Penalty Rates Decision’s Impact on Bargaining

While there has been a lot of (largely misinformed) commentary about the penalty rates decision made by the Fair Work Commission recently, little attention has been paid to the impact it will have on bargaining in the affected sectors.

The key issue for employers is the timing of the actual changes so that bargaining can proceed in an environment of knowledge, not speculation, and the playing field is level. The key issue for employees is the extent of the changes ordered and how that will impact on their attitudes to bargaining.

In relation to the latter, it is worth pausing to recap exactly what the FWC has done. In brief, it has decided to reduce the Sunday and public holiday penalty rate by 25 percentage points for permanents in hospitality and fast food (level 1 only). In retail, the changes are 50 percentage points for permanents on Sundays (25 for casuals) and 25 for public holidays.

By way of example, a Level 2 permanent shop assistant’s rate on Sunday will go from $39.81 per hour on a Sunday to $29.86 per hour, or about $10 per hour – but restricted to the Sunday hours. The overall reduction is between 8 and 8.5% of the total wage for the week. Obviously every time the employee works a roster that does not include a Sunday, then their wage is unaffected by the decision. The changes in fast food and hospitality are of a lesser degree than retail for Sundays.

This means in practice for employees, the decision’s impact is entirely dependent on the roster and the specific trading hours of each enterprise. Hence much of the public discourse being off the point. Being required to work on these penalty days will likely generate demands from employees for agreement clauses requiring “fairness in rostering”, particularly for permanents. (Many casuals in these industries are only available weekends.) That way the work is shared around.

The Fair Work Act encourages bargaining, but if an award that is to be used for the better off overall test (“BOOT”) is subject to imminent change, then it would be unsurprising if bargaining falters. Why would an employer go ahead and enter negotiations which must result in a deal that passes the BOOT, when that employer knows the award will prescribe lesser or lower hurdles for the test in the near future?

It is expected this conundrum will not escape FWC when it decides how to introduce the practicalities of its decision. Already in the formal decision, FWC made comment that a long phase-in is not preferred. The FWC has called for submissions about how to implement its decision. Given the public attention, this process will probably be drawn out, while the actual phase-in of the changes, when they finally do start, is likely to be over a relatively short period.

If that prediction is close to the mark, then bargaining in the near term will be more complex due to the uncertainty. There are strategies that can be adopted to manage the award changes that will occur during the life of any agreements made now, particularly in relation to any built-in wage increases an agreement might have.

Summary of Penalty Rates Decision (23 February 2017)