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Cuts to Sunday and Public Holiday Penalty Rates – The Legal Reality

The Fair Work Commission (“FWC”) has cut Sunday and Public holiday penalty rates in a number of industries in a decision published on 23 February 2017.

The decision, which will take effect from 1 July 2017, will have a significant impact on the employment landscape and reflects a changing attitude towards weekend work.

As the change is highly politicised, there is a large degree of misinformation presented by the various stakeholders, including the media, politicians and union representatives. Therefore, careful analysis of the decision is required to determine the legal reality. We hope to provide that analysis for you.

The FWC did not consider the penalty rates in all Modern Awards but considered six hospitality and retail awards. They were:

  • 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”)

The changes that have been made are to Sunday penalty rates are:

Award Sunday Penalty Rate (%)
  Former Rate New Rate
Hospitality Award    
Full-time and part-time employees: 175 150
Casual employees: 175 (No Change)
     
Fast Food Award (Level 1 employees only)
Full-time and part-time employees: 150 125
Casual employees: 175 150
     
Pharmacy Award (7.00am – 9.00pm only)
Full-time and part-time employees: 200 150
Casual employees: 200 175
     
Restaurant Award    
All employees: 150/175 (No Change)
     
Clubs Award    
All employees: 175 (No Change)

 

The changes that have been made are to Public Holiday penalty rates are:

Award title     Public holiday penalty rates (%)
  Full-time & part-time Casual
Former Rate New Rate Former Rate New Rate
Hospitality Award (cl. 32) 250 225 275 250
Restaurant Award (cl. 34) 250 225 250 (No Change)
Clubs Award (cl. 29) 250 (No Change) 250 (No Change)
Retail Award (cl. 29) 250 225 275/250 250
Fast Food Award (cl. 30) 250 225 275 250
Pharmacy Award (cl. 31) 250 225 275 250

Statistics

  • Overall, effected employees will experience a 14.5 per cent wage decrease as a result of this decision.
  • Sunday pay will drop by an average of 16.5 per cent while public holiday pay will go down by a more modest 9.5 per cent.
  • The smallest decrease will be felt by Casual workers under all relevant awards who will experience a 9.1 per cent decrease on Public Holidays.
  • The largest decrease will be permanent full-time and part-time pharmacy workers who will lose 25 per cent of their former Sunday pay.
  • Casuals overall will experience a 9 per cent drop in wages on average.
  • Permanent full-time and part-time workers will, on average lose 16.5 per cent.

The Review

The review by the FWC followed a two-year process.

In total, there were 39 days of hearings and an additional 15 mentions and conferences. 143 lay and expert witnesses were heard in addition to 5,845 public contributions and 36 submissions were from organisations that were not principal parties to the proceedings.  These submissions included Members of Parliament and State governments, unions, student organisations, community groups, small businesses, churches and industry groups.  Of these submissions 14 supported a reduction to the current penalty rates regime and 22 did not support any change to the current system.

The purpose of the FWC Review was to perform the statutorily mandated four-year review of the Awards listed above.

The FWC had to determine whether the Awards, as they were, continued to satisfy the “Modern Awards Objective” outlined in s134(1) of the Fair Work Act 2009 (Cth) (“FW Act”). The objective of Modern Awards is to:

… ensure that modern awards, together with the National Employment Standards (NES) provide a fair and relevant minimum safety net of terms and conditions

[Emphasis added]

taking into account the particular considerations identified in ss.134(1)(a) to (h) of the FW Act.

“Fairness” is assessed from the perspective of the employees and employers covered by the Modern Award in question.

“Relevant” is intended to convey that a modern award should be suited to contemporary circumstances.

Traditionally, there are two arguments used to justify penalty rates:

  1. Compensation – workers should be compensated for the “disutility associated with working on weekends and public holidays”; and
  2. Deterrence – employers should be deterred from scheduling work outside ‘normal’ hours.

The FWC has held that while compensation is “a primary consideration in the setting of weekend and public holiday penalty rates”, it found that deterrence is no longer a consideration, but rather a flow on effect.

It was argued by the Shop, Distributive and Allied Employees Association (“SDA”) and United Voice that the test that should be applied is that there has been a “material change in circumstances” since the last review of the Modern Award to justify changing it.

The FWC rejected this argument, finding that it was compelled to only consider whether the Modern Award was achieving its objective.

The relevant consideration before the FWC was s.134(1)(da)(iii)of the FW Act which requires the FWC to take into account the “need to provide additional remuneration” for “employees working on weekends or public holidays”.

The FWC found that this requires considering three factors:

(i) the impact of working at such times or on such days on the employees concerned (i.e. the extent of the disutility). This includes the impact on employees’ health and work-life balance as well as the preferences of the employees for working at those times;

(ii) the terms of the relevant modern award, in particular whether it already compensates employees for working at such times or on such days (e.g. through ‘loaded’ minimum rates or the payment of an industry allowance which is intended to compensate employees for the requirement to work at such times or on such days); and

(iii) the extent to which working at such times or on such days is a feature of the industry regulated by the particular modern award.

