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History of Penalty Rates in Australia

Question:

Discuss about the Penalty Rates of Coles Supermarket.

In 2016, the Fair Work Commission (FWC) passed a landmark ruling refusing to approve an enterprise bargaining agreement that would see 78,000 employees at Coles Supermarket disadvantaged due to penalty rates that were lower than the Industry Award recommended rate. The industry rate was set at 200% while Coles’ agreement proposed a 150% rate. Despite the ruling, the Supermarket chain declined to adhere to the FWC’s requirement. The study aims to identify the legitimacy of Coles Supermarkets’ position and outline an amicable solution to the issues raised by employees. It is important to note, however, that in 2017 the industry rates were reviewed to 150% by the Commission. The effect of these changes will also be highlighted by this research.

Review of Literature

Penalty rates have a long standing history in Australian labour relations; the Commonwealth Court of Conciliation and Arbitration (CCCA) in 1904 set out minimum terms and conditions which required employers to pay penalty rates in certain industries (Steegstra, 2016, p. 15). There were two underlying principles at the time that led to the adoption of these rates. Firstly, was to compensate employees for work done outside ordinary hours or in excess of the ordinary work week. Secondly, they served to deter employers from taking advantage of employees. Guided by this principle and the CCCA guidelines, Higgins J in 1909, awarded a pay rate of time and a quarter for work done on Sundays or Public Holidays (Barrier Branch of Amalgamated Miners Association v Broken Hill Pty Company Ltd, 1909).

This position was reiterated by Drake-Brockman J in 1932 where he held that the purpose of these rates was to compensate employees who had to work outside ordinary hours and to penalise employers and discourage others from having employees work at these times (Commonwealth Railways Commissioner v Australian Workers Union, 1932). This reasoning is believed to emanate from the Australian culture that would rather people not work than to work and have low pay (Coleman, 2016, p. 138). The community at the time was more family-focused and as such employers had to pay for limiting the opportunities that employees has to interact with their loved ones (Taylor, 2014).

Recently there seems to be a shift from these principles; in 2005 Philip Lewis argued that there was a negative correlation between employment and wages. According to him, the minimum wage made it difficult for firms to employ more workers and maintain profits at the same time. He believed lower wages made it possible for businesses to hire and pay more workers (Lewis, 2005). The Fair Work Commission seems to have adopted a similar view in the recent past, although it still upholds the payment of penalties, the commission has begun to see the rates as too high. In 2014 the commission reduced the penalty rates payable to casual restaurant staff who worked on Sundays from 75% to 50% arguing they were overcompensation (Maguire , 2014).

Inefficiency, outdatedness and international competitiveness are the arguments raised in the case against penalty rates. With regard to inefficiency Cole (2016) avers that opponents have argued rates have increased costs to businesses operating outside ordinary hours; they reduce profits and increase government cost thus reducing demand for labour. However, the increase in incomes through the rates serves to increase consumer demand and build economic growth (Economics & Cole, 2016, p. 16). A 2014 AWALI survey indicated that employees would rather work ordinary hours than the unsociable hours thus quashing the out of date argument (Skinner & Pocock, 2014, pp. 2-3). Internationally, Australia has the highest minimum wage and most controlled wage system; it also surpasses its comparators with regard to GDP (Economics & Cole, 2016, p. 17).

Shift in Principles and Arguments Against Penalty Rates


It is notable, as Coleman (2016) outlined, that no other country, comparable to Australia, has legislated national wage standards and tribunal-influenced wages (2016, p. 133). In the UK, where there is a well-established union movement, there are no specific legal provisions for the payment of penalty rates, employees and employers are open to creating their own agreement. This is however guided by the National Minimum Wage rates. In the US, there are no statutory provisions for penalty rates; the Fair Labour Standards Act (FLSA) does not require extra payment for employees working at night or during the weekend (Suchecki, 2017).  However, some states have adopted shift differentiation systems with a 50% loading rate for Sundays. As such, penalty rates are more common and much higher in Australia than other comparator states (Coleman, 2016, p. 139). Organisations that pay the rates, even where not required, are driven by the belief that the payment boosts productivity; where rates are in place, due diligence dictates that businesses adhere to these guidelines.

