Landmark Decision on Leave Entitlements

In today’s Case Note, our Solicitor Andrew Gill reviews Mondelez v AMWU [2019] FCAFC 138 which clarified how the entitlement of 10 days of leave is to be calculated for national system employees. Follow the link below to read the full article and the impact the decision has on your organisation.

Employment

Mondelez v AMWU [2019] FCAFC 138

Introduction

On 21 August 2019, the Full Federal Court (the Court) clarified how the entitlement of 10 days of leave is to be calculated.

In the decision the Court confirmed that national system employees are entitled to 10 working days of personal/carer’s leave, regardless of the number of hours worked by the employee per day or how many days per week are worked.

The decision will have significant consequences for almost all Australian employers as it represents a major departure from current leave accrual and payroll practices.

We note that as of November 2019, both Mondelez and the Australian Government have filed to appeal the decision in the High Court of Australia.

Facts

Mondelez Australia Pty Ltd (Mondelez) operates food manufacturing plants in Australia, including a Cadbury plant in Tasmania.

The Australian Manufacturing Workers Union (AMWU) is a trade union which represented Mondelez’ workers.

In Mondelez’ Cadbury plant, full-time employees work 36 hours per week. Some employees work three days of 12 hours, whereas others work five days of 7.2 hours.

These proceedings concerned the leave entitlements under an enterprise agreement for two Mondelez employees.

Under the enterprise agreement, Mondelez employees who work 12-hour shifts were entitled to 96 hours of paid personal leave per annum. Consequently, when a 12-hour shift worker takes a day of personal/carer’s leave, 12 hours are deducted from their leave balance. Taking this approach, for one year of service, an employee who works three 12-hour shifts would have sufficient leave to cover eight days absent from work under the enterprise agreement.

A dispute arose between Mondelez and AMWU about whether the above method for calculating personal leave is consistent with section 96 of the Fair Work Act 2009 (Cth) (the Fair Work Act). Relevantly, section 96 of the Fair Work Act states:

  • For each year of service with his or her employer, an employee is entitled to 10 days of paid personal/carer’s leave.
  • An employee’s entitlement to paid personal/carer’s leave accrues progressively during a year of service according to the employee’s ordinary hours of work, and accumulates from year to year.

The Fair Work Act states that a term in an award, agreement or employment contract cannot provide for an entitlement that is less than a than an entitlement set out in the National Employment Standards (NES).

Mondelez essentially contended that their enterprise agreement was consistent with section 96 of the Fair Work Act, as under section 96 would only be entitled to 72 hours of leave per year whereas the enterprise agreement entitled employees to 96 hours of paid personal/carer’s leave.

AMWU argued that, as the employees worked 12-hour shifts, they should be entitled to 10 days of 12 hours of paid leave, totalling 120 hours a year, and that anything less would be inconsistent with section 96 of the Fair Work Act.

As a result, Mondelez applied to the Court for clarification of the leave entitlements.

We note that the Commonwealth Government intervened in the proceeding and supported Mondelez’ arguments.

Submissions

‘Notional Day’

Mondelez (supported by the Australian Government) argued that “10 days” in section 96 of the Fair Work Act must be interpreted according to the industrial meaning of a ‘notional day’. According to Mondelez, a ‘day’ is a reference to an employee’s average ordinary hours divided by five (based on a five-day working week). For example, if an employee works 36 ordinary hours a week on an average of 7.2 hours a day, their ‘notional day’ is 7.2 hours and the employee would be entitled to 10 notional days, or 72 hours, of leave per year. If an employee worked 36 hours but in three 12-hour shifts, their ‘notional day’ would still be 7.2 hours, as the average ordinary hours, 36, divided by five, would be 7.2 hours.

Following Mondelez’s interpretation, all employees who work the same average weekly ordinary hours will receive the same number of hours of paid personal/carer’s leave. However, on Mondelez’ interpretation, if an employee, who works three 12 hours shifts each week, takes a day of leave, 12 hours would be deducted from their accrued balance of leave. This would mean that, under section 96 of the Fair Work Act the employee would only be entitled to take 6 paid days of personal/carer’s leave.

Mondelez finds support for its interpretation in the Explanatory Memorandum for the Fair Work Act.  The Explanatory Memorandum, among other things, expressly states that the Fair Work Act is not intended to alter the amount of leave available to employees that was available under the, now repealed, Workplace Relations Act 1996 (Cth) (WR Act).  Under WR Act employees accrued leave at 1/26th of the number of nominal hours worked by the employee. Under this method of accrual, an employee who worked 38 hours a week would accrue 76 hours of leave a year, which would amount to 10 days of personal/carer’s leave per year.

‘Calendar Day’

AMWU submitted that ‘day’ in section 96 of the Fair Work Act must be given its ordinary meaning, of a ‘calendar day’, that is a 24 hour period. AMWU’s argument is supported by the fact ‘day’ is not defined in the Fair Work Act and in each other instance in the Fair Work Act, ‘day’ refers to a calendar day. Further, in the circumstances where it is intended that an entitlement be calculated by hours, the Fair Work Act expressly states so.

On AFMU’s construction an employee who worked 36 ordinary hours a week, averaging 7.2 hours a day, would receive 72 hours of personal/carer’s leave a year. However, if, as was the case with Mondelez’ employees, the employee worked 36 ordinary hours a week, working three 12 hours shifts, the employee would be entitled to 120 hours of personal/carer’s leave a year.

AMWU argued that personal/carer’s leave effectively acts as an insurance against loss of income because of personal or familial illness, and consequently, each employee should be entitled to be away from work without losing pay for 10 days for each year of service.

