A new class of workplace agreement, called an "enterprise contract", has been proposed by a review of the nation's industrial relations system.

The Productivity Commission's draft report, commissioned by the Federal Government, suggested the new type of agreement in order to help small and medium businesses who "lack options" for making agreements that suit their businesses while also protecting workers.

The enterprise contract would be a statutory arrangement that could vary award conditions for a class or particular group of employees.

Productivity Commission chairman Peter Harris argued it was not like the Howard government's controversial Australian Workplace Agreements (AWA).

"It's not an individual contract ... I mean, if you only had one employee it would be," Mr Harris said.

He said the enterprise contract would also have a no-disadvantage test.

"If you're trying to cross-characterise it to a particular period in time, it's not the same as some versions of AWAs because obviously AWAs, when they first came in, had a no-disadvantage test then subsequently they didn't."

Mr Harris said the enterprise contract would feature an employee "safeguard", whereby workers could opt out and go back to their old conditions after 12 months if they felt the contract had left them worse off.

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The report also recommended cutting Sunday penalty rates for hospitality and retail workers in line with Saturday pay but keeping the status quo for emergency workers like nurses and paramedics.

It said the current system for essential or emergency services workers was "justifiable" and aligned with "long-held community expectations, the typical work arrangements and the job skills required in these industries".

However, the report said community expectations had changed when it came to retail and hospitality work.

"Australian society expects to be able to shop, go to a pharmacy, and eat at cafes and restaurants on weekends," Mr Harris said.

"The value of supermarket shopping on Sundays now exceeds some weekdays.

"The bottom line is we are pretty confident from analysis that [cutting Sunday penalty rates] will increase overall employment in those services industries and provide consumers with additional benefits."

The Productivity Commission also said there was evidence "people's perceptions of their life balance are much the same for those working on Sundays as those doing so on Saturdays".

Report an attack on penalty rates, union says

The Australian Council of Trade Unions (ACTU) has signalled it will fight any Government attempt to cut penalty rates.

ACTU secretary Dave Oliver said the report was an attack on penalty rates, rights at work and the minimum wage.

"[The] Productivity Commission now has recommended that we put the handbrake on increasing the minimum wage in this country at a time when the minimum wage is at an historic low," he said.

Labor's workplace relations spokesman, Brendan O'Connor, called on the Government to rule out cutting Sunday penalty rates.

"There are 4 million workers that work on weekends and they want to know before they go to bed tonight is Tony Abbott going to attack and take away their penalty rates?" he said.

Government ministers were given the report ahead of time, but Employment Minister Eric Abetz said the Government would not respond to the recommendations until after the final report was handed down.

"These are draft recommendations and they would not seek to have any of them ruled out," he said.

"It also therefore stands to reason none of them should be ruled in either at this stage because further evidence might be supplied."