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By Alex Millman and Justine Ansell, NRA Legal

The union challenge to the Fair Work Commission’s decision to cut penalty rates in the retail, fast food and hospitality sectors wrapped up yesterday, with the Federal Court reserving its decision to be handed down at a later date.

With five judges, approximately a dozen barristers, and nearly twice as many solicitors present in Court 6K at the Owen Dixon Commonwealth Law Courts in Melbourne, all parties were quite clearly taking the challenge seriously.

The opening case for the unions, presented by Mr Herman Borenstein QC, argued that the Fair Work Commission had misunderstood the task assigned to it under the four-yearly review of the modern awards.

The union case

Firstly, Mr Borenstein took the Court back to the Fair Work Commission’s benchmark, which was the presumption (determined at the commencement of the review process in 2014) that the modern awards met the modern award objective (set out in section 134 of the Fair Work Act 2009) at the time they were made.

Mr Borenstein went on to argue that, for this presumption to have any meaning and for the reasoning of the Commission to be consistent, the only reasonable basis for the Commission to change the terms of the modern award was if a ‘material change in circumstances’ had occurred between the time the modern award was made and the time of the review.

In this sense, Mr Borenstein argued, the Commission had failed to take an extra step which was implicit in the notion of a ‘review’ to determine whether a material change in circumstances had occurred.

Secondly, Mr Borenstein then argued that in addition to this, the Commission had erred in how it defined ‘relevant’ in the modern awards objective, deciding that this term meant ‘suited to contemporary circumstances’.

Section 134 of the Fair Work Act, Mr Borenstein argued, required that the modern awards were to be ‘fair and relevant’ taking into account a list of finite factors specified in the Act. ‘Contemporary circumstances’ was not one of these factors, and to that extent the Commission had committed an error of law.

Thirdly, Mr Borenstein argued that the Commission had failed to take into account the ‘relative living standards and the needs of the low paid’ as it was required to do under the Fair Work Act, noting that the Commission had made a decision which was contrary to the needs of the low-paid.

The Bench quizzed Mr Borenstein heavily on this point, noting that the Commission was only required to ‘take into account’ the needs of the low-paid; it did not prevent the Commission from making a change which was detrimental to the needs of the low-paid if other factors counter-balanced that issue.

The Bench also observed to Mr Borenstein that the Commission had in fact gone to great lengths to consider the needs of the low-paid, and had expressly acknowledged that the needs of the low-paid were a factor against reducing penalty rates.

Fourthly, Mr Borenstein argued that the Commission had not discharged its full obligation; going through the decisions of the Commission with a fine-tooth comb, he identified that whilst the Commission repeatedly referred to the ‘needs of the low-paid’, it rarely referred to ‘relative living standards’, the other element of the criterion. In this sense, the Commission failed to consider at least one of the criteria which is was required to do.

Also in this respect, the Commission was in error by delegating its concerns about the ‘needs of the low-paid’ to the annual wage review, or in the alternate by deciding that any effect would be mitigated by amorphous, as-then-unknown transitional provisions.

Finally, Mr Borenstein asserted that the determination of the Commission to reduce Sunday and public holiday penalty rates was so unjust and unfair that it was manifestly in error.

The industry case

The retail, fast food and hospitality industries were represented by their peak industrial associations.

The National Retail Association was represented by Mr Andrew Herbert of Counsel, instructed by Mr Alexander Millman of NRA Legal.

The industry groups, presenting a united front, argued that the application by the unions ultimately required the Fair Work Commission to insert additional requirements into the Fair Work Act that were simply not there.

Moreover, the Commission had clearly given deep and agonising thought to the needs of the low-paid, far from ignoring it as claimed by the unions. The process of considering the needs of the low-paid consumed almost 600 pages of published decisions, and to say that this ‘ignored’ the needs of the low-paid was patently incorrect.

Mr Herbert argued on behalf of NRA that the union’s argument that a ‘material change’ was needed before a change to the award could be contemplated ignored the Commission’s duty to ensure that the modern awards were ‘fair and relevant’.

Mr Herbert noted that on this basis, if the Commission was convinced – whether because of better evidence, a better argument, or both – that the modern award was not ‘fair and relevant’, the Commission may by the union’s argument be required to do nothing, as there was no ‘material change’ in anything but the material put to it for consideration.

Mr Herbert argued that this was anathema to the Commission’s overriding duty, in exercising its modern award powers, to ensure that modern awards were ‘fair and relevant’, and therefore the union’s argument made no logical legislative sense.

Mr Herbert also argued that the Commission had in no way delegated any of its responsibilities under the review process; rather, it had gathered that liability to itself, although it noted that the needs of the low-paid were also addressed by other mechanisms of the Commission.

Where to from here?

The Court reserved its decision to allow it to fully consider all the written and oral submissions put to it.

Ordinarily decisions take some time, particularly with five judges needing to make their own deliberations, however given the nature of the case NRA expects that the decision will be given sooner rather than later, likely at some time in October.

If the unions are unsuccessful, it is open to them to appeal to the High Court; whether they choose to do so remains to be seen.

Even if the union challenge fails, industry faces additional worries in the form of Parliament, with five Bills before the House of Representatives seeking to legislate the penalty rate reductions away.


NRA will continue to make submissions on these matters and represent the interests of our members.

If you have any questions about the Penalty Rates Case, members are welcome to contact Alex Millman directly at [email protected].