3 things to think about in the Penalty Rates Case

The Fair Work Commission review of penalty rates in the fast food and general retail sectors – it rejected any change - has thrown into relief a number of issues that have failed to be addressed. We provide our views on some of them here.

Issue 1 - International Competitiveness

The unions argued that the overall economic situation of the retail industry remains very strong and there is no evidence of structural change impacting upon these considerations.

Our Commentary

Competition in the retail sector has been steadily increasing, and the consumer is demanding greater flexibility in opening hours. 2011-12 was a particularly bad period for sales with major retailers cutting staff to remain profitable. As well, there has been a shift in retail spend to online sales and big barns with fewer staff, for example, Ikea, Bunnings, Aldi, and so on.

The Productivity Commission (PC) pointed out in a 2011 report that growth in retail sales has experienced a long-term slowdown due to changes in consumer buying habits. Consumers are choosing to spend less on retail goods, are saving more and spending a greater share on services. For many Australian retailers, wages are growing at a faster rate than the price of goods, the ratio of labour costs to sales is high compared to the United States and United Kingdom, and these higher labour costs are being passed onto consumers.

According to the PC report: “Part of the explanation for the lower total labour costs to sales ratio overseas appears to be higher labour productivity, which in turn is influenced by capital investments and the adoption of workplace flexibility initiatives, amongst other factors.”

So we have a situation where the consumer is paying for higher labour costs at a time when overall retail spending is in decline, and the internet is making consumers increasingly price sensitive.

Issue 2 - Our Changing Society

The unions argued for no changes to penalty rates. They asserted that penalty rates are a reward for working unsociable hours, and help to compensate employees who are lowly paid.

Our Commentary

Employers argued penalty rates are a throwback to a previous era, where retail opening hours were closely regulated, where competition for the consumer dollar was low, and a cultural stigma attached to working on a Sunday. They said this was no longer the case. Most people are too busy to shop between 9 to 5 on weekdays, and after hours and weekend shopping has become the new ‘normal’. They also said employees are looking for greater flexibility in working arrangements, including the opportunity to work evenings and weekends.

In our view, the nature of our society has changed significantly since the 1970’s, but our award system still seems rooted in that era. We need an openess to change to reflect our changing society.

Issue 3 - Legalistic Approach

The FWC are requiring employers to produce direct evidence of the link between penalty rates and employer behaviour and practice. For example, they want evidence that lower penalty rates will translate into more jobs and provide greater flexibility to employees.

Our Commentary

The current quasi-judicial approach taken in the review of awards should be replaced by one of genuine inquiry. The FWC needs to get out to the workplace and find out what is happening by talking to workers and employers, instead of being fed very selective information by unions, lawyers, advocates and paid consultants. One thing it will find is a dual economy - those employers who play by the rules and pay legal rates, but also many who cannot afford to, do not know how to, or the many who choose not to.

The employer case was woefully under-funded compared to that run by the unions, and was actively supported by relatively few employers, despite its importance for their businesses. A lot of evidence put forward was either ruled out or ruled irrelevant. It is ironic that the unions ran a concentrated, well-planned campaign presented by legal counsel, while the employers generally muddled through with a diverse range of employer association representatives who weren't well supported by their employer members.

So much for business supposedly having all the economic power!
 

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