28 Mar 2013

Penalty rates here to stay: implications for employers

by Saul Harben, Steve Bowler

Recent developments have severely dented the hopes of business groups that penalty rates for workers will be reduced or reconsidered in the near future, but the Modern Awards Review could give them a chance to argue their case.

Recent developments have severely dented the hopes of business groups that penalty rates for workers will be reduced or reconsidered in the near future.

In the wake of recent comments by Prime Minister Julia Gillard that the Fair Work Act will be amended to enshrine penalty rates into law, the Fair Work Commission has rejected employers' bids to reduce penalty rates for workers in its Transitional Review of the Hospitality, Retail, Fast Food, Tobacco and Hair and Beauty Industry Awards.

In its decision handed down on 18 March 2013, the Fair Work Commission found that employers provided no cogent evidence to support a variation to the modern awards to provide a decrease in current penalty rates.

The Transitional Review comprised of a substantive number of submissions seeking to vary the modern awards within the retail and fast food industries. Employers within the retail sector had sought to remove evening penalty rates for retail workers and to decrease penalty rates for Sunday work from 100 percent to 50 percent. Employers within the fast food industry sought to vary the hours upon which penalty rates applied.

The primary basis of the employers' submissions, specifically in relation to the retail sector, was centred around the argument that current penalty rate levels have led to employers engaging fewer employees to work Sunday shifts; those employees engaged were found to have less than optimal skills and experience. It was argued that if the Commission decreased penalty rates for Sunday work, employers would be in a position to engage more employees to work on Sundays, who would have a greater mix of experience and skills, which in turn would increase productivity and efficiency levels. Furthermore, it was submitted that a decrease in penalty rates would have a positive impact on competitiveness, productivity and employment growth within the economy and this would "promote social inclusion through increased workforce participation".

The Commission found that although there were some valid elements to the employers' submissions, the arguments were "far from compelling". The Commission was not satisfied that a "sufficient case has been made to warrant varying the relevant awards". Further, it found that although employers provided some evidence in support some elements of their arguments, there was a "significant evidentiary gap in the cases put forth". This was of particular significance in relation to the employers providing no real evidence to support the argument that the differing penalty rates would impact on "employer behaviour and practice".

In reaching its decision the Commission was satisfied that incomes for full-time adults within the relevant industries were lower in comparison to employees within other industries, with full time employees earning approximately 70% of average earnings. Further, the Commission found that the incidence of award reliance in the relevant industries was generally higher than in other industries.

Furthermore, in its decision the Commission noted that the four yearly review of the modern awards is set to commence in 2014, which in turn would provide employers with another opportunity to renew their arguments to decrease penalty rates and present convincing evidence to support their claims. With the Commission asserting the fact that modern awards are still within the transitional period, which as a consequence "militates against the adoption of broad changes to the modern awards as part of the Transitional Review."

In addition to decreasing penalty rates, employers sought to vary the relevant awards to permit annualised salaries in lieu of wages, allowances, penalty rates, overtime, shift work payments and annual leave loading. However the Commission was not persuaded to vary the awards to allow such changes but identified that there may be scope for the parties to discuss some form of "loaded rates" for the Retail and Fast Food Awards, with the aim of decreasing the complexity of the awards' application. The Commission stated:

"Any such loaded rates would need to recognise the application of the existing penalty rates regime and apply fairly across the range of employees and working hours patterns that might be considered as applicable to the concept. Subject to those considerations, our preliminary view is that the establishment of loaded rates within these awards would have the capacity to reduce the complexity of their application, particularly for small businesses."

In order to provide further consideration to the concept of "loaded rates" the Commission is intending to facilitate discussions between relevant parties to reach a state of agreement.

What does this mean for the future?

Penalty rates are here to stay. However, the Transitional Review has provided employers with hope that in the Modern Awards Review, set to commence from 2014, the Commission may be more accepting of the argument to decrease penalty rates.

As such, if employers take heed of the recent Transitional Review and provide compelling evidence to support their submissions that a variation to current penalty rates will result in a change to employer custom and practice, employment levels and employee welfare, the Commission may consider varying penalty rates in the future.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.