Mondelez argued, however, that if AMWU’s ‘calendar day’ interpretation was accepted it would create some serious anomalies. In particular, Mondelez raised the following concerns:

  • If an employee works long shifts, they will effectively be entitled to more personal/carer’s leave than an employee who works a standard five-day week, even if they work the same number of hours on average.
  • It would be difficult to determine the monetary value of a unit of personal/carer’s leave as it will be determined upon when leave is taken. For example, if an employee takes a day of leave when they are rostered for nine hours, they will be paid for nine hours and will have one day deducted from their leave balance. If the employee, however, takes a day of leave when they are rostered for three hours, they will be paid for three hours and still have one day of leave deducted.
  • The interpretation would have significant impacts for part-time employees as all would be entitled to a full 10 days of leave a year.
  • It would be impossible to account for part-days of personal/carer’s leave under the calendar day interpretation.
  • It is inconsistent with the Fair Work Act provisions for cashing out personal/carer’s leave, as they require that the amount of accrued leave to be cashed out to have an ascertainable monetary value at the time it is cashed out. Given the inconsistent monetary value for certain employees, this would not be possible.

Decision

Bromberg and Rangiah JJ, in a two-to-one majority, rejected Mondelez’ submission that “day” in section 96(1) is a notional day based upon the ordinary hours in a five-day working week and largely accepted the submissions put forward by AMWU.

The Court held that the purpose of section 96 of the Fair Work Act was to create a statutory form of income protection for employees during periods of illness, injury or unexpected emergency and suggested that Mondelez’ submissions had been too focused on the monetary value of the leave.

The Court held that the ordinary meaning of ‘day’ in 96(1) was a ‘working day’. A ‘working day’ is the portion of a 24-hour period that would otherwise be allotted to working. Consequently, the Court held that section 96(1) entitles a person to be absent from work for 10 ‘working days’.

The Court accepted that the competing interpretations put forward by Mondelez and AMWU would produce differing consequences and illustrated these differences with the following example. Assuming that there is a group of employees who work the same number of average ordinary weekly hours with the same pay who accrue leave at the same rate but have varying shift patterns. The Court held that under Mondelez’ construction, all employees would be entitled to take the same number of hours of paid personal/carer’s leave, but some may lose earnings, depending upon their shift patterns. Under AMWU’s construction, some employees would be entitled to take more hours of paid personal/carer’s leave than others, but no employee would lose earnings for the ordinary hours that an employee was unable to work.

Even though some employees would be entitled to take more hours of paid personal/carer’s leave, the Court held that this is not an inequitable outcome as the purpose of the leave is to serve as “income protection for employees during periods of illness, injury or unexpected emergency”. Further, in response to Mondelez’ contention that employees will necessarily get more leave, the Court stated that the provision of personal/carer’s leave is inherently random, as illness and injury generally strike randomly. Consequently, it cannot be said that certain employees will get more leave.

In summary, the Court made the following conclusions concerning personal/carer’s leave:

  • a day of leave in section 96 of the Fair Work Act is a ‘working day’ (that is the potion of a 24-hour period that a person would otherwise be working);
  • personal/sick leave accrues according to an employee’s length of service, rather than the number of days/hours worked;
  • for each day of leave, a day will be deducted from the employee’s accrued leave balance;
  • an employee may take a part-day of personal/carer’s leave, if so, an equivalent part-day is to be deducted from the employee’s leave balance;
  • leave is only accrued on the ordinary hours worked (rather than overtime).

In dissent, O’Callaghan J disagreed with the above conclusions of Bromberg and Rangiah JJ and substantially agreed with Mondelez’ submissions. O’Callaghan J stated that the position advanced by AMWU creates an outcome that creates inequities between different classes of employees that Parliament did not intend.

Compliance Impact

The decision will have far-reaching implications and will likely require remedial action for many Australian employers. Previously, it was generally understood that leave was calculated and accrued as it was under the WR Act (i.e. accrued at a set rate for every hour worked in a year, entitling only full-time employees to 2 weeks of personal/carer’s leave per year).  However, as discussed above, the decision entitles employees to a minimum of 10 ‘working days’ of personal/carer’s leave per year regardless of the number of hours worked.

Although there is some uncertainty as Mondelez and the Australian Government are set to appeal the decision, the Court’s decision reflects the current law and consequently, employers should make efforts to comply with the new leave requirements.

If your organisation has not been accruing/paying personal/carer’s leave according to the interpretation set out in the decision, it may be fined for contravening the Fair Work Act and/or be subject to claims for back payment of leave for affected employees. Organisations should be aware that a claim for back payment may cover a period of 6 years or potentially, from as early as 2010 when section 96 of the Fair Work Act was introduced.  Consequently, it would be prudent for an employer to consider its compliance with the decision in their pay and leave accrual practices over the past 6 years.

We also note that under the Fair Work Act organisations are required to keep accurate records of the balance of each employee’s entitlement to leave. As the decision changes the standard practice, many employer’s records of personal/carer’s leave may be inaccurate, placing them in breach of the Fair Work Act.

As it is often standard for personal/carer’s leave to be shown in employment agreements in hours, organisations should also review their employment contracts, awards and enterprise agreements to ensure leave accrual is consistent with the new interpretation of section 96 (1) of the Fair Work Act.

Further, as payroll systems generally accrue personal/carer’s leave on an hourly basis, entitling full-time employees to 76 hours of leave per year and a pro-rata amount for part-time employees – these systems will need to be updated to comply with the decision.

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