The Penalty Rates Cuts: Everything You Need to Know


The following is a very detailed analysis of the political economy of the Australian Fair Work Commission’s cuts to the minimum wage in retail and hospitality. It was written by Janet Burstall, my comrade in Workers’ Liberty. For the main Workers’ Liberty website, click here. The original article Janet wrote is posted here.

This article is intended primarily to inform Australian readers and bring them up to speed on the economic situation about the minimum wage cuts.


The Fair Work Commission’s Cuts

Penalty rates included in the awards for Hospitality, Clubs, Restaurant, Fast Food, Retail, Pharmacy workers will be cut for Sundays and Public Holidays by between 25-50%. The larger cuts are to the pay of non-casual retail and pharmacy workers, from double-time to time and a half, chiefly benefiting the bottom line for the large retail employers. Fast food workers remain the worst off, with Sunday penalty rates cut to Saturday level. The cuts to Public Holidays take effect from July 2017, with possible “transitional arrangements” for Sundays. The Fair Work Commission will hear this in May 2017.

The Restaurants award was not cut to the same extent in this decision because Sunday loadings had already been cut from 175% to 150% in 2014. Full and part time (non-casual) workers, in retail and restaurants, will feel the pressure to take on extra hours to make up for their lost pay, and employers will have an incentive to take those hours away from casuals who retain higher penalty rates.

The SDA Victoria estimates “that every year more than $1 billion dollars will be ripped from the pockets of Australia’s retail and fast food workers.” While the cuts apply only to awards, not enterprise bargaining agreements, as the SDA Victoria acknowledges “employers will use these cuts in penalty rates in negotiations for new agreements.”

And the Winners Are…

The two top Australian companies by annual revenue in 2016 are Wesfarmers at $66.2 billion and Woolworths at $58.6 billion, ahead of 3 major banks next on the list (IBISWorld).

Whilst Wesfarmers and Woolworths are known for their retail brands, both have significant liquor and hospitality investments, including poker machines and gambling. The SDA had already made agreements with Coles and Woolworths that have cut penalty rates even further than the Fair Work Commission. The FWC penalty rates decision further strengthens Coles and Woolworths to continue the downward pressure on take home pay.

Wesfarmers claims to be the largest private sector employer in Australia, paying around 220,000 people who spend their time working for Wesfarmers, over $8 billion a year, only 4 times the total of $2 billion paid to shareholders. Employees are paid on averages less than $36,400 a year. The 530,000 shareholders are paid on average almost $3,800 a year each just for owning shares, (Wesfarmers Annual Report 2016) and we can be sure there are many shareholders with well above average holdings. Woolworths employs over 205,000 people, with 111,000 of these in “stores, distribution centres and support offices.” Woolworths took $1.5 billion revenue from hotel investments in 2016. (Woolworths Annual Report).

According to newspaper reports, “Citi Research analysis shows cutting penalty rates would boost shareholder earnings by 8 per cent for Myer and JB Hi-Fi and 5 per cent for Wesfarmers.” It also shows that in November 2016 “most of Australia’s ASX-listed retailers have expired enterprise agreements. Those with expired agreements included Big W, Bunnings, Coles Supermarkets, JB Hi-Fi, Just Group, Kmart, Myer and Target…”The reason most retailers have expired EBAs in our view is the hope that wage reform will be implemented lowering penalty rates,” the Citigroup report says.

Franchising in the fast food and hospitality industries makes it more difficult to identify the size of operations for companies such as Retail Food Group, Bakers Delight, Pizza Hut and Dominoes, all covered by the SDA. Casinos are the largest single site employers in the hospitality industry, and covered by United Voice.

The proportion of employees working weekends has grown since 2008 in hospitality from 58.6% to 60.8%, and in retail from 44.4% to 47.6%. This compares to the proportions across all employees growing from 25.9% to 276.5%. The penalty rates cut is targeted to benefit employers and penalise workers in the industries that pay the most in penalty rates.

