CHAPTER 2
Issues
Key issues raised by those in favour of the bill
2.1
Proponents of the bill argued that the rationale for penalty rates is
now largely out-dated, thanks to improvements in technology, the development of
a global economy and the deregulation of trading hours, resulting in many
businesses trading over all seven days.[1]
The Australian Chamber of Commerce and Industry (ACCI) submitted that:
Late nights and weekends are significant trading periods in
the services sector. Typically awards have adopted a series of penalty rates
which compensate employees for working ‘unsociable hours’. This original justification
for a high penalty rate regime has limited foundation, with the advent of
fundamental changes in our society, particularly in the retail and restaurant
sectors. Despite this reality, a number of modern awards have adopted a more
restrictive span of ordinary hours, that is, hours where employers are not required
to pay higher rates of pay, and maintained the penalty rates. These penalty
rates are a deterrent to operating outside of designated ordinary hours and
where penalties have increased under the new modern award, this has threatened
the viability of business, the majority of them [small to medium enterprises]
in the services sectors.[2]
2.2
To further illustrate the point, ACCI provided the following quote from
an employer, received in response to ACCI's National Employer Survey:
I still do not understand how we can move to seven day
trading and still have penalty rates. Surely any hour of any day should be an
hourly rate. Sure, if staff work over a sensible number of hours overtime
should be paid but not simply because it is a Sunday – many of our part time and
casual staff can only work weekends so in fact there is no penalty. We open to
provide a service in a remote area and at best break even. Further, we try to
employ pharmacy students and school students to give them experience but this
gets challenging when wages have penalty rates attached as well – it defeats
the purpose.[3]
2.3
The Victorian Employers' Chamber of Commerce and Industry (VECCI) felt
similarly:
The great failing of the Act is that it was designed to
operate on the basis “unsocial, irregular or unpredictable hours” plus work on
weekends, public holidays and shifts must attract penalty rates because they
are imposition on all workers and that all manner of businesses can afford to
pay a premium to operate during such times. The Act and the modern award system
do not recognise that in the modern economy some workers can actually only work
at certain times and do not regard them as an imposition because they actually
fit in with other aspects of their lives. They also do not recognise that
certain businesses have to operate during certain times. Why should such
workers who need or choose to work at such times be entitled to a greater rate
of pay simply because the times they choose and prefer to work, and in some
cases, can only work, happen to fall on a weekend? Equally, why should some
businesses that have to trade on weekends or at night or on public holidays
such as tourism operators, café owners, restaurateurs and publicans and
accommodation providers be penalised because they have to operate during these
hours?[4]
2.4
Supporters of the bill claimed that as a result of the new paradigm many
part time or casual employees consider weekends to be part of their regular hours,
and that as a result it is not necessary to pay penalty rates to attract them
to work. While submitters such as the Australian Retailers Association reported
research suggesting that 39.9 per cent of respondents to a survey cited
'lifestyle' as a reason they worked weekends, and 45.5 per cent 'availability',
the committee notes that while 64.5 per cent of employer respondents 'had no
difficulty in securing staff to work on weekends', the situation might be
different if penalty rates were not payable. Indeed, later in their submission
the Association acknowledged that penalty rates were a 'substantial reason' why
staff chose to work weekends, with 53.3 per cent saying this was a factor.[5]
The argument that a substantial proportion of workers prefer to work weekends
was vehemently rejected by the Queensland Council of Unions, who dismissed it
as 'spurious' and lacking any credible evidence.[6]
2.5
A number of submitters also argued that the Fair Work Act required
modern awards to include the term 'necessary to achieve the modern awards
objective', and that modern awards have failed to deliver a structure which is
consistent with these objectives, which include, among other things:
- The need to promote flexible modern work practices, efficient and
productive performance of work (s.134(1)(d));
- the principal of equal remuneration for work of equal or comparable
value(s.134(1)(e));
- the likely impact of any exercise of modern award hours on
business, including on productivity, employment costs and the regulatory burden
(s.134(1)(f)); and
- the likely impact of any exercise of modern award powers on
employment growth, inflation, sustainability, and competitiveness of the
national economy (s.134(1)(h)).[7]
2.6
Proponents also pointed to an increase in small business bankruptcy
rates, and a decline in small business start-ups, over recent years, and argued
that:
Labour costs represent some 45% of total expenditure for
restaurant and catering businesses and significant spikes in labour costs
introduced by the Fair Work Act Modern Award regime must be included in the
factors that result in high business failure rates.[8]
2.7
To this end, the Australian Retailers Association submitted that
retailers were 'increasingly concerned' that the minimum safety net guaranteed
by the retail award was too generous, leading to labour cost pressures and
threatening business viability:
There is direct evidence retailers of all sizes find trading
on Sundays in particular marginal at best. Some owner- operators can only open
if they man the stores themselves while others will simply not open because it
is not viable due to penalty rate structures.[9]
2.8
Restaurant and Catering estimated that in 2011 some 509 356 shifts have
been lost or 2945 jobs lost to the industry as a result of increased labour
costs. The Australian Federation of Employers and Industries (AFEI) summarised
its view of the situation thus:
The slower jobs growth and decrease in overall hours offered
to employees in these sectors, along with the adjustment of trading hours are
indicative of the cost impact of modern awards which is now to be exacerbated
by the new penalty rate regime... The outcome in these sectors in response to
labour cost increases will inevitably be further reductions in jobs, available
work hours, and careful management of rosters to avoid paying penalty rates.[10]
2.9
Restaurant and Catering drew on a survey of its members in late 2011,
with a view to obtaining 'detailed information about the state of the industry
in respect of its financial, business and human resource elements'.[11]
Some of the key conclusions of the survey presented to the committee in support
of the argument that changes are needed to the penalty rates system, were:
- 65.8 per cent of respondents indicated that a further minimum
award rise in July 2012 would have a significant financial impact on their
business;
- Were a wage increase to occur, 32 per cent of respondents would
not employ additional staff, and 20.3 per cent would employ the same number of
staff but for fewer hours;
- 70.9 per cent of respondents would employ fewer staff is labour
costs rose across 2012–2013;
- 33.3 per cent of restaurant respondents indicated they closed
their business on public holidays and 18.2 per cent reduced their opening hours
on those days.[12]
2.10
Proponents also argued that restaurant, cafe and catering businesses
have already incurred significant costs with the introduction of the Fair Work
system which has resulted in some businesses applying significant labour cost
increases as a result of the making of the Restaurant Industry Award 2010 and
the Hospitality Industry General) Award 2010 which took effect in part from 1
January 2010. It was argued that businesses had incurred additional costs in
the transitional arrangements and are further concerned about significant
monetary increases applied by way of new penalty rates that in some cases did
not apply under the pre modern award system. The system at present, it is
argued, has resulted in Australia having the highest minimum wage in the OECD.[13]
2.11
Among those who were in favour of the bill, a number considered that it
did not go far enough, and should apply to businesses with more than 20
employees. The AFEI argued that:
...the proposed legislative changes extending only to employers
with businesses in the restaurant and catering or retail industries with fewer
than 20 full time or full-time equivalent employees does not go far enough.
