On February 23, 2017, the Fair Work Commission handed down its decision in the Penalty Rates Case.

Of the 122 awards the Commission made in 2010, six were reviewed as to whether the penalty rates in those awards met the Modern Awards Objective. These included the General Retail Award and the Restaurant Award 2010. The conduct of the proceedings has been a substantial undertaking over 39 days of hearings over two years.

No doubt you will have seen the fallout from the decision in the media, where both blame and praise has been heaped on the government and the Fair Work Commission from unions and employers alike.

Penalty rates in the past have been needed to compensate employees for working outside ‘normal hours’ (the compensatory element) and to deter employers from scheduling work outside ‘normal hours’ (the deterrence element). The Full Bench concluded that deterrence is no longer a relevant consideration in the setting of weekend and public holiday penalty rates. The Full Bench accepted that the imposition of a penalty rate may have the effect of deterring employers from scheduling work at specified times or on certain days, but that is a consequence of the imposition of an additional payment for working at such times or on such days, it is not the objective of those additional payments.

Compensating employees for the disutility associated with working on weekends and public holidays is a primary consideration in the setting of weekend and public holiday penalty rates.

The Full Bench reviewed the Saturday penalty rates in the Fast Food, Hospitality, Restaurant and Retail Awards and was satisfied  the existing Saturday penalty rates achieve the modern awards objective – they provide a fair and relevant minimum safety net.

Sunday penalty rates

Proposed changes to Sunday penalty rates in the Hospitality and Retail Awards Award

Hospitality Award
Full-time and part-time employees: 175% to 150%
No change for casuals

Retail Award
Full-time and part-time employees: 200% to 150%
Casual employees: 200% to 175%

In addition to the changes to Sunday penalty rates, the Full Bench decided to vary some of the penalty provisions in relation to early/late night work in the Restaurant Award.

The Full Bench also decided to reduce the public holiday penalty rates in the Hospitality and Retail awards.

Public holiday penalty rates

Proposed public holiday penalty rates in the Hospitality and Retail awards

Hospitality Award
Full-time and part-time employees: 250% to 225%
Casual employees: 275% to 250%

Restaurant Award
Full-time and part-time employees: 250% to 225%
Casual employees: 250%

Retail Award
Full-time and part-time employees: 250% to 225%
Casual employees: 275% to 250%

The Commission said there is a disutility associated with weekend work, above that applicable to work performed from Monday to Friday. Generally speaking, for many workers Sunday work has a higher level of disutility than Saturday work, though the extent of the disutility is much less than in times past.

The Commission agreed with the Productivity Commission’s Final Report that there are likely to be some positive employment effects from a reduction in penalty rates, though it is difficult to quantify the precise effect. Any potential positive employment effects from a reduction in penalty rates are likely to be reduced due to substitution and other effects.

The Hospitality and Retail Employers’ evidence supported the proposition that the current level of penalty rates has led employers to reduce labour costs associated with Sunday and public holiday trading by imposing a number of operational limitations, such as:
(i) restricting trading hours;
(ii) lowering staff levels; and
(iii) restrictions on the type and range of services provided.

The Bench accepted the Hospitality and Retail Employers’ evidence also supported the proposition that a reduction in penalty rates is likely to lead to:
(i) increased trading hours on Sundays and public holidays;
(ii) a reduction in the hours worked by some owner operations;
(iii) an increase in the level and range of services offered on Sundays and public holidays; and
(iv) an increase in overall hours worked.

In addition, public holiday work is more common in the Hospitality and Retail Awards sectors and, on the evidence before the Full Bench, reducing the public holiday penalty rate will increase employment and have a number of positive effects on business.

A substantial proportion of award-reliant employees covered by these modern awards are low paid and the reductions in Sunday penalty we have determined are likely to reduce the earnings of those employees who currently work on Sundays.

Next steps

The commission has called for submissions on transitioning the rates to lower percentages over a 12-24 month period.

The Commission also discussed whether a ‘loaded rate’ in this context refers to a rate which is higher than the applicable minimum hourly rate specified in the modern award and is paid for all hours worked instead of certain penalty rates (such as the penalty rates for Saturday and Sunday work).

The Full Bench was of the view that, subject to appropriate safeguards, schedules of ‘loaded rates’ may make awards simpler and easier to understand, consistent with the considerations in s.134(1)(g). Schedules of ‘loaded rates’ would also allow small businesses to access additional flexibility without the need to enter into an enterprise agreement.

The long-running saga of penalty rates will continue into the future, it seems, for at least another two years until rates are finally phased in and employers get the full benefit.