The Fair Work Commission made errors of law when it decided to slash Sunday penalty rates, a full bench of the Federal Court has been told.

Unions representing hospitality and retail workers are challenging the commission’s decision in June to drop Sunday rates by five percentage points for workers in the fast food, hospitality, retail and pharmacy sectors, starting July 1.

Hospitality union United Voice and the Shop, Distributive and Allied Employees’ Association (SDA) have launched the Federal Court action to keep workers’ penalty rates the same for Sundays and public holidays.

Herman Borenstein QC, for United Voice, told the first day of the Federal Court hearing in Melbourne the commission erred in law.

“There was no analysis in this decision…that sought to identify whether there’d been a material change in circumstances,” Borenstein told the panel of judges on Tuesday.

“The determinations were made on the basis of various errors of law.”

In failing to determine whether there were adequate grounds for change, the commission failed to produce a fair and relevant set of conditions for the workers, he said.

Employer and business groups including the Australian Industry Group, the Australian Hotels Association, and the NSW Business Chamber will argue the cuts should be respected.

Under the Fair Work Commission’s decision, the first cut to penalty rates will be five percentage points, with more significant cuts in 2018 and 2019 for fast food and hospitality workers.

Retail and pharmacy workers will have cuts to their rates phased in until 2020.

United Voice says the cuts will hit lowest paid workers the most.

The hearing is set down for three days.

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