The Decision

The FWC’s decision was based on several factors:

  • Trends in the labour market;
  • Changing nature of weekend work;
  • Shifts in consumer demand and preferences;
  • Changing role of weekends for leisure and social activities; and
  • The decline in religious observance

The Commission held that:

Australian labour market has changed markedly over the last 40 years. These changes have been dominated by an increase in female and part-time employment and an increase in employment in the services industries.

In relation to retail and hospitality in particular, the FWC noted that these roles were being increasingly performed on weekends due to shifting consumer demand. The FWC found that young people who are more likely to work on weekends are also significantly less likely to be religious or place particular significance on Sundays as opposed to Saturdays.

Overall the Commission found that in the majority of retail and hospitality positions in consideration, while there “disutility” in working on weekends and public holidays remain, it is a lesser concern than it historically has been.  Despite this finding, the FWC did not reduce Sunday rates to the Saturday penalties as the Commission still found a higher level of “disutility” on Sundays.

The FWC did reduce Level 1 Fast Food Award employees to the Saturday rate. This was because the overwhelming majority of employees in this demographic were young people such as students for whom there was found to be little difference in working Saturdays or Sundays.

It is important to note that the representatives of employers under the Restaurants Award and Clubs Award failed to convince the FWC that those Modern Awards required changing as well with regards to Sunday pay rates.

With regards to Public Holidays, the FWC found that:

Public holidays, by their nature, are intended to serve a special community role and that the expectation (and practice) is that the vast majority of employees do not work on public holidays. These features are relevant to the determination of the level of compensation to be provided to employees who work on public holidays. There is an additional disutility associated with working on a day when the vast majority of other employees (and, it may be inferred, a substantial proportion of their friends and family) are enjoying a day of leisure.

The FWC did state however that this “disutility” had been reduced by the statutory right to refuse to work on Public Holidays.

The question as to whether the change will affect employment rates, an argument raised by various employer stakeholders and expert witnesses, was considered at length. It was found that, due to the complexity of the employment market and the fact that the only studies conducted were on increases in penalty rates, it is difficult to quantify any benefit although the reduction “may have a modest positive effect on employment”.

Implementation

The changes in penalty rates will begin to take place from 1 July 2017. The reductions in Sunday penalty rates will take place in a series of annual adjustments on 1 July each year to coincide with the Annual Wage Review.  The number of these will be determined at a later date but the FWC recommended between two and five.

To avoid complexity, all the public holiday penalty rate changes will occur on 1 July 2017.

Late night penalties for in the Fast Food Award and the Restaurant Award were also changed slightly. At present, both awards provide an additional payment of 15 per cent of the standard hourly rate between midnight and 7.00 am.  The span of hours which attract the 15 per cent loading has been changed such that it applies for work performed between midnight and 6.00 am (not 7.00 am).  The FWC also varied the Fast Food Award to provide that the 10 per cent evening work loading applies to work between 10.00 pm and midnight (as is currently the case in the Restaurant Award).  It was found that the existing 9.00 pm threshold for the payment of the evening work loading in the Fast Food Award was an error in the previous review.  Due to the minor nature of these changes, these will commence on 27 March 2017.

Messages for Employers

Given the highly politicised and emotionally charged coverage of the FWC Decision, great care must be taken before implementing the changes set out above as the inaccurate reporting of the decision can lead employers astray.

All employers should consider:

  1. Whether they and their employees are covered by any of the Awards considered by the FWC;
  2. Whether their businesses are covered by an Enterprise Bargaining Agreement (in which the Awards do not apply);
  3. When the implementation date for any changes that apply to them are; and
  4. How the changes will affect their business – from both an economic perspective and in terms of employee morale.

It is important to note that while Sunday and public holiday penalty rates in the Hospitality and Retail sectors have been decreased, they have not been removed entirely. Furthermore, the decision of the FWC was made in respect of the Hospitality and Retail awards and the unique conditions of those industries.  As such the decision provide no warrant for the variation of penalty rates in other Modern Awards.

Due to the political fallout of the decision, it is likely that the decision will be appealed through the courts or overruled by Parliament. Until the matter finally resolves, there is considerable uncertainty for both employers and employees.

It is recommended that any employer who is affected by this change seek legal advice on how to implement the changes as the coverage of the various Modern Awards are highly technical and a failure to properly pay employees can lead to significant liabilities and exposures.

While the publicised debate around Sunday penalty rates has focused on employment growth and vulnerable workers, the decision reflects broader changes. As social mores changes, the law has a duty to adapt with it to ensure its relevancy.

Regardless of the final outcome, the decision reveals shifting social attitudes and expectations regarding weekend work.