Reform is also required for employers facing unsustainable penalty rates in
other sectors where modern awards either introduced penalty rates where
previously none applied or increased them significantly beyond pre modern award
levels...In our view, legislative reform that targets sectors where penalty rates
regimes have previously applied, but are no longer relevant in a contemporary
economy and are in fact detrimental, such as in the fast food sector, is also
necessary. To achieve this, penalty rates for weekend work should not apply
where these hours form part of the worker’s ordinary, not overtime, hours.
Further the introduction of a “cut off” point at 20 employees has the potential
to introduce distortion and unintended consequences in the labour market.[14]
2.12
It was also argued that small business owners' human rights were
potentially in jeopardy on the basis that they were 'forced to work excessive
long hours because of regulatory changes to business operations that were not
foreseen when they started the business', and that:
...the Fair Work Act 2009 has fundamentally swung the pendulum
in favour of employees and trade unions to the extent that running a small
business in Australia is oppressive, unjust and unfair to the community of entrepreneurs
that should be rewarded not punished by Government.[15]
Key issues raised by those opposed to the bill
2.13
Opposition to the bill was very strong. The Shop, Distributive and
Allied Employees Association (SDA) represented the underlying views of many of
those opposed to the bill, putting the case for the retention of penalty rates
in this way:
Penalty rates are not a prehistoric concept to be derided and
eradicated because some do not consider them 'modern'. Indeed, they reflect the
very basic tenet of our modern industrial legislation, the Fair Work Act 2009,
in that they are 'fair' - they compensate employees for working unsociable
hours at times and on days when many others enjoy family gatherings, social
occasions, religious commitments or leisure time.[16]
2.14
The remainder of this chapter will outline the major themes expounded
upon by those opposed to the bill, before highlighting a number of potential
unintended consequences it may have.
Antisocial hours
2.15
Submitters who opposed the bill cited as one of their primary arguments
the special status that weekends hold among the majority of Australians. Unions
NSW spoke for many when they submitted that:
Whilst there have been significant increases in business
hours in the last 50 years, Unions NSW does not believe that this makes the
concept of the weekend or public holidays redundant...Unions NSW submits that
increased business operating hours have not eliminated the social costs imposed
on employees who work on weekends. A weekend that falls on a Saturday and Sunday
remains the norm for the majority of Australian workers. Additionally, a Monday
to Friday week also remains the normal operation hours of schools. Employees
who work on weekends will generally find themselves working whilst their
friends, partners and extended family are not. Additionally, employees with
children who work weekends will find themselves working on the only two days of
the week that their children are not in school. Weekends continue to be the
time of week that organised sporting games and activities are played. Depending
on an individual’s religion, Saturday or Sunday remains a day of rest and worship
where religious services are conducted. Weekends also remain the time of week
when large scale community events, markets, fairs and fetes are held.[17]
2.16
Likewise, the Australian Catholic Council for Employment Relations
submitted that:
The fact that an industry may be described as a "seven
day a week industry" does not disentitle workers to penalty rates for the
working of unsocial hours. Penalty rates are payable to workers whether they
are employed as shift workers or only perform part of their work (either
regularly or occasionally) in unsocial hours. Penalty payments are paid for
work in unsocial hours in seven day a week industries, such as health, aged
care, policing, emergency services and private security. The claim that retail,
for example, has become more of a seven day a week industry does not support a
claim that penalty rates should be reduced or removed. Similarly, in the
restaurant and catering industries, which have always operated over seven days
a week, an increase in the number of businesses opening on weekends would be no
reason to reduce or remove penalty rates.[18]
2.17
The Department of Education, Employment and Workplace Relations (DEEWR)
agreed, submitting that:
[A]n extension of trading hours, largely in response to consumer
demand, does not diminish the unsociability of weekend or late night work. Many
employees are less inclined to work on Saturdays and Sundays because they are the
primary days where other family members are available and where sport, leisure,
community activities and religious celebrations occur. Employees cannot readily
or easily substitute week days for activities that they would normally do on
weekend days.[19]
2.18
The committee was told that a study drawn from Australian Bureau of
Statistics (ABS) data indicated that the weekend - and Sundays in particular - remained
the most important days for social and community interaction for Australians of
working age. Comparisons of the way those who work weekends spend their time
compared with those who do not indicated that, for Sunday workers, there is a
significant fall in participation in community activities (including
volunteering), a large drop in socialising, a big fall in recreational
activities, less opportunity to 'catchup' on domestic work, less sleep-in time
and less personal care time. The authors concluded that Sunday was the most
critical day for families to spend time together, and that both Saturday and
Sunday are days of importance social contact with friends, colleagues and
neighbours.[20]
2.19
Unions NSW made the point that weekend and public holiday work has a
significant effect on families who have caring responsibilities for children,
and that the lack of formal education on these days means that when parents
need to work on weekends, they need to be placed in childcare. Weekend
childcare is often unavailable in many areas and when it is, it is considerably
more expensive than mid-week care. It was submitted that the removal of penalty
rates on weekends and public holidays would lead to greater financial pressure
being placed on employees with such caring responsibilities.[21]
2.20
The importance and unique status of weekends is reflected in a poll
undertaken by Galaxy Research which found that, in spite of deregulation of
shopping hours and the expanded daily spread of working hours, there is
virtually universal agreement – 97 per cent– that weekends are important times
for families. Eighty seven per cent of Australians agree that people who are
required to work on weekends as part of their job should receive a higher rate
of pay for weekend shifts, and 77 per cent do not agree with the argument that
working on the week end is no different to any other day of the week.[22]
Effect on incomes
2.21
The committee was told that the most immediate and obvious effect of the
Bill would be the adjustment by businesses of their rostering arrangements to
avoid allowing employees to work shifts of longer than 10 hours, or more than
38 hour per week, in order to avoid payment of penalty rates.[23]
This would result in part-time workers in relevant industries, already among
the lowest-paid, who do any evening or weekend work having their pay
significantly reduced.[24]
2.22
The SDA submitted a number of case studies to illustrate the potential
impact of the bill on individual incomes. One was for a full-time shiftworker
in South Australia working Monday to Thursday 10pm to 6am and Friday 10pm to
4am, currently entitled to $794.70. The same hours in Victoria would equal
$865.93. The removal of their nightshift penalty rates would see them earn
$666.10 per week. For the South Australian shiftworker, that is a reduction of
$128.80, or just over 16 per cent of their wage. The Victorian employee would
have their wage reduced by $199.83, or over 23 per cent.
