UPDATE - Payment of Personal Leave - Impacts on Mining & Supporting Industries

Last year, a landmark decision of the High Court of Australia clarified how employee personal leave entitlements ought to be calculated under the Fair Work Act 2009 ("the Act").  In summary, the High Court held that the appropriate (and widely adopted) method of calculating employee leave entitlements under the Act should be with reference to an employee's ordinary hours of work over a two week period.  But what exactly does that mean?

Background

Section 96 of the Act provides that an employee (other than a casual employee) is entitled to "10 days” paid personal/carers leave for each year of service.

In 2017, Mondelez Australia Pty Ltd (“Mondelez”) submitted a new Enterprise Agreement (“Agreement”) to the Fair Work Commission for approval.  During the approval process, the Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union known as the Australian Manufacturing Workers Union (“the AMWU”) challenged whether the Agreement provided for the minimum leave entitlements prescribed by the Act.

In particular, a dispute arose with respect to two Mondelez employees (“the Employees”), who were engaged to work three 12 hour shifts each week (i.e. 36 ordinary hours each week).  Eventually, Mondelez commenced proceedings in the Federal Court of Australia in an attempt to clarify the correct method for calculating personal leave entitlements.

In the Federal Court proceedings, Mondelez submitted that the entitlements provided for in the Agreement were more generous than the minimum prescribed by the Act. That is, the reference to “10 days” personal leave in s.96 was a reference to 76 hours personal leave, as was widely adopted at that time (and based off a 7.6 hour ordinary work day).  By its reasoning, Mondelez was purporting to pay the Employees 96 hours, which was well above the minimum requirements set out in the Act.

The AMWU, on the other hand, argued that the correct approach was to calculate employee entitlements with reference to actual hours worked per shift (i.e. “working day”).  So, an employee working 12 hour shifts was entitled to 10 days of personal leave, irrespective of how many 12 hour shifts worked in a two week period.  By the AMWU’s reasoning, the personal leave entitlements under the Agreement were significantly less than the minimum prescribed in the Act.

Interestingly, the Commonwealth Government (through the Minister for Jobs and Industrial Relations) intervened in the proceedings, largely aligning itself with the position adopted by Mondelez.

Ultimately, however, the Federal Court rejected the submissions made by both Mondelez and the Commonwealth, finding in favour of the AMWU.

The High Court Decision

Mondelez, supported by the Commonwealth, appealed the Federal Court decision to the High Court of Australia (see Mondelez Australia Pty Ltd v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union [2020] HCA 29), arguing that the correct interpretation of s.96 was based on a “notional day”, and not a “working day”. In other words, the proper construction of the term “10 days”, as set out in s.96 of the Act, was a reference to the number of ordinary hours worked in a two week period (or 1/26 of ordinary hours worked in a year).

The High Court accepted those submissions, noting that the “working day” construction adopted by the Federal Court was likely to result in unfairness and inequality.  For example, the Federal Court approach had the Employees (who worked an average of 36 hours per week, or 72 hours per fortnight) entitled to 120 hours personal leave each year (i.e. 10 days at 12 hours per day).  However, using that same approach, should the Employees be rostered on to work five 7.2 hour shifts each week, their personal leave entitlements would reduce to a total of 72 hours per year.

As such, the High Court held that under s.96, an employee is entitled to paid personal/carers leave equivalent to his or her ordinary hours of work in a two-week period (for each year of service).  The High Court also acknowledged that for many employees, the distribution of hours do not always follow fortnightly cycles and, as such, held that the entitlement could be calculated as 1/26 of an employee's ordinary hours worked in a year.  It was the Court's view that this approach was necessary to ensure consistency with the purpose of the personal leave provisions under the Act, while maintaining fairness and equality.

What does that mean for me?

Whether you are an employer or employee, it is important you understand your rights and obligations under your employment contract, and the Act.

If you have any questions about your employment entitlements, or your employment relationship generally, contact one of our friendly, local experts on the form below.