Conceptual model. Main (2015) believed that the earlier position on penalty rates was guided by moral principles and Marxist ideologies. It was their belief that longer working hours meant more exploitation of workers; exploitation in that they only get a portion of the wealth they produce. The relationship between employers and employees is guided by Contract Law to the extent that they are bound by an employment contract which bestows on both parties certain rights and obligations (Gibson & Fraser, 2013, p. 949). As such, employers are expected to pay for services offered; this payment in Australia is guided by certain provisions of the Fair Work Act 2009 which include penalty rates. Employers, therefore, are bound by contract and by law to pay them. Additionally, as an agreement entered into in good faith, Business Ethics principles dictate that firms should uphold such an agreement in exercise of their duty of care and due diligence towards employees. However, these agreements are subject to the Better-Off Overall Test (BOOT) which will be relied on as well to determine Coles’ culpability.

The methodology employed in this study will rely on a variety of literature to identify key information as to the significance of penalty rates and best practice principles that can be adopted by Coles Supermarket to mitigate the issue with its employees. The study will rely on secondary sources; that is, academic books, reports, government policies, explanatory notes, and articles regarding the subject matter. The search strategies adopted will be modelled from the sources in question; for government sources known item, subject, agency, statistical and special technique search strategies will be considered (Sears & Moody, 2001, p. 5). Keyword and phrase searches will suffice for other relevant information. The tools to be used will include catalogues, bibliographies, libraries and web search engines. The reason for adopting this methodology is that it saves on time, additionally, technological advancements make it simpler and cheaper to use; it also offers a wide variety of sources.

In conclusion, the objective of this study is to provide a suitable solution to Coles Supermarkets Group with regard to the penalty rates issues it is facing with its employees. Guided by the literature above, the study will consider the history and purpose of the policy regarding penalty rates; this is aimed at determining why Coles Supermarket should pay penalty rates in the first place. The study will also look into the development of this position into what it is today; the current opinions held on penalty rates and the arguments for and against them. Using the principles identified in this literature, the research will determine whether Coles Supermarket has a legitimate cause. However, it is important to note that the policies relied on by the Fair Work Commission at the time of the ruling in 2016 have since changed as evidenced by the 2017 penalty cuts and these changes provide new opportunities for the Supermarket to revise its enterprise bargaining agreement upon expiration.

References

Barrier Branch of Amalgamated Miners Association v Broken Hill Pty Company Ltd, 3 (CAR 1909).

Coleman, W. (2016). Only in Australia: The History, Politics and Economics of Australian Exceptionalism. Oxford: OUP.

Commonwealth Railways Commissioner v Australian Workers Union, 31 (CAR 815 1932).

Economics, E., & Cole, M. (2016). The Importance of Penalty Rates for Our Health Workforce: The economic & health benefits of cutting penalty rates. McKell Institute.

Gibson, A., & Fraser, D. (2013). Business Law 2014. NSW: Pearson Higher Education AU.

Lewis, P. (2005). Low pay or no pay? Policy, 14-20.

Maguire . (2014, May 19). Sunday Penalties for Casual Restaurant Staff Reduced. Retrieved from Maguire Consulting: https://maguire.com.au/news/er-updates/sunday-penalties-for-casual-restaurant-staff-reduced#.WOaqR8klHIU

Main, A. (2015, October 20). Penalty rates: The logic behind the extra pay. Retrieved from Socialist Party Australia: https://www.socialistpartyaustralia.org/archives/7824

Sears, J. L., & Moody, M. K. (2001). Using Government Information Sources: Electronic and Print (3rd ed.). Oryx Press.

Skinner, N., & Pocock, B. (2014). AWALI 2014- The Persistent Challenge: Living, Working and Caring in Australia 2014. Centre for Work+Life University of South Australia.

Steegstra, E. (2016). Who's Paying the Penalty?- An examination of the historical & legal basis of penalty rates and consideration issues relating to their retention. RMIT LSS Law Journal, 15-21.

Suchecki, P. M. (2017). Might Shift Workers Rights. Retrieved from Chron: https://smallbusiness.chron.com/night-shift-workers-rights-67153.html

Taylor, M. (2014). Why Penalty Rates? Retrieved from QORF: https://qorf.org.au/industry/resources-master/industrial-relations/penalty-rates/

Cite This Work

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