The Squeeze

In 2011 The Productivity Commission found a “long-term downward trend in the growth rate of retail sales” largely because of cheaper goods. The PC quotes research showing that larger retail firms in Australia have historically enjoyed relatively high returns on shareholders’ funds” and that labour productivity growth in retail is similar, on average, to that of the rest of the Australian economy. However retail grew more slowly than overall gross domestic product between 2003-2013. And the level of productivity in the retail industry remains lower “in terms of output per hours worked …than most OECD countries.” Growth in all but 2 categories of retail ranged between 1.2% and minus 2.1% between 2003-2013. The higher growth was in clothing, footwear and personal accessory retailing at 2.5%, and in non-store retailing (mainly online) at 17.6%.

In January 2017 Fairfax Media reported on “confidential supermarket scan data” illustrating “how dire the outlook might be for the Australian grocery sector, and how aggressive discounting has pushed Coles and Woolworths down a road of mutual profit destruction.”

This competition between companies in the retail industry is being taken out on both farmers, with intense downward pressure on prices, and on retail workers, with intense downward pressure on wages. You can be pretty sure that it is not the corner store that drove the Fair Work Commission decision to cut penalty rates.

The Unions

The workers whose take home pay will be cut are covered by the unions that are parties to the relevant Awards, the SDA (Shop, Distributive and Allied Employees’ Association), United Voice, Meat Industry Employees Union, and Professionals Australia (representing employed pharmacists).

The most visible union campaigning against the penalty rates cuts has been petitioning and signing up to a “Save our weekend” campaign, driven by United Voice.

The 230,000 member SDA has been complicit in eroding penalty rates, despite officials claiming to defend them. In September 2013 its website announced a “massive defence of penalty rates and overtime.” But 4 months earlier in May 2013 the SDA had already struck a template enterprise agreement with Business SA which abolished Saturday penalty rates and reduced Sunday penalties. And in August 2016 “ Fairfax published a massive investigation revealing that the SDA had cut deals with some of the country’s biggest retail and fast-food chains that left more than 250,000 workers being paid below what they’re worth.” Agreements with Woolworths, McDonald’s and Coles have since replicated the trade off of penalty rates. The SDA claimed that the deal offered higher base rates of pay, guaranteed annual pay rises and improved rostering and shift breaks, but it left many employees worse off.

After unsuccessful attempts to reform the SDA from inside, a group of dissatisfied members worked with Josh Cullinan to form a new union: “The Retail and Fast Food Workers Union” (RAFFWU) in November 2016. Josh Cullinan reacted to the February 2017 penalty rates cut. “Workers at the major retail and fast-food outlets have already had these penalty rates cut. That’s half a million workers out of the fight. We don’t think the Commission could have cut rates today if those 500,000 workers were in the fight.”

Meanwhile the SDA and the trade union movement are calling on Malcolm Turnbull to “intervene[e] immediately to protect take home pay and then review… the laws that have led to this decision.”

Labour councils and the ACTU officials are speaking out against the penalty rates cuts and organising public meetings. Daniel Andrews announced a parliamentary inquiry in Victoria into the changes to penalty rates, and said the Labor government will be looking at ways to protect “thousands of Victorians from these attacks on their living conditions.” Bill Shorten is proposing a private members bill to stop the FWC cuts being implemented. It won’t get through the House of Representatives. The Save Our Weekend lobbying campaign, a partnership between United Voice and peak union bodies, is aimed at the next election. Given Labor’s record on replacing Work Choices with Work Choices Lite aka the UnFair Work Commission, a political campaign will not be enough to win back penalty rates.

The driving force behind these cuts is the large corporations that benefit from them, and there is no way to win without taking on those employers, by demanding restoration of penalty rates in enterprise agreements. There are many EBAs that have already expired or expire shortly.

However, the SDA leadership is incapable of this, United Voice may not have the confidence, RAFFWU doesn’t have the membership base, and Professional Australia membership is less concentrated and perhaps less likely to have enterprise agreements. The Meatworkers have stood up in large meat processing plants in the past, but there is no obvious sign that they have been able to take on the retail giants.

The power to win back full penalty rates is industrial. The affected unions should organise for enterprise agreements that include the old level of penalty rates, and that withdraw previous clauses that traded off penalty rates. The leaders of peak union bodies, and all left trade unionists should be organising and looking for ways to make this happen, despite obstruction by individual union leaders. This includes exploring how to support the efforts of RAFFWU to overcome the sellouts by the SDA leadership.