2.23
Another involved a part-time employee employed by a small employer in
New South Wales who works from 6pm to 9pm Thursday and Friday and 10am to 4pm
on Saturday and Sunday, currently entitled to $460.57. The bill would see the
employee’s wage reduced to $298.01 for working the exact same hours. This
employee would stand to lose over 35 per cent, or $162.56 of their weekly income.[25]
2.24
While the number of dollars in lost income is part of the story, United
Voice reminded the committee that restaurant and catering workers, 45 per cent
of whom receive award wages, rely heavily on the extra income provided by
penalty rates. This point is illustrated by the fact that in 2008, the Australian
Bureau of Statistics estimated that approximately 72 per cent of workers in the
Accommodation and Food Services industry usually work on the weekend. By
contrast, only 28% of workers in the industry have patterns of work which vary
each week. United Voice took these statistics to mean that the removal of
penalty rates in these sectors amounts to an assault on the wages and conditions
of restaurant and catering employees.[26]
2.25
DEEWR submitted that:
Penalty rates have been a long-standing feature of the
employment safety net in Australia for employees who work weekends, public
holidays and other unsociable hours...penalty rates are an important component of
the total remuneration for low paid employees, including in the accommodation,
retail and hospitality industries.[27]
2.26
The ACTU provided tables illustrating the current and proposed pay rates
under the awards likely to be affected. These are set out below.
General Retail Industry Award 2010
– Saturday
|
|
Permanent
(125%)
current
|
Permanent
(100%)
proposed
|
Difference per hour
|
Casual
(135% between 7am and
6pm only)[28]
|
Casual
(100%)
proposed
|
Difference per hour
|
Adult
|
21.91
|
17.53
|
4.38
|
23.67
|
17.53
|
6.14
|
20 (90%)
|
19.72
|
15.78
|
3.94
|
21.30
|
15.78
|
5.52
|
19 (80%)
|
17.53
|
14.02
|
3.51
|
18.93
|
14.02
|
4.91
|
18 (70%)
|
15.34
|
12.27
|
3.07
|
16.56
|
12.27
|
4.29
|
17 (60%)
|
13.15
|
10.52
|
2.63
|
14.20
|
10.52
|
3.68
|
16 (50%)
|
10.96
|
8.76
|
2.20
|
11.83
|
8.76
|
3.07
|
16 and under (45%)
|
9.86
|
7.89
|
1.97
|
10.65
|
7.89
|
2.76
|
General Retail Industry Award 2010
– Sunday
|
|
Permanent
(200%)
current
|
Permanent
(100%)
proposed
|
Difference per hour
|
Casual
(200%)
current
|
Casual
(125%)
proposed
|
Difference per hour
|
Adult
|
35.06
|
17.53
|
17.53
|
35.06
|
21.91
|
13.15
|
20 (90%)
|
31.56
|
15.78
|
15.78
|
31.56
|
19.72
|
11.84
|
19 (80%)
|
28.04
|
14.02
|
14.02
|
28.04
|
17.53
|
10.51
|
18 (70%)
|
24.54
|
12.27
|
12.27
|
24.54
|
15.34
|
9.20
|
17 (60%)
|
21.04
|
10.52
|
10.52
|
21.04
|
13.15
|
7.89
|
16 (50%)
|
17.52
|
8.76
|
8.76
|
17.52
|
10.96
|
6.56
|
16 and under (45%)
|
15.78
|
7.89
|
7.89
|
15.78
|
9.86
|
5.92
|
Restaurant Industry Award 2010 –
permanent employees
PERMANENT
EMPLOYEES
(FULL-TIME
AND PART-TIME)
|
Saturday
|
Sunday
|
Permanent
(125%)
current
|
Permanent
(100%)
proposed
|
Difference
per hour
|
Permanent
(150%)
current
|
Permanent
(100%)
proposed
|
Difference
per hour
|
Adult
(20+)
|
20.53
|
16.42
|
4.11
|
24.63
|
16.42
|
8.21
|
19
(85%)
|
17.45
|
13.96
|
3.49
|
20.94
|
13.96
|
6.98
|
18
(70%)
|
14.36
|
11.49
|
2.87
|
17.24
|
11.49
|
5.75
|
17
(60%)
|
12.31
|
9.85
|
2.46
|
14.78
|
9.85
|
4.93
|
16
and under (50%)
|
10.26
|
8.21
|
2.05
|
