The High Court has ‘Called it a Day’ in Relation to Personal Leave Accrual

On 13 August 2020, the High Court delivered a landmark decision in Mondelez Australia Pty Ltd v AMWU & Ors [2020] HCA 29 on the topic of accrual of personal/carer’s leave entitlements. After a year since the initial decision, the High Court confirmed that employees are entitled to 10 days of personal leave irrespective of the pattern of hours worked.

Background

Over the past 10 years, the ambiguity of language surrounding leave entitlements found in the Fair Work Act 2009 (Cth) (‘FW Act’) has been of a wide misconception. The FW Act requires that an employer afford a 10-day minimum of personal leave to their employees covered under this Act. However, the way in which it is accrued became significantly relevant in 2017, when Mondelez submitted a new Enterprise Agreement to the Commission for approval. A subsequent dispute arose as to whether the hours of leave an employee is entitled to in respect to their hours worked aligns with the minimum requirement of 10 days. The Federal Court of Australia initially ruled in favour of the Australian Manufacturing Workers Union (on behalf of the factory employees). However, this was recently overturned, and the High Court sided with Cadbury owners, Mondelez Australia.

The Decision

Section 96(1) of FW Act dictates that “for each year of service with his or her employer, an employee is entitled to 10 days of paid personal/carer’s leave“. The High Court considered the concept of a ‘notional day’ as opposed to a ‘working day’, which is equal to one-tenth of the equivalent of an employee’s ordinary hours of work in a fortnightly period, or one twenty-sixth of an employees hours worked within one year.

For example, an employee who works 38 ordinary hours per week, that is, 76 hours per fortnight, accrues 10 days per year at 7.6 hours per day. Therefore, the employee would have the equivalent of 76 hours (10 days) of personal leave after one year.

Alternatively, a part-time employee who works 15 hours per week, or 30 hours per fortnight would accrue one day as 3 hours. Therefore, over the course of a year, the employee would have accrued 30 hours (10 days) of personal/carer’s leave.

Although it was a split decision, the High Court held that it was favourable to apply a notional day to the accrual of personal leave as it was consistent with the purposes  of the FW Act. If the working day were to be considered in its place, it would lead to unfair and unequal accruals of personal leave. When looking to the facts of the case, one employee who worked 36 hours per week (3 x 12-hour days) would accrue 10 x 12-hour days, totaling to 120 hours per year. Whereas someone who would work the same number of hours over five days (7.2 hours per day) would be left with 72 hours of personal leave in one year.

Impact on Employers

This decision is especially relevant for employers and their payroll team to ensure their accrual system is in line with the decision. The accrual should reflect the ‘notional day’ as explained above and should be based off one-tenth of the employee’s fortnightly hours.

The High Court’s commentary states that the decision was founded upon the basis of encouraging flexible work arrangements, supporting the primary objective of the FW Act. This encourages employers to hire employees who cannot work the typical five-day week, without worrying about the varying pattern of hours affecting their personal leave accrual and hence the cost implications that the businesses would incur as a result. Furthermore, it does not result in part-time or shift workers having an enhanced entitlement under the ‘working day’ stance adapted by the Federal Court in the original decision.

Impact on Employees

It is important for employees to understand their Employment Law rights in relation to accrual of personal/carer’s leave. In light of the COVID-19 pandemic, personal leave has become particularly significant and this decision confirms and solidifies that each employee should have access to 10 days of personal leave, despite their changing work patterns.

Moving Forward

• Businesses who implemented new calculation methods due to the Federal Court decision in 2019 should revisit these systems to ensure they are consistent with the recent outcome.
• The 10 days of leave can be calculated as 1/26 of an employee’s ordinary hours of work in a year, or 1/10 of their ordinary fortnightly hours
• Employers should seek legal advice if they believe they have a discrepancy in their calculations of personal/carer’s leave entitlements for their employees.

ABOUT KARENA NICHOLLS:

Karena is a Partner at Coutts and is the Head of our Injury Compensation (with extensive knowledge in personal injury) and Employment Law teams. She is passionate and dedicated to helping her clients understand their rights and obligations and advising them on the best course of action to achieve their desired outcomes. It is her practical and client-orientated approach which has attributed to her authentic reputation positioning her as a highly regarded compensation and employment lawyer.