Historically, a Federal Award was an order made by the AIRC in settlement of an interstate industrial dispute. The order would contain terms and conditions of employment that would govern the employment relationship. Sometimes the "dispute" was really only a technical one to give the AIRC power to act. In 1996 the concept of an industrial dispute for award-making purposes was re-defined and limited to 20 topics called "allowable award matters". As a result, awards could only create enforceable rights and obligations so far as the underlying industrial dispute dealt with an allowable award matter or things incidental to such matters, and then only by prescribing minimum terms and conditions.

The Workplace Relations Legislation (Work Choices) Act 2005 (Cth) ("Work Choices") amendments further limited the content of awards. Before Work Choices, awards generally contained classifications and wage rates clauses. Work Choices removed the classifications and wage rates clauses from awards and placed them into an instrument called an "Australian Pay and Classification Scale". Certain matters were expressly non-allowable. These matters included:

Awards have historically been binding only on named respondent (parties). A list of respondents is usually found in the award itself. An employer may also have been bound if it was a successor of a named party, or if the employer belonged to a recognised employer organisation that was named as a party to the award. The award also named the union or unions which were respondents to it. It was the union that negotiated the award on behalf of employees who were eligible to be its members. Generally, individual employees did not appear before the AIRC on the hearing or determination of a "dispute".

From 1 January 2005, Common Rule Awards operated within Victoria. That is, the AIRC could make a Federal Award that applied to all employers within an industry in Victoria, without the need for the employer to have been party to a dispute. In practice the AIRC extended existing Federal Awards, with some variations to apply to a whole industry.

Work Choices sought to make awards a marginal part of industrial regulations in Australia, by introducing a range of ways in which the award terms and conditions could be avoided, largely not using the award as a comparison for a "fair" agreement.

Under the FW Act, awards have a more central role in the industrial relations system than under Work Choices. Awards provide part of the safety net of terms and conditions, along with the NES (see: "National Employment Standards", above). Awards are also used as a reference instrument to decide whether an agreement passes the "No Disadvantage Test" (pre-1 July 2009) and the "Better Off Overall Test" (BOOT) (post-1 July 2009).

Until 31 December 2009, existing Federal Awards continue to operate. From 1 January 2010 new modern awards and the NES will take the place of the old awards. The old awards will no longer apply to any employees or operate for any other reason under the Act, save as a historical reference or where expressly, or by deeming, they are to be incorporated into modern awards, NES or enterprise agreements (unless the award modernisation process is yet to be completed, at which time presumably some old awards will be given an extended life). Modern awards will reduce the overall number of awards by combining the coverage of a number of awards into one award.

Modern awards will not apply to workers on higher incomes. The FW Act defines a high income earner as an employee who has a written guaranteed income, accepted by the employee of greater than the amount set by regulations. The amount set by the regulations (which have not yet be released) is likely to be $100,000 for full-time workers, indexed from August 2007. Note that workers are not excluded solely because of the level of income, they must also have a written and accepted guarantee of a specified income to be excluded from award coverage (see: ss.47(2) & 329-333 FW Act).

Modern awards can contain 10 minimum standards in addition to the NES, (s.139). These minimum standards are:

Modern awards must also include a flexibility term. Such a term helps an employer and employee to reach an arrangement to vary the effect of an award to meet the genuine requirements of the parties. An employee must be better off overall on the flexibility arrangement than under the terms of the relevant award. The flexibility arrangement must be in writing and signed by each party. The AIRC has proposed the text of a draft model flexibility term to be included in modern awards.

Modern awards may also include terms relating to outworkers, industry specific redundancy schemes (for example the construction industry redundancy fund) and incidental and machinery terms, (see: ss.140-142 of the FW Act). Modern awards may also provide additional detail of the NES required for the specific industry.

As part of the award modernisation task, the AIRC will create a default award, which will apply to all non-managerial employees who are not covered by a modern award.

It is not always easy to find out whether a Federal Award applies. The best source of information for union members is their union, which will be familiar with awards within its industry.

A breach of an award can lead to prosecution by authorities as well as to civil action.