Australia: Full Federal Court unanimously upholds controversial Sunday penalty rates decision

Last Updated: 16 October 2017
Article by Claudia Lewin

In a decision that has been labelled as "disappointing" by Bill Shorten, the Full Court of the Federal Court of Australia has upheld the Fair Work Commission's controversial decision to cut Sunday penalty rates.

The National Secretary of United Voice, one of the unions behind the appeal, claimed that the penalty rate cuts have already hurt Australians financially. It seems that this hurt will continue at least until the next federal election, with Bill Shorten promising that should Labour be successful, they will pass legislation to restore penalty rates within their first 100 days of government.

The cuts, which are to be phased in over four years and came into effect on 1 July 2017, will continue to apply to full time, part time and casual employees under hospitality, fast food, retail and pharmacy awards.

The Challenge

The Shop, Distributive and Allied Employees Association and United Voice (Unions) launched the appeal against the Fair Work Commission's determinations made on 21 June 2017, under s156(2)(b)(i) of the Fair Work Act 2009 (Cth) (Act).

To overturn the penalty rate cuts, the Unions needed to establish that the Commission's determinations were affected by jurisdictional error. Jurisdictional error is a notoriously ambiguous term that haunts students and lawyers alike, but includes a tribunal incorrectly identifying the issue at hand, ignoring relevant law or relying on irrelevant material.

The Unions argued that the determinations were marred by jurisdictional error on seven grounds:

  1. Ground One: The Commission misconstrued its powers under s156(1) and (2) of the Act by exercising the power to make a determination to vary the awards without being satisfied itself that there had been a material change in circumstances such that the award no longer met the "modern awards objective";
  2. Ground Two: The Commission incorrectly construed section 134 of the Act, leading to it failing to take the criteria listed in s134(1)(a)-(h) (including relative living standards and the needs of the low paid) into account when discharging its duty to ensure that "modern awards, together with the National Employment Standards, provide a fair and relevant minimum safety net of terms and conditions";
  3. Grounds Three to Six: Grounds three to six challenged the way the Commission treated s134(1)(a), which requires the Commission to take into account the relative living standards and the needs of the low paid.
    1. Ground Three: the Commission wrongly decided it was not necessary to take into account the relative living standards and the needs of the low paid;
    2. Ground Four: the Commission wrongly decided that the relative living standard and needs of the low paid were best addressed by the setting and adjustment of modern award minimum rates of pay;
    3. Ground Five: the Commission misconceived the limits and functions of the annual wage review under Division 3 of Part 2-6 of the Act; and
    4. Ground Six: the Commission failed to take into account the relative living standards and the needs of the low paid.
  1. Ground Seven: In dealing with the s134(1)(a) matter in the way that it did, the Commission made the determination which are plainly unjust or unreasonable.

The Decision

All seven grounds were dismissed.

Ground One

In relation to Ground One, the Full Court held that the Commission was correct to assert that could exercise its powers under s156(2)(b)(i), which allows the Commission to make determinations varying awards after a 4 yearly review, without being convinced that there has been a material change in circumstances since the last review. \

Grounds Two and Three

Regarding Ground Two, the Full Court held that this was not a case where the decision-maker had applied the wrong test, leading to this ground being rejected. Ground Three was rejected because the Full Court, reviewing the Commission's decision, found that the Commission was well aware that it needed to consider the relative living standards and the needs of the low paid, and did so at least 22 times during the written decision.

Ground Four

Ground Four failed because the Full Court found that while the Commission did state that the "needs of the low paid were best addressed by the setting and adjustment of modern award minimum rates of pay", the analysis was in fact more nuanced than this phrase, read alone, would suggest. When the entire determination is read, it becomes apparent that the Commission did consider that some of the negative impact of reducing penalty rates would be offset but phasing the cuts in to line up with wage rises, the Commission did appreciate that reduced penalty rates would have on the relative living standards and needs of the low paid, but did consider.

Grounds Five to Seven

In relation to Ground Five, the Full Court held that the Commission did not misunderstand the limits of the annual wage review. Instead, the Commission made the determinations it did because it saw that, taking s134(1)(a) into account, the cuts ensured that the awards provide a fair and relevant minimum safety net of terms and conditions. Ground Six failed for the same reason and, as the Union's submissions that s134(1)(a) had been incorrectly ignored were dismissed, it was impossible for Ground Seven to be successful.


With the Full Court unanimously rejecting all grounds of the Union's appeal, it seems that any hope affected employees have for avoiding the impact these penalty rate cuts will bring, will only come via legislative change. Change is definitely part of Labour's policy, with opposition leader Bill Shorten determined to kill the decision. This is despite him saying for many months prior to the decision being brought down, that he would 'respect the decision of the independent umpire'.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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