12.32
|
8.21
|
4.11
|
Restaurant Industry Award 2010 –
casual employees
CASUAL
EMPLOYEES
|
Saturday
|
Sunday
|
Casual
(150%)
current
|
Casual
(125%)
proposed
|
Difference
per hour
|
Casual
(175%)
current
|
Casual
(125%)
proposed
|
Difference
per hour
|
Adult
(20+)
|
24.63
|
20.53
|
4.10
|
28.74
|
20.53
|
8.21
|
19
(85%)
|
20.94
|
17.45
|
3.49
|
24.43
|
17.45
|
6.98
|
18
(70%)
|
17.24
|
14.36
|
2.88
|
20.11
|
14.36
|
5.75
|
17
(60%)
|
14.78
|
12.31
|
2.47
|
17.24
|
12.31
|
4.93
|
16
and under (50%)
|
12.32
|
10.26
|
2.06
|
14.37
|
10.26
|
4.11
|
Hospitality Industry (General)
Award 2010 – Saturday
|
|
Permanent
(125%)
current
|
Permanent
(100%)
proposed
|
Difference per hour
|
Casual
(150%)
current
|
Casual
(125%)
proposed
|
Difference per hour
|
Adult (20+)
|
20.53
|
16.42
|
4.11
|
24.63
|
20.53
|
4.10
|
19 (85%)
|
17.45
|
13.96
|
3,49
|
20.94
|
17.45
|
3.49
|
18 (70%)
|
14.36
|
11.49
|
2.87
|
17.24
|
14.36
|
2.88
|
17 (60%)
|
12.31
|
9.85
|
2.46
|
14.78
|
12.31
|
2.47
|
16 and under (50%)
|
10.26
|
8.21
|
2.05
|
12.32
|
10.26
|
2.06
|
Hospitality Industry (General)
Award 2010 – Sunday
|
|
Permanent
(175%)
current
|
Permanent
(100%)
proposed
|
Difference per hour
|
Casual
(175%)
current
|
Casual
(125%)
proposed
|
Difference per hour
|
Adult (20+)
|
28.74
|
16.42
|
12.32
|
28.74
|
20.53
|
8.21
|
19 (85%)
|
24.43
|
13.96
|
10.47
|
24.43
|
17.45
|
6.98
|
18 (70%)
|
20.11
|
11.49
|
8.62
|
20.11
|
14.36
|
5.75
|
17 (60%)
|
17.24
|
9.85
|
7.39
|
17.24
|
12.31
|
4.93
|
16 and under (50%)
|
14.37
|
8.21
|
6.16
|
14.37
|
10.26
|
4.11
|
Fast Food Industry Award 2010 –
permanent employees
|
Saturday
|
Sunday
|
Permanent
(125%)
current
|
Permanent
(100%)
Proposed
|
Difference per hour
|
Permanent
(150%)
current
|
Permanent
(100%)
Proposed
|
Difference per hour
|
Adult
|
21.91
|
17.53
|
4.38
|
26.30
|
17.53
|
8.77
|
20 (90%)
|
19.73
|
15.78
|
3.95
|
23.67
|
15.78
|
7.89
|
19 (80%)
|
17.53
|
14.02
|
3.51
|
21.03
|
14.02
|
7.01
|
18 (70%)
|
15.34
|
12.27
|
3.07
|
18.41
|
12.27
|
6.14
|
17 (60%)
|
13.15
|
10.52
|
2.63
|
15.78
|
10.52
|
5.26
|
16 (50%)
|
10.96
|
8.76
|
2.20
|
13.14
|
8.76
|
4.38
|
Under 16 (40%)
|
8.76
|
7.01
|
1.75
|
10.52
|
7.01
|
3.51
|
Fast Food Industry Award 2010 –
casual employees
|
Saturday
|
Sunday
|
Casual
(150%)
current
|
Casual
(125%)
Proposed (Current ordinary time rate with 25% casual loading)
|
Difference per hour
|
Casual
(175%)
current
|
Casual
(125%)
Proposed (Current ordinary time rate with 25% casual loading)
|
Difference per hour
|
Adult
|
26.30
|
21.91
|
4.39
|
30.68
|
21.91
|
8.77
|
20 (90%)
|
23.67
|
19.72
|
3.95
|
27.62
|
19.72
|
7.90
|
19 (80%)
|
21.03
|
17.53
|
3.50
|
24.54
|
17.53
|
7.01
|
18 (70%)
|
18.41
|
15.34
|
3.07
|
21.47
|
15.34
|
6.13
|
17 (60%)
|
15.78
|
13.15
|
2.63
|
18.41
|
13.15
|
5.26
|
16 (50%)
|
13.14
|
10.96
|
2.18
|
15.33
|
10.96
|
4.37
|
Under 16 (40%)
|
10.52
|
8.77
|
1.75
|
12.27
|
8.77
|
3.50
|
2.27
The SDA submitted that:
The reduction or removal of penalty rates, whether they be
penalty payments to compensate workers for shiftwork, overtime, working at
night, working on weekends and /or working on public holidays would have a most
serious adverse impact on those workers and their families.[29]
2.28
The SDA also argued that the bill had the potential to:
...create an underclass of workers who cannot hope to earn more
than $34,637.20 per annum if they are a Level 1 permanent, full-time ‘adult’.
