Submission 167 Australian Council of Trade Unions Workplace Relations Framework Public inquiry

“The sky is falling”

Under this popular tabloid theorey, the creation of modern awards has reduced workplace flexibility, pushed up labour costs and forced employers to close their cafes and shops on weekends. The argument concerning flexibility, relevantly in relation to working hours, has been debunked in chapter 4. Whilst it is true that some penalty rates, wages and other payments increased for some employers as a result award modernisation, they reduced for many others and all changes were phased in over a five year transitional period during which the minimum wage rates by reference to which penalty rates are calculated drifted further and further below average earnings and during which the labour share of income both generally and specifically in the targeted retail and hospitality industries continued to decline²⁸⁷. At the same time, employment in those industries grew²⁸⁸ as did the proportion of gross operating profits to total income²⁸⁹ and the growth in turnover in cafes, restaurants and takeaway food services exceeded 30%.²⁹⁰

The result is that, if one is to consider the relative benefit of penalty rates compared to the situation that pertained prior to WorkChoices and the FW Act, many of the workers in receipt of the penalty rates that are now “in the gun” are by some measures worse off in relative terms now than was previously case, and they in any event are working off a very low base. Research shows that the most vulnerable employees rely on penalty rates to make ends meet. These employees include the low paid, women, and those in regional/rural areas. Close to 40% of the Award dependent workforce is employed in two industries – Accommodation and Food Services and Retail Trade. Within those industries workers are highly award dependent, yet these are the industries where the loudest critics of penalty rates reside. A fact that rarely features in the debate is that even mid-senior levels of workers in those awards - such as Retail staff with some management responsibility, Cooks, Bar Staff, Front of House Staff and Waiters in Fine Dining Restaurants – have rates of pay that mean they would still receive less than Full Time Average Weekly Total Earnings even if they worked a full time week at double time for every hour worked²⁹¹.

In the recent Restaurant Industry Award decision²⁹², the Full Bench of the FWC said:

“The current level of penalty payments is a very important component of the income of employees who receive the penalty payments. Many employees are paid at or around the award level, work on a casual or part-time basis and have significant unpaid responsibilities. The penalty payments supplement the base wage rate and allow the employees to receive an income for the hours worked greater than the amount they would receive for working on other days of the week. For a large proportion of the restaurant and catering industry workforce the income they receive for working on Sundays on penalty rates allows them to combine their work with other responsibilities. For this group of employees a reduction in Sunday income would alter the current balance and require changes of one sort or another to deal with this changed circumstance. The changes may include working longer hours for the same rate of pay or seeking additional work. The changes necessary to strike an appropriate balance may well have an adverse impact on their ability to undertake their other unpaid responsibilities to current standards.” (References omitted) (Emphasis added)

In turning to the economic effects of the penalty rates in that industry, the Full Bench said:

“There is no evidence that the introduction of the modern Restaurant Award in 2010 had any discernible effect or “shock” upon employment growth in the restaurant industry….

Profit margins in the restaurant industry are relatively low, and there is a relatively high rate of business failure. This is in major part a function of an industry which is intensely competitive, is made up of predominantly small businesses, contains an oversupply of businesses and has low barriers to entry….

There are clear examples in the history of industrial regulation of the restaurant industry in which weekend penalty rates have been abolished or reduced, but no evidence was forthcoming to demonstrate that this had discernibly positive effects in terms of turnover and employment. The Deputy President, correctly in our view, pointed to the period 2006 to 2010 in Victoria when restaurant operators not bound by the then-applicable federal award were not required to pay any penalty rates at all as providing an opportunity to test empirically what the business and employment effects of a removal of penalty rates would be. However, no evidence was called at first instance from any restaurant operator in Victoria, and the evidence did not otherwise touch upon this period. There was another historical opportunity which we can identify. Prior to the Work Choices period commencing in 2006, restaurants in New South Wales were largely regulated by an award of the Industrial Relations Commission of New South Wales, the Restaurant &c., Employees (State) Award. In 1996, the NSW Commission (Marks J) heard and determined various applications, including an application from the Restaurant and Catering Association of NSW and other employers, in respect of that award. The employers’ application sought amongst other things a reduction in weekly penalty rates. In the Commission’s decision issued on 23 August 1996, it was determined that the Saturday penalty rate should be reduced from 50% to 25% and the Sunday penalty rate reduced from 75% to 50% (with casual employees receiving casual loadings in addition). On the employers’ case presented before the Deputy President, that change should have increased turnover and employment in the NSW restaurant industry. But there was no evidence that was actually the case.

There was some limited evidence in the proceedings below which suggested that reductions in weekend penalty rates did not produce the business or employment benefits to the extent contended for. As earlier stated, the result of the commencement of the Modern Award was that in some States penalty rates were reduced. The clearest example of that was South Australia, where the Sunday rate for permanent employees was reduced from 100% to 50%, and for casuals from 120% to 75% (including the casual loading). This was partially offset by an increase in the base rate upon which these penalty rates operated, but notwithstanding this the actual hourly Sunday rate for a Food and Beverage Attendant Grade 2 under the Restaurant Award is lower in dollar terms as at the date of this decision than it was for the equivalent classification in the pre-existing instrument in late 2008, and significantly lower in real terms. However, none of the South Australian restaurateur witnesses identified that any benefit had accrued to them from this, or that it had any effect on the number of staff employed on Sundays.“²⁹³ (References removed) (Emphasis added)

Many employees who receive penalty rates are low paid, they are disproportionately dependent upon minimum pay rates and they use their penalty rates to top up their wages to a reasonable level. Paying existing employees lower penalty rates than they currently receive means that they will be significantly disadvantaged, and may need to work additional hours to receive the same income in order to make ends meet which could come at the cost of their engagement in other pursuits which are social desirable (such as participation in education or providing care).