Pay and Conditions

Landmark Penalty Rates Decision

The Fair Work Commission (“FWC”) handed down a landmark decision yesterday regarding the payment of penalty rates that may have far reaching consequences for many employees and their employers.

As part of the 4-yearly review of modern awards under section 156 of the Fair Work Act 2009 (Cth) (“FWA”) the Fair Work Commission has reviewed penalty rates in a number of modern awards in the hospitality, retail and pharmaceutical industries. In this regard, the Fair Work Commission handed down its decision yesterday reducing penalty rates for employees.

As part of the Review, the Full Bench heard evidence and submissions over 39 days of hearing in 2015 and 2016. Evidence was given by 143 lay and expert witnesses and over 5,900 submissions were received from principal parties, State and Territory Governments, Church based organisations, political entities and individual employees and employers.

The decision deals with the review of the weekend and public holiday rates in the following modern awards:

  • Fast Food Industry Award 2010 (“Fast Food Award”)
  • General Retail 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 hospitality and retail employers’ lay evidence supported the proposition that the current level of penalty rates has led to employers reducing labour costs associated with Sunday and public holiday trading, such as restricting trading hours, lowering staff levels and incorporating restrictions on the type and range of services provided on these days. It was asserted that a reduction in penalty rates would likely lead to increased trading hours on Sunday and public holidays, a reduction in hours worked by some owner operations, an increase in overall hours worked and an increase in the level and range of services offered on Sunday and public holidays.

Weekend rates

The Full Bench reviewed the Saturday penalty rates in the Fast Food, Hospitality, Restaurant and Retail Awards and, was satisfied that the existing Saturday penalty rates achieve the Modern Awards objective, being that they provide a fair and relevant minimum safety net. The review of Saturday penalty rates in the Clubs and Pharmacy Awards is to be the subject of further proceedings.

In reviewing the Sunday penalty rates the Full Bench decided that the existing penalty rates in the Hospitality, Fast Food, Retail and Pharmacy Awards do not achieve the modern awards objective. As a result, the proposed changes to Sunday penalty rates are as follows:

Award                                                                                     Sunday Penalty rates

Hospitality Award

Full- Time and part-time employees:                                175% down to 150%

(no change for casuals)

Fast Food Award

(Level 1 employees only – no changes to level 2 and 3 employees)

Full time and part time employees:                                150% down to 125%

Casual employees:                                                             175% down to 150%

Retail Award

Full time and part time employees:                                200% down to 150%

Casual employees:                                                             200% down to 175%

Pharmacy Award

(7am – 9pm only)

Full time and part time employees:                                200% down to 150%

Casual employees:                                                             200% down to 175%

The Full Bench was not persuaded to make changes to the penalty rates for work before 7:00 am and after 9:00 pm under the Pharmacy Award. Furthermore, the Full Bench was also not persuaded to make any variation to the weekend penalty rates in the Clubs Award and the Restaurant Award.

Public Holiday Rates

In relation to the public holiday penalty rates the Full Bench was minded to made the following proposed changes:

Award                                                                                     Public Holiday Penalty rates

Hospitality Award

Full- Time and part-time employees:                                250% down to 225%

Casual employees:                                                               275% down to 250%

Restaurant Award

Full time and part time employees:                                 250% down to 225%

Casual employees:                                                             remains at 250%

Clubs Award

Full time and part time employees:                                 remains at 250%

Casual employees:                                                             remains at 250%

Retail Award

Full time and part time employees:                                250% down to 225%

Casual employees:                                                             275% down to 250%

Fast Food Award

Full time and part time employees:                                250% down to 225%

Casual employees:                                                             275% down to 250%

Pharmacy Award

Full time and part time employees:                                250% down to 225%

Casual employees:                                                             275% down to 250%

In considering when these changes should come into effect, the Full Bench concluded that appropriate transitional arrangements are necessary to mitigate the hardship caused to employees who work on Sundays.

The Full Bench has not reached a concluded view as to the form of the transitional arrangements and proposes to seek submissions from interested parties in this regard. However, the Full Bench did express their provisional views being that the Sunday penalty rate cuts should come into effect within a year and that the changes to public holiday penalty rates will take effect on 1 July 2017.

In light of the above, it is imperative for employers to ensure they do not make any of the above changes or reductions to employees’ wages prior to these penalty rate cuts coming into force. It is important to understand that if employers make changes to penalty rates prior to the changes actually taking effect, they will be liable for back pay to those employees and may face further penalty. We suggest that employers review and understand the Modern Awards applicable to their employees and ensure that the business is vigilantly complying with the legal requirements in this area.

If you wish to discuss any aspect of this article or require specialist advice or assistance in relation to an employment law matter, please do not hesitate to contact us.

This alert is not intended to constitute, and should not be treated as, legal advice.

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