Penalty rates bill ushers in ‘legal uncertainty’, lawyer says

Amendments were quickly made to the penalty rates bill before it was quickly rushed through government but there may still be some legal uncertainty to look out for.

he Labor government’s legislation to enshrine penalty rates was met with outrage from organisations like Australian Retailers Association and Australian Industry Group, which claimed it was badly drafted and would provide less flexibility to the nation’s workplaces.

As reported by Lawyers Weekly sister brand HR Leader, these organisations were concerned the legislation would implement unnecessary amendments that would “neuter” the Fair Work Commission’s ability to be the “independent umpire”.

They were primarily outraged that the bill would have removed existing award conditions that prevented high-paid employees from accessing penalty rates and allowed some staff to swap rates for higher salaries.

Apparently bowing to these concerns, the bill passed the House of Representatives late last week after an amendment was introduced to clarify it would not require the Fair Work Commission to conduct a wide-ranging review regarding modern awards.

Speaking to Lawyers Weekly prior to the amendments, Pinsent Masons’ partner and head of employment and reward for the Asia Pacific, Aaron Goonrey, said the bill was “well intentioned”, but had been at risk of introducing ambiguity into the modern awards system.

“In [the employer’s] view, the bill prioritises industrial orthodoxy over practical reform and, in doing so, risks making the workplace less adaptable for both sides. In essence, employers apprehend a loss of cost certainty and flexibility,” Goonrey explained at the time.

Without a clear definition of what constitutes a “reduction”, Goonrey added that the bill could have created “interpretative challenges” for the Fair Work Commission, employers, and unions. With this legal uncertainty, it may prompt disputes or narrow interpretations “that restrict workplace and industrial relations development”.

“Comparatively speaking, other international systems allow greater contractual freedom within statutory minimums,” Goonrey said.

“However, the current bill reflects a more prescriptive approach and underscores Australia’s continued reliance on a centralised award framework.

“This, in turn, reopens the broader debate about the future of pay innovation and workforce flexibility within Australia’s relations framework and whether the current system can accommodate evolving workforce expectations without sacrificing legal certainty or fairness.”

Asked whether anything could be done to improve the legislation, Goonrey said a more balanced approach would have been to “maintain and preserve” the Fair Work Commission’s discretion to assess context-specific arrangements, “particularly where higher base salaries or annualised wage models are lawfully applied”.

“Introducing a statutory review mechanism and refining the drafting to align with existing flexibility provisions may also improve both the legal certainty and practical utility of the bill,” Goonrey said.

If it had passed in its previous form, Goonrey said employers and their legal advisers would need to reassess their current remuneration models to ensure compliance with the frameworks, particularly those involving annualised salaries or flexible rostering.

“While the bill preserves the enterprise bargaining framework, it may indirectly result in employees and unions reassessing the BOOT by reinforcing penalty and overtime rates as non-negotiable benchmarks in enterprise bargaining, narrowing the scope for lawful trade-offs,” Goonrey said.