Federal Court says FWC Penalty Rates Decision stands

The February 2017 decision of a Full Bench of the Fair Work Commission (FWC) to cut penalty rates in certain modern award, as detailed in our blog post here, has been upheld following an appeal by unions in the Federal Court of Australia Full Court (FCAFC).

Background

In February this year, the FWC handed down a decision reducing penalty rates on Sundays and public holidays  in several modern awards. The penalty rate reduction came about largely on the basis that existing penalty rates were no longer within the “modern awards objectives” as detailed in section 134(1) of the Fair Work Act 2009 (Cth) (the FW Act). Awards that felt the hit of this first decision included the:

  • Fast Food Industry Award 2010 (Fast Food Award);
  • General Retail Industry 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); and
  • Restaurant Industry Award 2010 (Restaurant Award).

Whilst not all classifications within these awards were affected, the determination scaled back rates between an average of 25% – 50%. The new rates, as explained in our previous blog, were introduced from 1 July 2017 and the changes to Sunday rates are to continue to be phased in until 2020.

Two more decisions reviewing modern awards were published on 17 March 2017 and 5 June 2017 regarding late night penalties and the transitional arrangements to implement the changes, respectfully. These preceded the FWC’s determinations made on 21 June 2017 reducing penalty rates in the above modern awards (excluding the Clubs Award) on Sundays, public holidays and other entitlements.

The determinations were welcomed by the Federal Government and businesses yet angered unions and workers. As the first of its kind and potentially the beginning of a trend, the decision was appealed by two unions, United Voice and the  Shop, Distributive and Allied Employees Association (the Applicants) and heard in the FCAFC in late September 2017.

The FCAFC decision

The Court comprised of Justices North, Tracey, Flick. Jagot and Bromberg, dismissed the Applicants’ appeal. The subject of the appeal was the FWC’s 21 June 2017 determinations varying the awards, not the decisions published prior to this because the determinations affect the immediate rights and interests of the Applicants.

The Applicants brought the appeal on several grounds. Ground one raised the issue of whether throughout the FWC’s decision-making process it miscarried for not appreciating that the review of awards required under section 156 FW Act requires a material change in circumstances since the last review of the award. The second contention was based on the FWC’s failure to understand the nature of the inquiry to meet the modern awards objective required under section 134 FW Act. The Applicants argued the FWC split the “modern awards objective” under section 134 FW Act so that it failed to “provide a fair and relevant minimum safety net of terms and conditions” when considering the factors laid out in sections 134(1)(a)-(h). In grounds three to six the Applicants’ raised concerns about the way in which the FWC treated the living standards and the needs of the low paid whom these awards affect. The FCAFC noted how and where, over several months the FWC correctly considered the adverse implication of the cuts and how their phased implementation would provide an easing of the changes.

Importantly the FCAFC noted that the task of ensuring modern awards are compliant with section 134(1) FW Act standards and making a call as to what is fair and relevant is not part of its remit. Rather the Court commended the FWC’s decisions, remarking that great weight can be given to the factual assessments made by the Full Bench of the FWC.

The Court rejected all grounds on which the FWC’s determinations were challenged by the Applicants and dismissed the appeal.

What does this mean for employers?

The transitional arrangements decision handed down on 5 June 2017 will continue to be rolled out until 2020. The public holiday rates reduction occurred on 1 July 2017 without any transitional arrangement. The Sunday penalty rate cuts will continue to be phased in at the beginning of the next three financial years under transitional arrangements. Employers need to understand the impact of the transitional arrangements and ensure they remain up-to-date on changes where they are covered by the impacted modern awards.

Read the decision here: [2017] FCAFC 161