Put up with penalty rates - Fair Work Commission rejects employers' bid to reduce penalty rates

Workplace Relations & Safety eBulletin - 19 March 2013


A full bench of the Fair Work Commission has rejected 20 applications by employers to vary penalty rates in the:

  • Fast Food Industry Award 2010; 
  • Food, Beverage and Tobacco Manufacturing Award 2010; 
  • General Retail Industry Award 2010; 
  • Hair and Beauty Industry Award 2010; and 
  • Hospitality Industry (General) Award 2010.

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The transitional review of modern awards - the story so far

As part of its review of all modern awards under the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 (Cth) (Transitional Review), the Fair Work Commission (Commission) must review all modern awards as soon as practicable after 1 January 2012. Of the 292 applications to vary modern awards, some industry-specific concerns and common issues were identified, including penalty rates, as summarised below.

Industry specific issues

An extensive number of industry specific issues were raised in the review process, including applications to vary: 

  • the classifications structure in the Banking, Finance and Insurance Award 2010, so that the award does not apply to employees who, because of the nature of the work they perform or their seniority, have not traditionally been regulated by awards; 
  • the definition of shift work in the Clerks – Private Sector Award 2010 and the removal of the requirement for part time workers to be paid overtime where they work more than their agreed part time hours; 
  • the Road Transport and Distribution Award 2010, so that employees are entitled to be paid for any mandatory breaks taken in accordance with fatigue management legislation and to require annual leave loading to be paid on termination of employment, and to remove uncertainty from provisions regulating overtime payments for casual employees; and 
  • the Professional Employees Award 2010, so that its coverage of IT employees is extended to apply to IT employees as an occupation rather than IT employees of companies engaged in the IT industry.

These issues were referred to single members of the Commission for determination.

Common issues

The Commission decided to constitute separate full benches to deal with each common issue, including:

  • penalty rates; 
  • apprentices, trainees and junior rates; 
  • award flexibility; 
  • public holidays; and 
  • superannuation.

The Commission received 20 applications to vary the penalty rates provisions (Penalty Rate Claims) in the following five modern awards: 

  • the Fast Food Industry Award 2010 (Fast Food Award); 
  • the Food, Beverage and Tobacco Manufacturing Award 2010 (FBT Manufacturing Award); 
  • the General Retail Industry Award 2010 (Retail Award); 
  • the Hair and Beauty Industry Award 2010 (Hair & Beauty Award); and 
  • the Hospitality Industry (General) Award 2010 (Hospitality Award).

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The penalty rate claims

The main focus of the Penalty Rate Claims sought to vary the Retail Award and the Fast Food Award.  The evidence and submissions before the Commission particularly emphasised the Sunday penalty in the Retail Award and the weekend and other penalties more generally in the Fast Food Award.

What employers sought

Employers and employer organisations, including the Australian Industry Group, the Australian Retailers Association and the National Retailers Association generally sought to provide a penalty of 50% for Sunday work, instead of the current 100% in the Retail Award, and the removal of the 25% penalty rate for evening work which presently applies to non-casual hours.

The changes sought to the Fast Food Award included the deletion of weekend penalty rates (currently 25% on Saturdays and 50% on Sundays) and the variation of the span of hours for penalty rates.

Basis for claims

Employers argued that the award variations sought by the Penalty Rate Claims would have a positive impact on employment growth, productivity, competitiveness and the efficient and productive performance of work.
Employers contended that the present penalty rate provisions were resulting in employers engaging fewer employees than they would prefer to employ on a Sunday, particularly in the retail sector, and that the resulting mix of employees engaged was less than optimal in terms of age and experience.

The Commission has now issued its decision regarding the Penalty Rate Claims (Decision).1


Penalty rates - the decision

Higher award reliance but lower rates of pay

In dealing with the Penalty Rate Claims, the Commission was satisfied a high proportion of employees in the accommodation, food services and retail industries are low paid, finding that these employees have a higher incidence of award reliance and have actual incomes at the level of around 70% of average earnings. The relatively low pay levels were found to occur despite the relatively high incidence of "unsociable hours" worked by employees in these industries.

Limited evidence in support of the Penalty Rate Claims

The Commission considered that while certain aspects of the Penalty Rate Claims were not without merit, particularly the proposals to reassess the Sunday penalty rate in light of the level applying on Saturdays, the evidence in support of the claims was limited at best.

The Commission found that while there was some evidence in support of parts of the employers' claims, it was far from compelling, and rejected the submission that reducing the Sunday penalty rate would result in employers offering more hours of work on Sundays, resulting in the promotion of more efficient and productive performance of work through the mix of employees engaged. The Commission was not persuaded that a sufficient case had been made out to warrant varying the awards in the manner proposed by employers.

Rejection of extra overtime entitlements, but potential for incorporation of loaded rates

The Commission also rejected a number of variations proposed by the Shop, Distributive and Allied Employees Association (SDA).

The SDA had sought to change the overtime provisions of the Retail Award so that employees receive double time rate after two hours, rather than the current three hours, and to provide overtime payments to casuals working in excess of 38 hours (which is also not currently provided in the Retail Award).

The SDA's application also included a claim for the insertion of an annualised hours provision into the Retail Award, the Fast Food Award and the Hair and Beauty Award so that, subject to no-disadvantage provisions and an annual review, employers could pay employees an annual salary in lieu of wages, allowances, penalty payments, overtime, shiftwork payments and annual leave loading.

Despite being conscious of the modern award objectives of considering the regulatory burden, and ensuring that modern awards are simple and easy to understand, the Commission determined that it was not appropriate to vary the awards to introduce annualised salaries. However, the Commission did determine that there was merit in the parties discussing the concept of incorporating loaded rates within the Retail Award and the Fast Food Award in order to reduce the complexity of their application, particularly for small businesses. A conference will be convened by Commissioner Hampton to explore this concept with the major parties in the near future.

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Broader review - and possible legislative reform - still to come

The four-yearly review of these awards is scheduled to commence in 2014, which will be broader in scope than the Transitional Review. The broader review will provide an opportunity for the issues raised in the Decision to be considered in circumstances where the transitional provisions relating to the relevant awards will have been fully implemented. Indeed, in making the Decision, the Commission considered that the fact that the transition to modern awards is still occurring militates against the adoption of broad changes as part of the Transitional Review.

It remains to be seen whether the Gillard government will, in light of the Decision, proceed with its plan to enshrine penalty rates in the modern awards objective contained in the Fair Work Act 2009 (Cth). We will keep you informed of this, and other developments, including the outcome of the conciliation discussions regarding loaded rates before Commissioner Hampton.

We will also keep you advised of any significant developments in the Transitional Review of modern awards regarding both common and industry specific issues.

Kaitlyn Gulle | Lawyer

Further information

1  Modern Awards Review 2012 - Penalty Rates [2013] FWCFB 1635 (18 March 2013).

All information on this site is of a general nature only and is not intended to be relied upon as, nor to be a substitute for, specific legal professional advice. No responsibility for the loss occasioned to any person acting on or refraining from action as a result of any material published can be accepted.