Penalty Rates Cut Upheld By FCAFC: SDA v The Australian Industry Group [2017] FCAFC 161

Thursday 12 October 2017 @ 11.41 a.m. | Industrial Law | Legal Research | Trade & Commerce

On Wednesday, 11 October 2017, the Full Court of the Federal Court of Australia (FCAFC) released its reasons for upholding the Fair Work Commission’s (FWC) decision to cut Sunday and public holiday penalty rates for full-time and part-time workers. In their decision, the FCAFC, consisting of Justices North, Tracey, Flick, Jagot and Bromberg, held that the legal basis for the FWC’s decision was correct and therefore, in making its review of the awards system, the FWC met its legal obligations.

Legislative Background

Under the Fair Work Act 2009 (the Act) section 156(1), “the FWC must conduct a 4 yearly review of modern awards”. As per subsection 2 of section 156, “the FWC:

  1. Must review all modern awards; and
  2. May make:
    1. One or more determinations varying modern aawards; and
    2. One or more modern awards; and
    3. One or more determinations revoking modern awards; and
  3. Must not review, or make a determination to vary, a default fund term of a modern award.


(3) In a 4 yearly review of modern awards, the FWC may make a determination varying modern award minimum wages only if the FWC is satisfied that the variation of modern award minimum wages is justified by work value reasons.

(4)  Work value reasons are reasons justifying the amount that employees should be paid for doing a particular kind of work, being reasons related to any of the following:

  1. the nature of the work;
  2. the level of skill or responsibility involved in doing the work;
  3. the conditions under which the work is done.

The other section of the Act relevant to this case is section 134, which outlines the "modern awards objective". As the review by the FWC altered the penalty rates for staff in a number of industries, it is essential that these alterations comply with the modern awards objective, as outlined in section 134. This section states:

(1)  The FWC must ensure that modern awards, together with the National Employment Standards, provide a fair and relevant minimum safety net of terms and conditions, taking into account:

  1. relative living standards and the needs of the low paid; and
  2. the need to encourage collective bargaining; and
  3. the need to promote social inclusion through increased workforce participation; and
  4. the need to promote flexible modern work practices and the efficient and productive performance of work; and
    da. the need to provide additional remuneration for:
    1. employees working overtime; or
    2. employees working unsocial, irregular or unpredictable hours; or
    3. employees working on weekends or public holidays; or
    4. employees working shifts; and
  5. the principle of equal remuneration for work of equal or comparable value; and
  6. the likely impact of any exercise of modern award powers on business, including on productivity, employment costs and the regulatory burden; and
  7. the need to ensure a simple, easy to understand, stable and sustainable modern award system for Australia that avoids unnecessary overlap of modern awards; and
  8. the likely impact of any exercise of modern award powers on employment growth, inflation and the sustainability, performance and competitiveness of the national economy.

Factual Background

The appeal to the FCAFC is in regards to the FWC’s 4 yearly review of penalty rates which decreased penalty rates for weekends and public holidays, released on the 21st of June 2017. This review held that the penalty rates as they existed did not sufficiently provide a fair and relevant minimum safety net as per the Act, s 134(1). With relevant considerations of the historical and sociological context of the awards, the FWC submitted that a reduction was necessary in the penalty rates, which would better reflect the standard of a fair and relevant minimum safety net.

“The Penalty Rates decision determined, amongst other things, that the existing Sunday penalty rates in the Hospitality Industry (General) Award 2010 (Hospitality Award), Fast Food Industry Award 2010 (Fast Food Award), General Retail Industry Award 2010 (Retail Award) and Pharmacy Industry Award 2010 (Pharmacy Award) did not achieve the modern awards objective, as they do not provide a fair and relevant minimum safety net. The effect of the Penalty Rates decision was to reduce Sunday penalty rates to 150 per cent for full-time and part-time employees in the Hospitality, Retail and Pharmacy Awards and to 175 per cent for casual employees in the Retail and Pharmacy Awards. The Sunday penalty rate for casual employees in the Hospitality Award remained unchanged at 175 per cent. The decision reduced the Sunday penalty rates in the Fast Food Award (for Level 1 employees only) to 125 per cent for full-time and part-time employees and 150 per cent for casual employees. The Penalty Rates decision also reduced the public holiday penalty rates in the above awards, as well as the Restaurant Industry Award 2010 (Restaurant Award).” at [2] of 4 yearly review of modern awards – Penalty Rates – Transitional Arrangements [2017] FWCFB 3334

By application, a number of unions applied to the FCA to seek: writs of certiorari quashing the determinations made by the FWC in its 4 yearly review; as well as writs of mandamus which would require the FWC to conduct a review of the awards under s 156 according to law.

