Unravelling the Coles and Woolworths penalty rate mess

While ALP politicians and union officials have put penalty rates and shift allowances on an unchallengeable pedestal, the tangle is about to be brought to a head in a way no one could have predicted.

The lever that looks set to change the game is the Coles and Woolworths’ enterprise bargaining affair. But at stake is much more than shift allowances. Bricks and mortar retailing is now being challenged in a dramatic way by online retailing in the US and UK and the same will happen here. (Amazon offers a glimpse of retail’s fate, June 9.)

Accordingly, all businesses in the retail industry have a stake in the Coles enterprise bargaining wrangle and the current Woolworths enterprise bargaining negotiations, which will ‘bring to a head’ the issues. Those likely to be affected include all those with stakes in shopping malls.

Apart from the online threat, the penalty rate-shift allowance mess means that as things now stand Coles and Woolworths both have an advantage over smaller retailers in weekend trade thanks to their EBAs.

As I described yesterday, the Coles EBA was set aside by the Fair Work Commission because weekend workers were worse off. In response Coles, relying on a Federal Court precedent, has gone back to its 2011 EBA, which carries clauses that effectively mean that the status quo can be maintained. Coles workers will continue to receive their present rates of pay including a July pay rise that was scheduled in the defunct 2014 EBA. (Coles goes back to the future with wage deal, June 9.)

Last night I learned that new twists are possible in the swing back to the 2011 agreement, but first it’s important to understand just how the system is working.

Under the retail award a person working on a Saturday receives 125 per cent of the award base rate. Under the Coles agreement, Saturday work by a full-time worker carries only the weekday payment — no penalty rate — although the weekday payment is above the award. (A casual employee receives a penalty rate struck at 120 per cent of the higher Coles base pay.)

But it’s on Sundays that the penalty rate structure becomes absurd. Under the retail award Sunday work is paid at double the weekday base payment. Strangely, under the hospitality award Sunday work is paid at 175 per cent of the base payment, substantially less than the retail award. There is no logic in the difference.

The Coles EBA pay agreement states that on a Sunday the wage rate is 150 per cent of its higher-than-award base pay, which is substantially less than the award stipulation of 200 per cent, even allowing for the higher Coles base rate.

Casuals receive 170 per cent of the Coles base pay, which is very close to the hospitality award but still clearly below the 200 per cent retail award.

Woolworths has an almost identical payment structure but it is currently in a formal EBA negotiation.

Woolworths recently increased its weekend workforce to reflect the swing to weekend shopping. That swing to weekend shopping is a key threat to the retail cost structures given the high penalty rates and the impact of the rise in online retail. (The coming shake-up of Australian supermarkets, June 6.)

If Woolworths is forced to pay the full retail award in its current enterprise bargaining negotiation and Coles, using its 2011 agreement, pays the lower rate, then Woolworths will be in deep trouble at weekends.

But both retailers are under threat from Aldi, which is not unionised, and from online suppliers. Amazon has started supplying food directly to customers in the UK and that will almost certainly follow in Australia. The penalty rates that Coles and Woolworths are currently paying, let alone the retail awards, will see bricks and mortar retailing under threat if Amazon makes a full online onslaught using lower cost structures.

Meanwhile, moves are already afoot to try and thwart Coles’ use of the 2011 agreement to avoid paying award retail penalty rates. There are legal precedents that would give weight to a challenge but those precedents involved very different circumstances. Coles will obviously fight to keep its 2011 agreement in place but if the 2011 agreement is overturned by Fair Work, the Act says that Coles must return to the award.

In that event weekend workers would receive higher pay but all the weekday workers would receive a pay cut imposed by Fair Work. A pay cut instituted by Fair Work would be a national first.

Coles has stated in the past that the total wages bill imposed by the 2014 agreement is above the retail award so theoretically Coles would make money from a shift back to the retail award, at a substantial cost to Monday to Friday workers — another illustration of how dangerously absurd the situation has become. But in the process of sorting it out there is just a chance we might get some sense into the penalty rates debate. The alternative is more chaos.