The Informant: Issue 2

Throughout the past twelve months there has been an enormous amount of media and public discussion about penalty rates. With a long election campaign having kicked off we can expect the issue to ramp up further over the next two months.

FCB has been acting for the retail industry in its pursuit of a reduction in the Sunday penalty rate for retail workers. Retail currently pays a double time Sunday penalty rate, which is out of step with other service industries, who are generally paying time and a half or time and three quarters. Retailers will let employees who are currently receiving the double time penalty reconsider whether they want to continue to work under a lower penalty rate.

This has been one of the most significant industrial cases of the past decade. If the industry is successful it will fundamentally change the way retailers operate on Sundays and by extension the way consumers access retail stores on Sundays.

Getting the industry together

In February 2014, the ARA, in conjunction with FCB Group, called together a group of retail businesses to determine whether the industry supported, and was prepared to unite behind, a case to reduce Sunday penalty rates in the General Retail Industry Award 2010 (GRIA). The response was overwhelming and unprecedented. The industry wanted to push for change and was prepared to work together to achieve it.

The response of the industry is understandable. Retail is changing more quickly and more significantly than almost any other industry. Consumers are spending more money online, placing pressure on traditional bricks-and-mortar retailing. The NAB Online Retail Sales Index shows that online retail sales in the year to September 2015 were $17.6 billion, up from $10.5 billion in 2011. This is a rate of growth almost five times that of bricks-and-mortar sales.

Additionally, those consumers accessing bricks-and-mortar stores are doing so at different times. Indicative information on consumer activity shows a significant increase in Sunday foot traffic in the past five years, with Sunday now generally being the highest or second-highest trading day, on a sales-per-hour basis.

There is every indication that this shift is going to continue. Retailers understand that, as consumers continue to shift their shopping to Sundays, their labour costs will increase to meet that demand.

So, the impetus and commitment was there, and from that first meeting through to the conduct of the case before the FWC, FCB Group has worked closely with Australia’s retail industry to put together a compelling argument for change, supported by persuasive evidence.

But it hasn’t always been like this.

The outcomes of retail industry award cases have almost invariably been negative for retail employers and their industry associations. This trend is apparent from the old state-based cases through to the creation of modern awards and the interim award review of 2012.

What’s different this time?

The SDA is still better resourced than the retail industry employers, and will still spend significantly more time and money on its case. But the gap is closing. And because now one case is run through one representative, higher-quality evidence is being presented in a more consistent manner. The playing field may not have been levelled, but a number of the barriers have been flattened.

Getting the evidence

As with historic award cases, the challenge for employers was getting the evidence they required to support their position. FCB undertook the type of process that is necessary for any contested proceedings, identifying:

  • the statutory framework;
  • propositions that supported the change in the context of the statutory framework;
  • evidence that supported the propositions; and
  • the witnesses best placed to provide that evidence.

From this we put together a framework of the evidence we wanted to lead, and selected witnesses to put that evidence before the FWC. This involved a mix of expert witnesses, lay witnesses and survey evidence.

The next step was to work with the industry to get that evidence. In terms of lay witnesses, this was a significant undertaking. Retailers are generally reluctant to give direct evidence in these types of cases, fearing repercussions and negative press, and this time was no different. A number of retailers shied away from taking an overt role in the case. And their concerns were justified, as media outlets began naming those businesses who gave evidence about why they needed relief from high Sunday penalty rates.

Another aspect of the evidence-gathering process that proved crucial was the ability of retail, through FCB Group, to work with other industries to align evidence and, where appropriate, jointly fund research. Again, this is historically unprecedented.

We were able to present the FWC with evidence from two experts, the Australian Centre for Retail Studies and Deloitte Access Economics, as well as a survey completed by more than 650 retail employers and evidence from seven retail businesses, from national chains to single-store businesses. The evidence covered a wide range of topics, including:

  • the changing nature of weekend work;
  • employee attitudes and preferences in relation to working hours;
  • employee experiences with working on Sundays;
  • employee preparedness to work on Sundays at different penalty rates;
  • employer labour allocation on Sundays, including in comparison to Saturdays;
  • the impact on aggregate hours and employment levels of a reduction in penalty rates; and
  • the disabilities associated with Sunday work.

Countering the SDA defence

We expected to be met with a comprehensive response from the union movement – in particular, the SDA – and we weren’t disappointed. The SDA filed a total of nine expert reports, along with witness statements from seven retail employees.

As expected, the SDA’s evidence focused on the disabilities purportedly associated with Sunday work and the financial impact on retail employees if the Sunday penalty was reduced. The SDA also commissioned a report which sought to demonstrate that the increase in Sunday penalty rates in New South Wales between 2010 and 2014 had no, or no significant, impact on retail employment in that state. To counter this, we filed a response report from Deloitte Access Economics, which critiqued the methodology and econometrics of the SDA report.

How the case has progressed

Evidence in the case was heard throughout September, October, November and December. In addition, there have been a significant number of procedural matters, including dealing with objections to evidence and orders requiring witnesses to produce documents.

Final Hearings took place in April. As with most things in the case we received a last minute curve ball, with the President of the Fair Work Commission asking employer parties to consider whether a right to refuse work on Sundays (provided the refusal is reasonable) could be considered if the penalty rate was reduced. We have presented the Commission with a proposed structure for this including:

  • limiting the right to existing, non-managerial permanent employees; and
  • ensuring that employees who do refuse to work cannot force their employer to replace the hours that they have refused.

Across the entire case there have been more than 35 hearing days. There have been more than 100 witnesses, most of them the subject of cross-examination.

Where to from here?

There are a small number of additional matters that the Commission is seeking information on, with these to be finalised in the first week of June. It is therefore likely that a decision will not be handed down until at least mid-August.

What does it all mean for retailers?

The outcome of this case is crucial for retailers. It is estimated that an average-size retail store operating under the GRIA will save approximately $10,000 per year if the variation is granted. Naturally, this increases as the number of hours worked increases, and multiplies as the number of stores in a business’s network increases. A mid-sized retail business with 30 stores could save more than $300,000 per year.

The case also has implications for retail businesses operating under enterprise agreements. Commonly, the Better Off Overall Test (BOOT) presents challenges for retailers implementing enterprise agreements through the FWC approval process. A reduction in the Sunday penalty under the GRIA means the bar that the business needs to meet to satisfy the BOOT lowers. 2015 saw a substantial number of enterprise agreements in retail get bogged down through the FWC approval process, and require undertakings in order to pass the BOOT, so this will be welcome news for businesses implementing or renewing enterprise agreements.

Retailer actions

Any retail business considering implementing or renewing an enterprise agreement should factor in the award review outcome in their overall planning process. A lower safety net within the reference instrument for an enterprise agreement means the terms and conditions of the enterprise agreement can also be lower. If the Sunday penalty rate is reduced, and there is cause for optimism that this outcome can be achieved, retailers can implement enterprise agreements with lower minimum conditions, and can use those savings to drive productivity improvements through incentive arrangements.