That is a mere $3,104.40 per annum more than the minimum wage. However, an
employee performing the same role but for an employer with 20 or more full-time
equivalent employees could earn significantly more if their shifts cover
weekends, evenings, public holidays or night shifts.[30]
2.29
The SDA provided the example of two part-time retail or fast food
workers on a public holiday, under the award, who could perform the same tasks
at exactly the same time but one would receive $43.83 per hour for their work,
whilst the other would receive $17.53 per hour, and concluded that 'It would
not be an understatement to declare this scenario completely unjust. These
rates are set to compensate employees for giving up a holiday to which all
workers are entitled'.[31]
Application of the bill only to
restaurant, retail and catering sectors
2.30
A number of submitters questioned the application of the bill only to
businesses in the restaurant, retail and catering sectors. United Voice asked
why these industries represented a special case in need of an exemption 'to
what is otherwise [an] accepted community standard?', adding that:
In United Voice’s opinion, before an Australian parliament
took the very significant step of removing one set of rights and entitlements
from a group of workers, it would need to be presented with overwhelming and
inarguable evidence in favour of that proposition. In order to demonstrate that
businesses covered by the Bill fall into a special or unique category
proponents must demonstrate not only a sound economic case for a drastic reduction
in penalty rates, but also a social case. Penalty rates perform not only an economic
function but also an important social function. By compensating workers who work
on weekends or at night penalty rates protect and enhance family and community
life in Australia. Employer groups and other supporters of the Bill have not
put forth either a rigorous economic or social argument to support the idea
that the restaurant and catering industry is a special case. Consequently, on
equity grounds alone, the Committee should not support passage of the Bill.[32]
Uncertainty of scope
2.31
The Bill seeks to preclude modern awards from awarding penalty rates to
employees of exempted small businesses, except where employees work either more
than 38 hours per week or more than 10 hours during a 24 hour period, in the
restaurant and catering industry or the retail industry. The ACTU submitted
that, while it was difficult to estimate the total number of workers who would
be affected by the bill's passage, 'it is undoubtedly in the hundreds of thousands'.[33]
The SDA considered that the number affected could be 'considerably higher than
250 000'.[34]
2.32
The uncertainty stemmed from the difficulty in determining which modern
awards would be subject to the bill. While the majority of affected workers
would likely be employed under the General Retail Industry Award 2010 and
the Restaurant Industry Award, the ACTU argued that employers may seek
to argue that the bill also applies to other awards which have a retail
component. The Hair and Beauty Industry Award 2010, the Pharmacy
Industry Award, and the Fast Food Industry Award 2010 were cited as
examples.[35]
2.33
In the same vein, it was also argued that:
To add confusion, the explanatory memorandum to the Bill refers
to an intention aimed at 'small businesses in the hospitality and retail
sector'. The modern award system distinguishes between the general hospitality industry
and the restaurant industry, and it is subsequently unclear whether the intent
of the Bill is to effect workers engaged under various classifications in the Hospitality
Industry (General) Award 2010.[36]
2.34
DEEWR set out numerous instances of lack of specificity in the bill, any
one of which could give rise to arguments over whether an employment
relationship was covered by its provisions:
The Bill also provides no definition or framework to
determine what may constitute a ‘full time equivalent employee’ or whether an
employer operates in a particular sector. The Bill refers to ‘restaurant and
catering industry’ and the ‘retail industry’. Whether an employer operates in a
particular industry could be determined in a range of ways, including whether a
particular modern award applies to their operations, whether it is in accordance
to [Australia and New Zealand Standard Industrial Classification], an ABS
statistical measure, the employer’s assessment or something else. In addition,
the Bill does not outline how to determine whether the provisions would apply
and how they would operate in respect of an employer operating a mixed business
with employees performing some functions in a particular industry but other
functions in another industry.
2.35
The committee was told that the retail, accommodation and food services
industries represented the largest groups of award-reliant employees in the
Australian workforce, and that between them the sectors employed over 496 000
award-reliant employees, comprising 36.5 per cent of all minimum award-rate
earners.
2.36
Of those working on awards, the committee heard that 45.5 per cent work
for businesses with fewer than 20 employees.[37]
It is for this reason that small business employees are, as individuals and as
a group, highly vulnerable to small wage decreases and in need of award
protection. This protection has for many years come in the form of penalty
rates.
2.37
The bill was also criticised for defining small business inconsistently
with the Fair Work Act. The Fair Work Act, for the purposes of unfair
dismissal, defines the meaning of a small business employer as employing fewer
than 15 employees at a particular time. This definition requires all employees
to be counted. Casuals are counted if they are employed on a regular and
systematic basis. The bill defines a small business employer as an employer who
'employs fewer than 20 employees'. Under this definition only full-time and
fulltime equivalent employees need to be counted, rendering it inconsistent
with the Fair Work Act. It was argued that definitional variations such as this
create confusion for employers and employees.[38]
Uncertainty of rostering and wages
arrangements
2.38
The committee heard that most workers affected by the bill are unlikely
to have a high degree of control over their own rostering arrangements, and
that the bill could enable employers to alter rosters in a manner which would
remove employees' entitlement to penalty rates (by ensuring that workers are not
rostered to work more than 38 hours in any week or more than 10 hours in any 24
hour period). It is also possible that, depending on rostering arrangements,
employees could be entitled to penalty rates one week and not the next. This
would render it more difficult for employees to budget, and could create significant
uncertainty relating to an employee’s take-home wage.[39]
Lack of evidence that measures are
required
2.39
The ACTU expressed concern over the veracity of the evidence purporting
to justify the need for the amendments proposed in the bill, submitting that:
In his second reading speech, Senator Xenophon seeks to set
out an economic case for the removal of penalty rates in the retail, restaurant
and catering industries. To this end, Senator Xenophon cites “[a] Benchmarking Report
by the Restaurant and Catering Australia conducted late last year” as
indicating that businesses have reduced their hours as a result of the payment
