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Federal Court upholds Fair Work Commission decision to reduce award penalty rates

NewsFlash 25 October 2017

You will recall that we recently provided an update setting out the Fair Work Commissions (FWC) decision to drastically reduce Sunday and public holiday penalty rates with a minimal lead in period. A legal challenge by two major unions in the Federal Court of Australia to the FWC decision to reduce penalty rates has failed.

Consequently, the decision will remain and is treated as having come into effect as it was intended from 1 July 2017.

The unions applied to the Federal Court to overturn the FWC decision on the basis that the FWC did not have proper jurisdiction to make the decision that it did in June 2017; that it had misconceived its obligations and duties under the Fair Work Act 2009; and that the decision to reduce penalty rates was unreasonable and plainly unjust. The Full Bench of the Federal Court has rejected the unions’ application, and ruled that the FWC determination was not affected by jurisdictional error.

The reductions in penalty rates in the affected awards will now proceed as previously advised over the transition period of the next 3 to 4 years, including the initial penalty rate cuts implemented from 1 July 2017.

The awards in which Sunday and public holiday penalty rate provisions will be reduced are:

Fast Food Industry Award 2010

General Retail Industry Award 2010

Hospitality Industry (General) Award 2010

Pharmacy Industry Award 2010

In the Restaurant Industry Award 2010 only evening penalty rates and public holiday penalty rates will be affected.

Public holiday penalty rates

As a reminder, the reduction to public holiday penalty rates took effect immediately from 1 July 2017, and was not subject to a transition period. From 1 July 2017 full-time and part-time employees engaged under the five above named awards are entitled to be paid 225% of their base rate of pay for work on a public holiday, and casual employees are entitled to be paid 250% of their base rate, which includes their casual loading.

Sunday penalty rates

The cuts to Sunday penalty rates will be phased in over four financial years in retail and pharmacy, and over three financial years in the hospitality and fast food industries.

The progressive reductions in Sunday penalty rates will take effect from 1 July each year, but as the table below shows, the  transitional percentage reductions and penalty rate outcomes are not consistent over all affected awards.

The annual minimum wage reviews conducted by the FWC generally result in increases to minimum award rates which also apply from 1 July each year.  It will be interesting to see if there is a greater than normal increase in the minimum hourly rate under each of these awards next year as it is anticipated there will be a strong drive for this by the affected unions.

Employers who are negotiating enterprise agreements in these industries may have to deal with demands to maintain penalty rates at their former levels, which are likely to make such negotiations more complex.

For further information or assistance with this or other workplace relations matters please contact our Employment team.

Peta Tumpey, Partner

Rod Felmingham, Solicitor

NewsFlash 25 October 2017
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