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Penalty rate cut opens door for employees to negotiate

Just in case you missed it, the Fair Work Commission has made waves by handing down a decision which cuts penalty rates for a large number of employees across the country.

How did this come to pass and where to from here? Let us fill you in.

The Fair Work Commission has as part of its job the obligation to conduct a four-yearly review of modern awards.

This comes from the most important piece of employment law nationally, the Commonwealth Fair Work Act 2009.

The commission is to decide whether or a not the modern award still achieves the objective of that particular award.

Employer groups and unions have the opportunity to make applications and submissions to the Commission for it to consider in conducting its review.

The recent penalty rates decision was made in relation to various awards in the hospitality and retail sectors, particularly the Fast Food Industry, General Retail Industry, Hospitality Industry (General), Pharmacy Industry, Registered and Licensed Clubs, and Restaurant Industry Awards.

The Commission decided in the case of each of the above awards that it was appropriate to reduce Sunday penalty rates and public holiday rates.

The highest reduction was from 200 per cent (of the ordinary rate) to 150 per cent.

The most common reduction was 25 per cent.

Obviously this will impact a large number of employees. It was very interesting to see the rationale advanced by the Commission. It stated that the primary justification for penalty rates was to compensate employees for having to work outside “normal” hours.

In deciding to reduce Sunday penalty rates (but keeping them for the most part above Saturday penalty rates) the Commission decided that there was a greater inconvenience (or to use their term “disutility”) to employees in having to work on a Sunday as opposed to a Saturday, but that the “disutility” was much less than in times past.

The Commission has effectively found what we know anecdotally to be true – Sundays are no longer sacrosanct.

So does this mean the end to penalty rates and mass pay cuts?

No, is the short answer.

The penalty rates remain in the awards, just at a lower level.

It also doesn’t necessarily mean that workers in those sectors will be taking a pay cut.

The award provide a base or minimum level of pay.

It is open for employers and employees to negotiate a higher pay rate and I’m sure that many do.

Where an employment contract stipulates a higher penalty rate than is set out in the award, the contract rate will still be the relevant rate.

The lesson here, whether you are an employee or an employer, is to check your contract.

Employer groups would have us believe that this decision will lead to more employment and for their customers, better service at a better value.

Union groups raise the spectre of a new class of working poor.

Cynics point out that the decision may well have been different had the Commission not had three years’ worth of Coalition appointments made to it.

The answer is that only time will tell.

Unless the legislative scheme changes we will do this all again in four years’ time.

Until then try to enjoy your weekends.