Australia: The penalty rate review by the Fair Work Commission: A contentious decision briefly explained

Last Updated: 3 July 2017
Article by Ruth Collins

On 23 February 2017 the Full Bench of the Fair Work Commission (FWC) handed down a significant decision following a review of weekend and public holiday penalty rates across the following six modern awards:

  • Fast Food Industry Award 2010 (Fast Food Award)
  • General Retail Industry Award 2010 (Retail Award)
  • Hospitality Industry (General) Award 2010 (Hospitality Award)
  • Pharmacy Industry Award 2010 (Pharmacy Award)
  • Registered and Licensed Clubs Award 2010 (Clubs Award)
  • Restaurant Industry Award 2010 (Restaurant Award)

OVERVIEW OF CHANGES TO PENALTY RATES

The key changes to penalty rates can be summarised as follows:

Sunday Penalty Rates
Award Full-Time and Part-Time Casual
Hospitality Award 175% reduced to 150%. No change.
Fast Food Award
(Level 1 employees only)
150% reduced to 125%. 175% reduced to 150%.
Retail Award 200% reduced to 150%. 200% reduced to 175%.
Pharmacy Award 200% reduced to 150%. 200% reduced to 175%.
Restaurant Award No change. No change.
Clubs Award No change. No change.
Public Holiday Penalty Rates
Award Full-Time and Part-Time Casual
Hospitality Award 250% reduced to 225%. 275% reduced to 250%.
Restaurant Award 250% reduced to 225%. No change.
Clubs Award No change. No change.
Retail Award 250% reduced to 225%. 275/250% reduced to 250%.
Fast Food Award
(Level 1 employees only)
250% reduced to 225%. 275% reduced to 250%.
Pharmacy Award 250% reduced to 225%. 275% reduced to 250%.

CONSIDERATIONS AND DECISION

The FWC considered whether each modern award was achieving its objective. Specifically, the need to provide additional remuneration for employees working in particular circumstances, including "employees working weekends or public holidays".

The FWC stated that an assessment of the need to provide additional remuneration to specific employees requires consideration of a range of matters, including1:

  1. i) the impact of working such times or on such days on the employees concerned;
  2. ii) the terms of the relevant modern award and whether it already compensates employees for working at such times or on such days; and
  3. iii) the extent to which working at such times or on such days is a feature of the industry regulated by the modern award.

These factors were considered against the evidence submitted by both the union and employer representatives. The FWC distinguished the hospitality and retail industries from other industries, identifying these industries as ones where "consumer expectations of access to services has expanded over time"2 and that they were "important courses of entry level jobs for, among others, relatively unskilled casual employees and young people (particularly students) needing flexible working arrangements".3

Following detailed consideration of the separate evidence presented in relation to each of the 6 modern awards, the FWC implemented varied reductions in Sunday and public holiday penalty rates across each award, as outlined in the tables above.

An example of the FWC's reasoning behind the different implementation of reductions across each award can be seen in its reasoning to vary Sunday penalty rates in the Fast Food Award. Here, the FWC undertook consideration of the nature of the fast food industry and its employees to conclude that:

  1. a) the standard hours of operation in the fast food industry "include Saturdays and Sundays, reflecting customer demand for the purchase and consumption of fast food"; 4and
  2. b) the "typical"' fast food industry employee is likely to be: a student; aged between 14 and 24 years; employed on a part-time basis; and working between 1 and 24 hours a week.5

On this basis, the FWC reduced the Sunday penalty rates of Level 1 employees under the Fast Food Award to the same level as Saturday penalty rates. Notably, the penalty rates of Level 2 and 3 employees under the same award were left untouched, as these employees were considered "career employees".

By way of an alternate example, the FWC did not grant any of the proposed variations to penalty rates put forward for the Clubs Award or the Sunday penalty rate reductions for the Restaurant Award, identifying that there was a lack of merit in the cases put forward by the relevant employer groups to justify the reductions sought.6 However, contentiously, the FWC allowed the relevant employer associations to make further submissions related to these awards, to be heard at a future date.

IMPLEMENTATION

On 5 June 2017, FWC handed down a subsequent decision that addressed the transitional arrangements for the implementation of the changes to penalty rates.

A number of parties (including the Labor Party) argued that the original decision should be "set aside" or "not implemented" based on the effect it would have on employees. The FWC rejected this proposition and concluded that while the changes would adversely impact employees that matter had already been considered and balanced.

In deciding the appropriate transitional arrangements, the FWC differentiated between public holiday penalty rates and Sunday penalty rates

Changes to public holiday penalty rates will be implemented on 1 July 2017 without any transitional arrangements.

Changes to Sunday penalty rates will be implemented through phased reductions which will occur on 1 July each year. The number of instalments and percentage of the reduction is different for each Award and varies between 3 and 4 years of annual adjustments.

A POLITICALLY CONTENTIOUS ISSUE

It is apparent that penalty rates will continue to remain a contentious political issue. The Labor Party was quick to criticise the decision, and introduced a Private Member's Bill in the House of Representatives seeking to halt the penalty rate reductions by amending the Fair Work Act to prevent variations to a modern award in a way that could reduce the take-home pay of any employee covered by an award. The Bill was quickly defeated by the Coalition.

However, shortly following, a similar Bill was introduced in the Senate, jointly sponsored by Labor, the Greens and Tasmanian Senator Jacqui Lambie, which was passed, receiving support from the Nick Xenophon Team, Pauline Hanson's One Nation and Derryn Hinch's Justice Party. The Bill was introduced in the House of Representatives however it has not progressed because of the Coalition Government's majority.

Prime Minister Turnball has indicated the Government's support for the phased implementation of the planned cuts over a period of years.

CONCLUSIONS

Consumers and employers alike optimistically wait to see what changes a reduction in penalty rates will bring. Only time will tell whether the changes will have the desired effect of an increase in opening hours, services, and employment. However, in the meantime the question of what effect this will have on some of the most poorly paid workers in Australia has seen intense political focus and uncertainty in relation to the utility of the changes.

Footnotes

1 4 yearly review of modern awards – Penalty Rates [2017] FWCFB at [190]
2 4 yearly review of modern awards – Penalty Rates [2017] FWCFB at [77]
3 4 yearly review of modern awards – Penalty Rates [2017] FWCFB at [77]
4 4 yearly review of modern awards – Penalty Rates [2017] FWCFB at [1266] – [1267]
54 yearly review of modern awards – Penalty Rates [2017] FWCFB at [1275]
6 4 yearly review of modern awards – Penalty Rates [2017] FWCFB 1001 at [2044]–[2050].

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Authors
Ruth Collins
 
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