Canberra Calling: Federal Court Test Case on Personal Leave Accruals

On 21 August 2019 the Full Federal Court in a test case issued declarations in relation to the calculation of personal/carer’s leave under the Fair Work Act 2009 (FW Act). The decision of the Full Court of the Federal Court in Mondelez v AMWU [2019] FCAFC 138 (“Mondelez”) has wide ranging implications for employers and employees in respect of the accrual and payment of personal/carer’s leave entitlements under the FW Act.

In the proceedings, Mondelez sought declarations in respect of the method of calculating personal/carer’s leave entitlements under section 96 of the FW Act. The Federal Minister for Small and Family Business, Workplace and Deregulation, intervened in the case and supported the employer’s position.

Given the economic effects of the decision on employers and business, it is likely that the decision will be appealed to the High Court or, alternatively, that the FW Act will be amended. Either way, a trip to Canberra may be imminent.

The FW Act

As a preliminary point it is noted that the dispute in Mondelez would not have arisen under the precursor to the FW Act because the entitlement to personal leave/carer’s leave (under the Workplace Relations Act 1996) was expressed in hours and not days and calculated as two weeks of average ordinary hours.

The situation is very different under the FW Act.

By way of overview, section 96 of the FW Act provides that for each year of service an employee is entitled to 10 “days” of paid personal/carers leave. The calculation of the entitlement is straight forward for those employees who work a standard 38 hour week working 7.6 hours a day. This equates to 76 hours of personal/carer’s leave per annum.

But what of those employees who work shifts or irregular daily hours? This is where, as the Full Court acknowledged in Mondelez, the situation becomes “surprisingly complex”. Unfortunately the drafting of the FW Act makes it so.

Legal Issues

The case involved shift workers in a Cadbury plant in Tasmania. Under the relevant Enterprise Agreement, the workers worked a standard 36 hour week comprised of three 12 hour shifts. It was not in dispute that the employees were entitled to 10 days of personal/carer’s leave. The issue for determination by the Court was how that entitlement should be calculated and, more specifically, what interpretation should be applied to the word “days” in section 96. The phrase is not defined in the FW Act.

The employer, Mondelez, represented by the Australian Industry Group, contended that the word “days” in section 96 was a shorthand reference to the employee’s average ordinary hours based on an assumed 5 day working week or a “notional working day”. The effect of this means that an employee, including a shift worker, could only ever accrue 76 hours personal leave in any year of service (7.6 hours x 10 days). The employer submitted that the notional working day calculation had an “industrial meaning” which was uniformly understood in Australia.

Conversely, the union argued that the leave should be based on a “calendar” or “working day” such that if an employee worked 12 hours per shift (as was the case), the entitlement to personal/carer’s leave should be calculated on the actual hours worked on each day and multiplied by the statutory 10 day entitlement. This approach produces an entirely different result such that the entitlement to leave is 120 hours leave per annum (12 hours x 10 days).

In legal terms, Mondalez submitted that the construction adopted by the union would lead to serious anomalies and unreasonable results that Parliament could not have intended. In workplace terms, it argued (in the writer’s view correctly but unsuccessfully) that on a “calendar construction” an employee who works longer shifts effectively gets more personal/carer’s leave than an employee who works a standard five day week, even if the two employees work the same hours on average.

The economic implications of the competing arguments are readily apparent.

Decision

In determining the matter, the Court (by majority comprised of Bromberg J and Rangiah J) rejected the employer’s submission that leave must be calculated on a “notional day” basis and held that the proper construction of section 96 supported the union’s position. That is, a “working day” is to be applied in the calculation of personal/carer’s leave entitlements.

Their Honours set out 12 principal conclusions in support of their findings, two of which were that:

(i) a “day” under section 96 refers to a portion of a 24 hour period which “is allotted to work”; and

(ii) “the expression ordinary hours is used in s92(2) to indicate that part-days of paid personal/carer’s leave entitlement are calculated on the basis of ordinary hours”.

The majority ultimately held that the applicant employees were entitled to 10 days of personal carer’s leave that is equivalent to 10 12- hour shifts.

Dissenting Judgement

In his (brief) dissenting judgement O’Callaghan J determined that the entitlement to 10 days leave in section 96 was “inextricably” linked to the right to payment in section 96(2) which is based on the employee’s “ordinary hours of work for the period”.

His Honour held as follows:

“Once it is apparent that the entitlement to be paid such leave and the relevant rate of pay used to calculate the amount to be paid in respect of it are founded on ordinary hours of work, then the entitlement to “10-days”leave for each year of service under s96 must operate as a unit of time referable to, or expressed as, ordinary hours of work”.

And:

“In my view, the position advanced by the respondents produces an outcome that creates inequities between different classes of employers that Parliament did not intend.”

Consequences for Employers

The decision in Mondalez has real and discernable implications for employers. The most obvious example is that many employers who employ shift workers who work ordinary hours over a truncated period, for example three 12 hour days, will have likely under calculated (or underpaid) personal leave accruals. Adjustments will need to be made to the accruals which will potentially create a substantial past-service financial liability.

Moreover, as was the case in Mondalez, many enterprise agreements provide for personal/carer’s leave entitlements to be paid out in specified circumstances such as retirement or termination by the employer.

As noted above, it is likely that the decision will either be appealed or will generate amendments to section 96 of the FW Act. The apparent ambiguity in section 96 could easily be remedied by inserting a definition of “days” in the FW Act.

Take Away Points

The key take away from the case is that employers now need to undertake an audit of accrued personal/carer’s leave entitlements for those employees whose ordinary weekly hours are worked on a truncated and extended shift basis, as was the case in Mondalez.