of penalty rates, employed fewer staff because of high labour costs, and
indicated an intention to reduce their number of staff if labour costs rose in
the next 12 months. Restaurant and Catering Australia is an employer
association which represents the interests of employers and owners of
restaurants, cafes and caterers. We are unable to critically examine the
“Benchmarking Report” because the report is not publicly available. The ACTU
understands that the report is based on an online survey conducted by
Restaurant and Catering Australia (“R&CA”), although it is unclear what the
sample size was for the survey, or what questions were asked. The ACTU
expresses general caution against reliance on survey data where the methodology
of the survey is unable to be critically examined.[40]
2.40
The ACTU also pointed to the findings of the Minimum Wage Panel of Fair
Work Australia in its 2012 minimum wage decision, when it considered:
...a number of surveys conducted by employer associations,
including a survey conducted by the Australian Chamber of Commerce and Industry
- which was based on a group of 56 award-reliant enterprises - which sought to
establish that a minimum wage increase would have negative employment effects for
some employers in some industries. The Full Bench declined to place reliance on
these surveys because the survey respondents were small in number,
self-selected and / or not representative of employers generally. The Minimum
Wage Panel found that the surveys could not be relied on for any conclusions
about aggregate effects either from either an industry or an economy-wide
perspective.[41]
2.41
The ACTU also submitted that any argument that small business was being
hampered by labour costs did not hold water, based on the fact that growth in
small business employment levels was outstripping that of larger business:
Any negative effect of industrial arrangements would be
expected to manifest itself as more sluggish employment growth in small retail
businesses than in others. In fact, the opposite has occurred. Employment in
small retail businesses has grown more rapidly in recent years than employment
in larger retail businesses, and more rapidly than employment across businesses
of all types. ABS data show that employment in small business in the retail
trade industry rose by 7.7% between June 2009 and June 2011. Employment in
large retail businesses fell over the same period by 1.1%...The fact that
employment in small retail businesses has grown faster than large retail
employment and employment generally does not support claims that small retail
businesses are facing difficulty as a result of penalty rates and modern
awards. The retail and hospitality industries have also seen profits remain
around their typical level as a proportion of total income, slightly increased
in the case of retail trade.[42]
2.42
United Voice agreed, adding that the average labour cost in the
restaurant and catering sectors had experienced only modest (14 per cent)
growth over the years 2006 to 2011, and that wages growth comprised only a
'very small part' of the growth in expenses in an industry that had experienced
'significant growth' over the period, as illustrated by the following chart.[43]
2.43
United Voice also sought to demonstrate that wages as a proportion of
overall costs have remained stable in recent years. The following table,
supplied by United Voice, suggests that the role of wages in overall costs has
increased only 0.8 per cent in the years 2007–08 to 2010–11.[44]
2.44
This is of little surprise to the committee, given evidence it received
from the Department that:
The analysis of penalty rate provisions for modern awards
determined by the AIRC indicates that...modern awards did not introduce new
penalty rate entitlements; and penalty rates included in modern awards
generally reflected rates commonly found in existing state awards.[45]
2.45
The Department pointed to a number of examples of the similarities,
including the public holiday rate for full time and part time workers in the
Restaurant Industry Award 2010 of 250 per cent, which is identical to rates
found in state awards reviewed for that industry, except in South Australia
(which had a lower penalty rate of 200 per cent).
2.46
Another example made the point that the overtime rate in the General Retail
Industry Award 2010 of 150 per cent for the first three hours of work and 200
per cent thereafter is the same rate as existed across retail awards in all
States and Territories pre award modernisation. In NSW, Western Australia and
the ACT the higher rate was payable after 2 hours of work.[46]
2.47
Finally, DEEWR submitted that it did not consider there were compelling
reasons to depart from the current principle that penalty rates should be
provided to compensate employees for working these hours, whilst acknowledging
the detail of particular provisions in modern awards is a matter to be
determined by FWA. It is to this matter that the committee now turns.[47]
Appropriateness of infringing on
FWA jurisdiction
2.48
Many submitters considered the bill to be ill-conceived as a matter of
public policy given the overall framework of workplace relations law and an
inappropriate infringement on the jurisdiction of Fair Work Australia, an
independent tribunal established by Parliament to oversee industrial matters
such as the payment of penalty rates. With a view echoed by others, including
the SDA, the ACTU argued that:
If passed, the Bill would remove existing wages and
entitlements that have been determined by an independent tribunal established
by the Parliament for the purpose of determining such matters. The tribunal has
set (and is required to periodically review) the wages and entitlements
attacked by the Bill, following the presentation of merits-based cases by
representatives of workers and employers and consideration of all relevant
facts and circumstances. There is no basis for Parliament to override this
process for a section of the economy.[48]
2.49
The ACTU elaborated on their argument in the following way:
The powers and functions vested in FWA by the FW Act requires
the Tribunal, when it is considering any application to vary a modern award, to
undertake an independent assessment of whether the proposed variation is
necessary to meet the modern awards objective. The modern awards objective...ensures
that modern awards – taken together with the National Employment Standards in the
Act – provide a fair and relevant minimum safety net of terms and conditions.
Specifically, the modern awards objective requires the Tribunal to consider:
a. relative living standards and
the needs of the low paid; and
b. the need to encourage
collective bargaining; and
c. the need to promote social
inclusion through increased workforce participation; and
d. the need to promote flexible
modern work practices and the efficient and productive performance of work; and
e. the principle of equal
remuneration for work of equal or comparable value; and
f. the likely impact of any
exercise of modern award powers on business, including on productivity, employment
and the regulatory burden; and
g. the need to ensure a simple,
easy to understand, stable and sustainable modern award system for Australia
that avoids unnecessary overlap of modern awards; and
h. the likely impact of any
exercise of modern award powers on employment growth , inflation and the sustainability,
performance and competitiveness of the national economy.
