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Innovation in the workplace under the Fair Work Act

1 February 2016

Innovation in the workplace under the Fair Work Act

James Zeng, Senior Associate

Innovation in the workplace has been linked to increased productivity, profitability and improved workplace outcomes. Innovative workplaces are workplaces that are flexible and successfully adapt to change. Organisations are reminded time and time again that the failure to innovate will result in a decline in productivity and ultimately their demise in a competitive global market due to a failure to adapt and change to meet emerging challenges.

The Fair Work Act 2009 (Cth) (“FW Act”) has been criticised by many for inhibiting innovation and at times described as an impediment to increased productivity.1  However, employers should aware be that there are a number of opportunities for organisations to take advantage of the existing legislative framework and recent amendments to drive innovation in the workplace. This article examines some of the areas of employment law that businesses can explore when looking at driving innovation in the workplace in 2016.


During enterprise bargaining cycles, many organisations merely update their existing enterprise agreement to bring remuneration in line with, or slightly above rates under the applicable modern award. Rather, enterprise bargaining should be seen as an opportunity to insert provisions that help drive innovation in the workplace. Organisations often bargain with unions and employees based on information and statistics on past performance and at times fail to take into consideration the potential for innovation driven productivity improvements.

The FW Act permits enterprise agreements to contain a number of terms pertaining to the relationship between employer and employee including terms relating to wages and allowances, hours of work and shift patterns, as well as clauses that help drive innovation in the workplace. Accordingly, organisations should not limit the contents of their enterprise agreements to the matters contained in the modern award that would have otherwise applied to their workforce but should consider introducing innovative clauses that help promote increased productivity and flexibility.

For example, an organisation might include a clause mandating the multi-skilling of the workforce and thereby improving flexibility and reducing or eliminating the strict demarcation of roles. Organisations can, during bargaining, also take the opportunity to tie additional payments, sometimes referred to as productivity allowances, or pay rises higher than those sought by unions, to productivity achievements by the workforce during the life of the enterprise agreement.


Past research2 has shown that improvements in innovation can occur if organisations improve the skills and knowledge of their workforce. An employee who considers that they have a future in their organisation is more likely to be engaged and drive innovation than a disengaged employee. Whilst very few modern awards provide for study leave, training or study assistance, an organisation can offer skills training for its workforce as part of its suite of employee benefits and in the place of other direct monetary benefits. Organisations have recognised in the past that offering skills training and study assistance are key retention tools and assist in career advancement within the organisation. However, this should not be limited to any particular industry or to one part of an organisation’s workforce (such as professionals) but offered to the whole workforce.

Further, skills training is an additional benefit that might be provided to employees during enterprise bargaining and considered by the Fair Work Commission when it is undertaking the better-off-overall test and deciding whether to approve an enterprise agreement.


Organisations should look at ways of incentivising innovation in the workplace. Whilst tying bonus payments and other additional remuneration to innovation will certainly do this, there are ways to incentivise innovation on a long term basis including through issuing of shares linked to the performance of the organisation. As a result of changes to legislation implemented by the Federal Government in June 2015, incentivising innovation is not limited to merely payment of bonuses, productivity allowances, or providing share interests for employees of listed companies. Now, all types of organisations can adopt share plans as a way of incentivising innovation.

Those changes reversed a number of unpopular provisions in respect of taxation on employee share interests that have been acquired at a discount. The amendment to the existing legislation introduced additional generous tax concessions on employee share interests, where previously employees were subject to complex rules and adverse tax consequences. Favourable tax treatment has made employee share arrangements and plans more attractive as a means of recruiting and retaining key team members and rewarding hard working employees who help drive innovation in the workplace. Start up companies and small and medium business enterprises should be aware and take advantage of additional tax concessions for employees with employee share interests in their organisations.


Innovation in the workplace has been shown to be driven by employees approaching challenges from different angles, and finding more varied solutions. Organisations should look towards recruiting and retaining employees with values that align with the vision of the business but who come from different backgrounds and experiences. Organisations should introduce policies and procedures that encourage diversity and help retain employees from diverse walks of life. This goes beyond merely implementing policies that deal with unlawful discrimination and paid parental leave and extends to implementing policies that deal with gay, lesbian and transgender employees, recruitment policies that avoid discrimination based on “pedigree” (such as university education) and policies that provide flexibility for employees who may need to work from home for a variety of reasons.


Finally, organisations that pay employees above the high-income threshold (currently $136,700 per annum, until at least 1 July 2016) should take advantage of the high income threshold guarantee to allow greater workplace flexibility and avoid certain limitations under the modern awards. A high-income employee who is provided a written guarantee of annual earnings is not covered by a modern award. This allows employers to implement innovative and flexible arrangements including the ability for the employee to determine their own hours of work. Organisations should also take advantage of annualised salary provisions in modern awards for salaried employees where possible.


  • Organisations should take the opportunity to include clauses that drive innovation in the workplace in their enterprise agreement and bargain with a forward thinking outlook. 
  • Organisations should consider implementing policies and procedures that attract and retain employees from a diverse range of backgrounds. 
  • Organisations should take advantage of the high-income guarantee under the FW Act and annualised salary provisions in modern awards, where possible, to drive innovation in the workplace.

1. Towards more productive and equitable workplaces, An evaluation of the Fair Work Legislation [9-27], [72].

2. Workforce Skills and Innovation: An Overview of Major Themes in Literature, OECD [7-9], [30-33].

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