The penalty rates time-bomb is ticking

A looming decision on weekend penalty rates presents problems for both major parties in the lead-up to Australia’s federal election. The Fair Work Commission seems likely to hand down its decision in the controversial case soon after the federal election.

Nobody knows what the commission’s decision on penalty rates in the retail and hospitality industries will be. There seem to be more tea-leaf readers predicting it will cut Sunday penalty rates to match Saturday rates than who think it will make no changes.

If so, employer organisations would be happy, but many retail employees will be worse off. Pressure would grow for cuts to penalty rates elsewhere.

The commission president’s request for submissions on whether some employees should be given a right to refuse to work on Sundays, perhaps as a trade-off, has added to the confidence of the former group of tea-leaf readers.

The Coalition dilemma

For the Coalition, the debate is a reminder of the disastrous political consequences of over-reach in industrial relations. A decade ago, it introduced the WorkChoices legislation, frequently touted as costing the Howard government the 2007 election. The main way in which it had affected workers’ pay was through allowing employers to reduce penalty rates, overtime pay and shift allowances below the award safety net.

Voters overwhelmingly support the retention of penalty rates. It doesn’t follow that this alone would change their votes, but the “Your Rights at Work” campaign showed the potential salience of the issue.

Prime Minister Malcolm Turnbull has described the reduction of penalty rates as inevitable. While his predecessor, Tony Abbott, was renowned for an extremely conservative social philosophy, he was one of the few ministers at the time of WorkChoices reported to be hesitant about its direction. While Turnbull was not in the cabinet then, there is little evidence of his being less enthusiastic than Abbott about lowering pay or conditions.

The enthusiasm of Coalition members has not waned. But it must be done without cutting pay below the safety net. And it must be done in a way that enables the government to avoid blame.

That is why so much Coalition hope rests with the Fair Work Commission in this case. It’s partly why it asked the Productivity Commission to review the workplace relations framework. The Productivity Commission’s recommendations to cut penalty rates attracted more attention than any other aspect of its report, though some parts proposed more radical changes. Employers submitted the report to the Fair Work Commission case without the authors being cross-examined.

When the government commissioned the report, it anticipated it could promise major changes to employment relations at the 2016 election. The Productivity Commission would provide critical “third-party endorsement” for radical change.

But the polls went south for the government, and now it faces a choice: announce a radical policy and risk voters’ wrath; or announce a mild policy, frustrate employers and hope voters have forgotten that the mild policy it presented in 2004 morphed into WorkChoices after that election.

The issue is so politically sensitive for the government that it declined to make a submission to the penalty rates case. Yet it cannot stay silent until the election.

There is, however, another pathway to satisfying corporate demands. In response to the 7-Eleven scandal, the Coalition recently announced increased powers for the Fair Work Ombudsman to compel answers to questions. Lacking detail, this hasn’t attracted much attention yet. However, unless the government guarantees otherwise, those increased powers could also be used against workers.

This is not a mere theoretical possibility. Recently, the ombudsman launched investigations into journalists who walked off the job after Fairfax announced more redundancies.

One danger of using “union corruption” as the rationale for increasing the powers of the Australian Building and Corruption Commission was that it could be used to justify eventually extending the use of coercive powers to all industries. Increasing the ombudsman’s coercive powers could be another way of doing that.

The Labor dilemma

The Labor Party, on the other hand, made a submission to the Fair Work Commission case. The main purpose might have been to embarrass the government by consolidating the many instances of Coalition support for cutting penalty rates. Labor did, however, argue against cuts to penalty rates.

That was the easy part. Labor is under pressure from unions to promise something more concrete – in particular, legislation to protect penalty rates, as the Greens propose.

Labor hesitates to commit to legislative action. This is partly because it does not want to appear to be undermining the “independent umpire”, which legislation would do. Yet Labor’s own Fair Work Act created a set of legislative obligations, the National Employment Standards, on matters that had been the sole prerogative of the Fair Work Commission.

Still, setting a precedent for legislative determination of penalty rates could also be used by the Coalition to opposite effect.

More valid would be concern about what legislation would do. Different awards set different penalty rates. This means that a single legislated formula for penalty rates would leave some workers better off and some worse off than at present.

The creation of national “modern awards”, which replaced a variety of inconsistent state awards, did precisely that. Both unions and employers screamed they were worse off, cherry-picking different effects.

It’s a complexity Labor would like to avoid.

If legislation were to avoid greater rigidity than the current system, it would need to allow enterprise agreements to override legislated penalty rates if employees were better off overall, which the National Employment Standards do not allow.

Alternatively, legislation could entrench existing penalty rates (either by directly referring to modern awards, or by a detailed legislative schedule). But such legislation could not be passed before the commission brought down its decision in the current case.

So, legislation may need to lock in penalty rates that existed before the current case. That would undermine the idea of regular reviews of modern awards and the “flexibility” that allowed, which would worry a number of Labor policymakers.

Another approach would be to highlight penalty rates in the Objects of the Act. But that would still be no guarantee current levels would be maintained, and would not affect the current case.

So legislation is feasible, but it’s not easy.

In the meantime, Labor has committed to intervening in the case after the election, to support penalty rates.

Here it follows a precedent set by the Whitlam government. Then, Labor intervened in the 1972 equal pay case immediately it was elected, after submissions had closed. Days later, the commission issued one of its most famous decisions, endorsing a broader interpretation of equal pay.

Since then, the Commonwealth’s reopening of the case has been lauded as critical in its success. Whether this was really so is impossible to know. But it showed the possibilities, and the symbolic value, of such actions.

Who’s in the hottest seat?

The lack of employer outrage at the increased powers of the Fair Work Ombudsman to investigate corporations at the top of franchise chains might mean they have been given a nod and a wink that all will be OK.

But voters want more. As the election draws closer, the government must play its hand on penalty rates and its response to the Productivity Commission review that it requested.

Labor has already played its hand. In some ways it is a bet each way. But the delegation of part of industrial relations policymaking to third parties holds more risks for the government than for Labor.