Generally speaking, in performing its functions or exercising
powers, the Tribunal is also compelled to take into account equity, good
conscience and the merits of a matter, the need to respect the value and
diversity of the work force, and the object of the FW Act.[49]
2.50
The ACTU also reminded the committee that FWA was in the process of
conducting a 2-year review of modern awards, and that:
As part of the current 2-yearly review, FWA has convened a
Full Bench to consider 24 separate applications which seek to make variations
to penalty rate provisions in 7 modern awards, including awards which would be
covered by the Bill. Of those 24 applications, a number seek to remove or
reduce penalty rates under various modern awards. Those applications will be
heard, consistent with the aims and objects of the FW Act and the modern awards
objective. In addition to the 2-yearly review, the Fair Work Act 2009 also requires
that modern awards be reviewed every 4 years. Consistent with the scheme of the
FW Act, these reviews are the only appropriate forum for considering any reduction
in the safety net.[50]
2.51
However, some proponents of the bill considered that it was incumbent on
the Parliament to act, and took the view that:
Parliament provided the statutory mandate and instructions to
the Australian Industrial Relations Commission (AIRC) to create modern awards
under then Part 10A of the Workplace Relations Act 1996. Parliament has also
created national minimum employment standards under the National Employment
Standards. Under the Act, there is a hybrid dual safety net which is governed
by the rules set by Parliament...The Parliament now has responsibility to monitor
the effect of these rules and act when there is evidence to suggest legislative
intervention is warranted.[51]
Unintended consequences of the bill
False economy for small businesses
2.52
Some submitters identified what they saw as the potential for market
distortion brought about by the application of the bill to businesses employing
fewer than 20 employees. This point was made both by supporters and critics of
the bill. The Australian Retailers Association submitted that:
While lower rates would be of significant benefit to small
retailers, ARA can report many of its members would employ more than 20 full
time employees (FTE), in some instances in a single store. Hardware stores are
a prime example of a single store small business employing many staff and
another example would be hairdressers. There is also a concern on the limit
acting like an additional tax which would restrict a retailer from expanding
beyond 20 FTEs without having their business model impacted and could cause
them to cap expansion of their staff numbers and business. The ARA would therefore
like to ask what measures would be in place to address a retailer creating
multiple entities to work around the cap, and whether this would have the
potential of acting as a retardant for employees applying for positions in
small retail businesses or going over the road and applying for work in their
bigger, higher paying competitor.[52]
2.53
Enacting this legislation would, effectively, result in employees being
remunerated at different rates for performing the same job, for the same
duration of time. As put by one submitter:
You will create a two tier wage system and this will mean you
will have two people doing roughly the same job getting paid a different amount
of money depending on how big the business is.[53]
2.54
DEEWR saw potential for even more complexity:
...[A]n employer with employees performing functions in
industries not excluded by the provisions may have some employees entitled to
penalty rates on a particular day or time but other employees within the same
business not entitled to penalty rates as a result of the provisions. This may
result in additional complexity for the employer and may have other outcomes
such as those employees not receiving penalty rates for that day not attending
work due to the lack of compensation and the other employees being required to
perform the work of those employees.[54]
2.55
Although workers already receive different pay rates from different
employers, the bill would drastically widen this disparity. Formalising a
system wherein certain businesses pay their employees far less than others may
in fact constitute a false economy for small businesses, as the most skilled
and in-demand workers vote with their feet and seek employment elsewhere.
Larger businesses not covered by the bill will attract the best employees
through better remuneration, further disadvantaging small businesses in the
long run.
Penalty payments on public holidays
and inconsistency between legislation
2.56
The Statement of Compatibility with Human Rights attached to the
Explanatory Memorandum to the Bill indicates that the Bill is not intended to
affect the remuneration of employees for public holidays. However, the drafting
of the Bill does not differentiate between penalty payments which relate to
evening or weekend work, and penalty rates payable for work performed on public
holidays. DEEWR expressed concern that:
The Bill would prevent any consideration by FWA of whether
penalty rates would be appropriate in a particular situation. For example, the
Bill would prevent FWA from hearing submissions from all interested parties and
determining in accordance with the modern awards objective whether penalty
rates should be payable for a retail worker in a small business who is rostered
to work a on Christmas Day to stack shelves for the Boxing Day sales. The
Department submits that these are issues that should continue to be heard and
determined by FWA...[55]
2.57
The committee takes the view that the bill would be likely to have the
effect of removing penalties payable on public holidays for workers caught by
it.
2.58
In a similar vein, Unions NSW expressed concern over the wording of the
bill, which it was submitted would remove penalty rates for all workers in
retail and hospitality, even in those businesses of 20 or more workers:
The requirement for employers to pay penalty rates is included
in the relevant modern awards of retail and hospitality employees. Within these
Modern Awards, there is no variation on conditions based on the size of the
employer. As such, the wording of the Bill to ‘not include a term...’ would
effectively require the removal of the entire clause relating to penalty rates.
As such, no employee working in hospitality or retail would have an award
entitlement to penalty rates for work on weekends, public holidays, or late at
night.[56]
2.59
Unions NSW also expressed concern over what it considered to be
inconsistency between the bill and the NSW Retail Trading Amendment Bill
(The NSW Bill) that is currently before the NSW Parliament, which provides for
shops meeting certain conditions to open (and therefore roster staff) on days
on which they would otherwise be required not to trade. Unions NSW considered
that the interaction between the bills would see employees required to work on
otherwise restricted days (such as Christmas Day and Easter Sunday) without an
entitlement to penalty rates.[57]
Penalty rates immediately following the introduction of WorkChoices
2.60
During the course of its hearing in Melbourne, and following evidence
from Restaurant and Catering and DEEWR. the committee was disturbed to learn
that:
Immediately following the commencement of Work Choices on 27
March 2006, there was scope for newly established federal system employers to
engage employees on terms and conditions which did not include penalties. This
capacity applied to federal system employers that commenced operations after 27
March 2006. It was not limited to Victoria, the restaurant industry or any
particular penalty rate...In practice, many federal system employers that commenced
operations after 27 March 2006 were not bound by any award, and therefore would
not have been obliged to pay penalty rates.[58]
2.61
The committee sought further information on the number of employees who
remain engaged on terms and conditions which exclude penalty rates, and learned
that:
Modern awards cover the vast majority of federal system
employers that were not covered by a pre-reform federal award due to having
commenced trading after Work Choices. The objective of the award modernisation
process, as set out in the award modernisation request, was to create a 'comprehensive'
set of modern awards covering industries and occupations that have historically
been award-regulated. As a result modern awards, such as the Restaurant
Industry Award 2010 and the General Retail Industry Award 2010, have broad
industry coverage and can be expected to cover employers and their employees
that would ordinarily have been covered by pre-reform federal awards. In
addition, the Miscellaneous Award 2010 is expressed to cover employees who are
not covered by another modern award (excluding managerial and professional
employees who have not traditionally been award-covered, and employees in an
industry covered by a modern award who do not fall within a classification in
that award).
