Unions say a new report by the Productivity Commission confirms their concern that an inquiry into the workplace relations system had been set up by the Abbott government to attack penalty rates.
The commission report recommended Sunday penalty rates should be reduced to Saturday rates for the hospitality, entertainment, retail, restaurants and cafe sectors.
"This is a pay cut for the thousands of Australians who work in restaurants, cafes and shops around the country," ACTU secretary Dave Oliver told reporters in Canberra.
In its draft report into Australia's workplace relations framework, released on Tuesday, the Productivity Commission also suggests keeping penalty rates for essential services.
"There is no comparable case to alter them," it says.
The commission also proposes creating a new statutory enterprise contract for small to medium businesses.
The contract, based on existing awards, would have to be lodged with the Fair Work Commission and employees would have the option of opting out if they're not happy after a year.
It would effectively amount to a collective individual flexibility agreement, but with some extra flexibility, the report says.
Productivity Commission chairman Peter Harris told reporters in Canberra Australia's workplace relations system was not systemically dysfunctional.
It needed repair, but not replacement, he said.
The way in which members of the Fair Work Commission were appointed should be changed, with the suggestion governments create a panel to select suitable people.
The existing appointment process was clearly flawed, the report says.
The commission gave too much weight to history and precedent in the way it made award determinations and should instead collect its own evidence.
A requirement to review awards every four years should be scrapped and a new system put in place based on need.
The report proposes the option of allowing the commission to make temporary changes to the minimum wage in exceptional circumstances.
It recommends tweaking unfair dismissal laws, so employees can only receive compensation when there was no evidence of underperformance or misconduct.
Any procedural errors should not result in compensation, but employers could be fined.
The report concedes ballots for industrial action are complex and could be simplified.
A new "menu" for greenfield projects is floated by the commission in which employers would have the option of taking their last offer and the union's to the Fair Work Commission for arbitration if no agreement has been reached after three months.
It also suggests giving the Fair Work Ombudsman more resources to investigate and audit employers suspected of underpaying migrant workers.
The Australian Greens pledged to make penalty rates an election issue, saying any changes would be a "body blow" to young people.
Industrial relations spokesman Adam Bandt said that with high housing costs and slow wages growth young Australians in particular relied on penalty rates to make ends meet.
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