant period; (Total Output); and
  • the total combined hours of work of this cohort during the same relevant period (Total Hours);
• The employer must divide the Total Output by Total Hours to obtain the Average Hourly Output of a Competent Worker;
• For each applicable classification and type of employment, the employer must take the applicable minimum hourly rate, add 15% and then divide by the Average Hourly Output of a Competent Worker. The result is the minimum piecework rate.

2.    The employer could be required to review and adjust the piecework rate at prescribed intervals (for example, every pay period) to make sure that it is set appropriately.
3.    To provide further protection to novice employees who have not yet become competent, the employer could be required to pay these employees at the level of the slowest competent employee.
4.    The employer could be required to keep a record of all hours worked by a pieceworker, as well as the calculations set out above.
5.    The Award could make it clear that the employer is required to pay a pieceworker at the applicable minimum hourly rate (instead of the piecework rate) for any work that does not yield any piecework output and is not an inherent part of the piecework.

Summary

Notably, the Union Parties are seeking to achieve essentially the same outcome unsuccessfully sought by the Fair Work Ombudsman in the civil enforcement proceedings giving rise to the Hu Judgements.  

In those proceedings, the Ombudsman argued at trial and on appeal that a non-compliant piecework agreement meant that affected pieceworkers had to be compensated for wage underpayments on the basis of the minimum hourly rates of pay in the Award.  This was soundly rejected by the Federal Court and an application for special leave to appeal to the High Court was refused. HopgoodGanim Lawyers acted for the successful defendants in the Hu Judgements and we are uniquely placed to comment on the issues currently awaiting determination by the Fair Work Commission.

In our considered view, there is a real likelihood that the Piecework Clause will be overhauled in certain respects by the Fair Work Commission.  AFPA’s alternate proposal is eminently sensible in terms of addressing issues which are problematic in terms of unintentional non-compliance with the Piecework Clause and will avoid significant disruption to the agricultural industry from completely abandoning the longstanding piecework based safety net.

1 As at September 2021
2 [2018] FCA 1034
3 [2019] FCAFC 133;