The Office of the Fair Work Ombudsman has reported only very
limited instances of becoming aware of gaps in modern award coverage: junior
lawyers in South Australia and the possibility that cleaners engaged by a
manufacturer to clean offices attached to the manufacturing plant may not be
covered by either the Manufacturing and Associated Industries and Occupations
Award 2010 or the Miscellaneous Award 2010 (in the case of the cleaners, there
is some doubt as to whether they were covered by a pre-modernised award).
In the Department’s view, having consulted with the Office of
the Fair Work Ombudsman and the Fair Work Commission, the award modernisation
process (which consolidated more than 1500 awards into 122 industry and
occupation modern awards) has achieved widespread coverage of traditionally
award-regulated employees, and any remaining gaps in coverage are very much
exceptions to the rule.[59]
2.62
The committee is encouraged by the Department's advice that the great
majority of instances of employees continuing to work under terms and
conditions which exclude penalty rates have been identified and brought under
the modern award umbrella where not otherwise covered. Nonetheless, in the
interests of equity, the committee recommends that the government task the
Department and/or the Fair Work Commission to provide advice on how best to
identify non-managerial and non-professional employees who continue to work
outside the coverage of a modern award, and bring them within that coverage.
Recommendation 1
2.63
The committee recommends that the government task the Department and/or
the Fair Work Commission to provide advice on how best to identify
non-managerial and non-professional employees who continue to work outside the
coverage of a modern award, and bring them within award coverage.
Non-compliance with requirement to pay penalty rates
2.64
The committee is also aware of media reports that hourly rates of $8 to
$10 are not unusual among restaurant staff in Sydney and Melbourne, in spite of
the minimum wage being $15.96 per hour. Mr John Hart, representing Restaurant
and catering Australia is reported as estimating that 'about half' of restaurants
and cafes in Australia 'opt out' of regulations such as pay rates.[60]
2.65
It was also reported that:
The Fair Work Ombudsman, which polices the industry, makes a
small number of prosecutions each year. But it is drowning in complaints and
inquiries, which last year topped 52,000. It recovered wages owed to around
1200 people working in the industry last year.[61]
2.66
The committee finds such reports deeply alarming, and explored the issue
more deeply at the Additional Estimates hearings in February 2013. Officials
from the Fair Work Ombudsman reported that:
If you look at the broad sector of accommodation and food
services, which takes in restaurant and catering, we identify it as a high-risk
industry. It makes up over 11 per cent of our overall complaints. In terms of
the actual contravention rates—so in terms of the complaints we receive and
then in what percentage do we find contraventions—we find nearly 60 per cent
contraventions. So it is certainly a sector that has our interest.[62]
2.67
On this basis, officials saw no reason to disagree with Mr Hart's
reported comments that about half of employers in the sector fail to comply
fully with relevant regulations.
2.68
It strikes the committee as being no wonder that some employers bemoan
the difficulty in achieving a reasonable return on their investment and labour,
when they face apparently widespread, unscrupulous competition employing labour
at significantly reduced rates.
2.69
When questioned on measures underway to tackle the problem, officials detailed
an active compliance program over recent years:
We have commenced a three-year campaign on what we are
calling the hospitality sector. It is a targeted campaign that will be run in
three waves. The first wave has commenced and that relates to hotels, pubs,
bars and taverns. The second wave—and we have just begun the consultation with
key stakeholders—specifically relates to restaurants. That part of the
three-year campaign—we are in our second year—has commenced and the actual
audits of the companies are expected to commence in August this year.
...
[S]ince July 2009—since the Fair Work Ombudsman came into
being—because this sector is so high risk we have actually commenced 15 campaigns
across that sector. We are continually, if you like, running campaigns in
various pockets. We believe that is one way of ensuring a level playing field.
It is a massive sector with many employers. In terms of your question about
current activities, there are some activities that have just been completed. We
conducted a campaign in the last two years through the ACT sector. We are
currently conducting compliance activities in Sydney's west. We are continually
looking at various pockets in various areas that need our attention to ensure a
level playing field.[63]
2.70
The committee commends the Fair Work Ombudsman on its initiative, and is
confident that efforts already on foot will have some positive impact.
Nonetheless, it is also apparent that the scope of the problem is very broad,
and while it would be unrealistic to expect total compliance across all
employers, the committee remains to be convinced that existing efforts will
address the problem to an acceptable level.
Conclusion
2.71
Providing for the payment of penalty rates as compensation for working
unsociable hours and weekends has been a feature of Australian workplace
regulation for almost 100 years. Industrial tribunals at the state and federal
level over time have determined and reiterated the position that penalty rates
should be provided to employees to compensate for work in these circumstances,
even as community standards about the nature, frequency and extent of working
hours have changed. [64]
2.72
Current penalty rates, as specified in modern awards, largely reflect
state awards which were in place prior to award modernisation. They are not a
new entitlement, nor do they represent a significant departure from earlier
award protections.[65]
2.73
In the committee's view, DEEWR was correct when it summarised that the
bill:
...has the potential to result in greater complexity,
uncertainty, discontent and adverse financial outcomes for employers and
employees, including as employees seek employment where they will be provided
with safety net wages appropriate for the days and times they work.[66]
2.74
Overall, the committee was not presented with any compelling evidence to
support claims that small businesses in the retail, restaurant and catering industries
are suffering to the extent that workers’ wages should be reduced. Reliable
data indicating that the viability of small businesses is at particular risk as
a result of the existence of penalty rates is similarly absent. Neither
anecdotal evidence, nor evidence from unreliable surveys, should be used to
justify a Bill which will substantially reduce the wages of some of the
lowest-paid working Australians.
Recommendation 2
2.75
The committee recommends that the Senate not pass the bill.
Senator Gavin
Marshall
Chair,
Legislation Committee
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