Modern awards and enterprise agreements set out the minimum terms and conditions of employment for most Australian workers performing different roles.  The Fair Work Act 2009 (Cth) (Act) provides a mechanism by which an employer and an individual employee may, by agreement, adjust the operation of certain terms in their Award to better suit theircircumstances.  That mechanism is called an Individual Flexibility Arrangement (IFA).

What is an IFA?

Under section 144 and section 202 of the Act, an IFA is a written agreement between an employer and employee that varies certain provisions in a modern award or enterprise agreement (Award) that otherwise governs the employment relationship.  The arrangement operates only between those two (2) parties.  It does not affect any other employees of the employer.^[1]

Under section 144(2)(b) and section 202(2)(b) of the Act, the IFA is treated as forming part of the Award itself, meaning it is enforceable in the same way.

Legal framework

Once an IFA is in place, all the provisions of the Award continue to apply but the operation of the relevant terms is adjusted in the way the IFA specifies.^[2]

An IFA can only be made after the employee has commenced employment.  It cannot be offered as a precondition of engagement according to the Fair Work Ombudsman (FWO).^[3]

The authority to make an IFA derives from the flexibility clause that every modern Award must contain.^[4]  Where an Award does not contain a flexibility term, the model flexibility term prescribed by the Fair Work Regulations 2009 (Cth) applies automatically.^[5]

What can and cannot be varied

There are two (2) categories of provisions which can be amended.  The first are facilitative provisions which, by the express terms of the Award, may be varied by agreement between the employer and either an individual employee or the majority of employees.  The second category are mandatory provisions (minimum conditions) which cannot be varied by agreement and must be implemented as written.

Facilitative provisions

Specific terms differ between Awards, however common facilitative provisions typically include:

• penalty rates,
• overtime rates,
• allowances; and
• arrangements for when work is performed,

Varying these provisions may be beneficial if the employer is wanting to implement an annualised wage arrangement.  An annualised wage arrangement under section 139(1)(f) or 172 of the Act refers to when an employee receives a fixed annual salary calculated to incorporate, and stand in lieu of, certain entitlements that would otherwise be paid separately under the relevant Award, such as overtime, penalty rates and allowances.  Variation is subject to the condition that the employee is “better off overall” as a result.

Mandatory provisions

The National Employment Standards (NES) are the minimum statutory entitlements set out in Part 2-2 (sections 59–60) of the Act.  These cannot be reduced, excluded or modified by any IFA section 55(1) of the Act NES entitlements include:

• annual leave;
• personal and carer’s leave;
• parental leave;
• notice of termination; and
• redundancy pay.

Non-Negotiable: The Better Off Overall Test

Employers must ensure that any IFA results in the employee being better off overall than they would have been under the unvaried Award.[6]  This requirement is commonly referred to as the Better Off Overall Test (BOOT).

The BOOT is a global assessment.  A meaningful benefit in one area, such as a higher base rate of pay or additional allowances, can legitimately offset the variation of a specific penalty entitlement, provided the overall position of the employee is genuinely improved.  The IFA BP Guide states that both financial and non-financial benefits may be taken into account when calculating the employee’s overall position, although financial benefits provide the clearest basis for demonstrating compliance.

The consequences of getting this wrong are serious.  In Fair Work Ombudsman v Commonwealth Bank of Australia [2024] FCA 81 (FWO v CBA) the Federal Court imposed civil penalties totalling $10.34 million against the Commonwealth Bank and its subsidiary CommSec.  Among the admitted contraventions was the use of individual agreements that were not implemented in a lawful manner, and a systemic failure to ensure employees were better off overall resulting in approximately $16 million in underpayments to around 7,400 employees over a period of six (6) years.^[7]  

Making a Valid IFA

Several requirements must be satisfied for an IFA to be valid under sections 144 and 203 of the Act.  The arrangement must:

• be in writing and signed by the employer and the individual employee (or a parent or guardian if the employee is under the age of eighteen (18) years;
• identify the Award terms being varied, set out how each is varied, and explain how the employee is better off overall as a result;
• set out how the agreement may be terminated;
• be genuinely agreed, free from coercion or duress; and
• the employer must give the employee a copy of the arrangement.

Agreement by consent, not compulsion

Employers cannot coerce or compel employees to enter an IFA, employers who attempt to do so risk exposure to general protections claims under section 340 of the Act.

The right to refuse an IFA is a workplace right under section 341 of the Act.  An employee who exercises this right is protected from the employer taking adverse action in response to the refusal (whether by way of dismissal, reduced hours, loss of overtime, or any other adverse treatment under section 342 of the Act).

Key takeaways for employers

An IFA, properly made, can serve the interests of both parties, however, care must be taken to ensure they are lawfully implemented.

Awards are complex, technically drafted instruments that frequently cross-reference their own provisions.

Links and further references

Legislation

• Fair Work Act 2009 (Cth)
• Fair Work Regulations 2009 (Cth)

Cases

• Fair Work Ombudsman v Commonwealth Bank of Australia [2024] FCA 81

Other material

• Fair Work Ombudsman, Use of Individual Flexibility Arrangements — Best Practice Guide (2013)

Further information

If you are an Employer and need advice on implementing an individual flexibility agreement or assistance with BOOT calculations, contact us for a confidential and obligation‑free discussion.

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances

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[1] Fair Work Act 2009 (Cth) section 144(3).

[2] Fair Work Act 2009 (Cth) sections 144(2)(a) and 202(2)(a).

[3] FWO Use of Individual Flexibility Arrangements – Best Practice Guide (2013) (IFA BP Guide).

[4] Fair Work Act 2009 (Cth) sections 144(1) and 202(1).

[5] Fair Work Regulations 2009 (Cth) reg 2.08 .

[6] Fair Work Act 2009 (Cth) section 203(4) or 144(4)(c).

[7] Fair Work Ombudsman v Commonwealth Bank of Australia [2024] FCA 81 [71].

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