The Federal Court has rejected a challenge to planned penalty rate cuts.

Unions had argued that the Fair Work Commission’s decision to cut Sunday and public holiday penalty rates for retail and hospitality workers was a backward step.

In rejecting the union applications, the judges said the court was not ruling on the merits of the Fair Work Commission’s decision to cut penalty rates.

The court was restricted to reviewing the process by which the commission arrived at its conclusions.

The unions argued the commission failed to appreciate that a review of awards under section 156 of the Fair Work Act was conditional on a material change in circumstances since an earlier review.

“That challenge is rejected,” the judges said.

“There is no warrant in either the text of s 156 or its context to confine the meaning of ‘review’ in the manner contended for by the unions.”

ACTU secretary Sally McManus says the Prime Minister can still stop the pay cut.

“We demand action from the Prime Minister, to reverse these cuts and protect working people’s pay,” Ms McManus said.

“Australia needs a pay rise. Working people’s wages are flatlining and their work is becoming more insecure. The government has a responsibility to act.

“These pay cuts take money out of the pockets of low-paid workers in hospitality, retail and pharmacies, and expose other sectors to wage cuts.

“Employers are already lobbying to expand the cuts… we need to change the rules for working people so pay cannot be cut.

“The Government should act in the interests of working people, not multinational corporations who clearly have too much power.”

Australian Small Business and Family Enterprise Ombudsman Kate Carnell welcomed the court’s decision.

“Small business operators will be relieved at this decision, which levels the playing field in competition against big business,” she said.

“Big business and unions have made deals in the past through enterprise agreements which traded penalty rates for union membership and higher base rates.

“Small businesses don’t have the capacity to negotiate enterprise agreements and continue to grapple with the most complex award system in the world.”

Mr Turnbull says he does not need to intervene.

“This matter of penalty rates was considered over a long period of time by the independent umpire, by Fair Work Australia, and so the unions challenged it, took it to the Federal Court,” the Prime Minister said.

“These are the same unions that have been trading away their members’ penalty rates for years, but nonetheless, they took it to the Federal Court and the decision of Fair Work Australia was upheld, so that is the independent umpire doing its work and its work being confirmed by the court.”

United Voice, one of the unions that brought the court challenge, said the decision is “a new low blow for Australians who work weekends”.

“United Voice believes that the system has once again failed to protect workers and warns that business groups will attempt further attacks on worker entitlements in other industries,” the union’s national secretary, Jo-anne Schofield said.

The Australian Retailers Association is jubilant.

“We now have a unanimous decision from a five member full court of the Federal Court supporting the unanimous decision of a five member full bench of the Fair Work Commission to reduce penalty rates,” its executive director Russell Zimmerman said.

“The ARA hopes the ALP and other political parties who are seeking to overturn this decision are sensible enough to accept the umpire’s decision and allow retailers to get on with the job of employing more people.”