It is important here to note that in assessing the review, the FCAFC’s role was not to review the FWC’s conclusions, rather merely to review the legal basis of the FWC’s decision to ensure that it was free of jurisdictional error. Indeed in the judgment, the Justices highlighted that “the Court may not enter into the merits of the determinations made by the Fair Work Commission”.

Legal Arguments

In the submissions made by the applicants, the unions presented a number of challenges to the FWC’s review. The main challenges were:

  • The FWC miscarried its task in conducting the review as their presented definition of a review signified that a review of modern awards under the Fair Work Act “is conditional on there being a material change in circumstances since the conduct of an earlier review”. This ground was rejected as having no legal basis with regards to legislative interpretation of s 156 of the Fair Work Act.
  • The FWC had misconstrued what was required by s 134 of the Act in a determination of a “modern awards objective”, such that they had misunderstood “relevant” in the phrase “fair and relevant minimum safety net”. Additionally it was argued that the FWC had failed to take into account relative living standards and the needs of the low paid as required under s 134(1)(a). This challenge was also rejected as the FCAFC held that the FWC’s review, read as a whole, presents no jurisdictional error in its construction or application of s 134 of the Act.


In rejecting the arguments against the decisions of the FWC to reduce penalty rates, the Full Court held that, read as a whole, the decision held no jurisdictional error.

“It would be wrong to read, for example, [885] and [886] of the primary reasons in isolation and without regard to the opening words “[f]or the reasons given” with which [885] commences.  It must be recognised that these (and similar paragraphs dealing with the other sectors) record a mental process which the FWC has carried out explaining the conclusions reached.  The mental process is explained by everything which precedes the conclusions.  The conclusions are the outcomes or results of that mental process.  The outcomes are expressed in separate paragraphs referring to “fair and relevant” in [885] and the s 134(1)(a)-(h) matters in [886].  But this is to ensure that the conclusions are logically structured.  Read in context, it is apparent that having regard to all factors it considered relevant (all of which were permissible and which included the historical context) the FWC considered that, as to Sunday penalty rates, the application of the modern awards objective as a whole required a variation of the rate in the Hospitality Industry (General) Award 2010 in the amount identified.

As such, this is not a case in which the FWC misapplied the statutory provisions.  Its description of “relevant” as meaning “suited to contemporary circumstances” at [120] and elsewhere is too narrow if it is to be read literally as meaning suited to modern circumstances.  As discussed “fair and relevant”, which are best approached as a composite phrase, are broad concepts to be evaluated by the FWC taking into account the s 134(1)(a)-(h) matters and such other facts, matters and circumstances as are within the subject matter, scope and purpose of the Fair Work Act.  Contemporary circumstances are called up for consideration in both respects, but do not exhaust the universe of potentially relevant facts, matters and circumstances.  But, as we have tried to demonstrate, the primary reasons when read as a whole amply demonstrate that the function, as in fact performed by the FWC, was not confined by reference to the criterion of contemporary circumstances.  Nor, do the reasons demonstrate that, as a criterion, contemporary circumstances were elevated or given undue priority.  This suggests that by “contemporary circumstances” the FWC may have simply meant “present circumstances” or, in other words, the circumstances at hand” at [64] - [65].

TimeBase is an independent, privately owned Australian legal publisher specialising in the online delivery of accurate, comprehensive and innovative legislation research tools including LawOne and unique Point-in-Time Products. Nothing on this website should be construed as legal advice and does not substitute for the advice of competent legal counsel.


Fair Work Act 2009, available from TimeBase's LawOne service.

Shop, Distributive and Allied Employees Association v The Australian Industry Group [2017] FCAFC 161

4 yearly review of modern awards – Penalty Rates – Transitional Arrangements [2017] FWCFB 3334

Fair Work Commission. AM2014/305 – Decisions & statements. 

Related Articles: