Employment Law Update - August 2020
The High Court reverses ground breaking personal leave decision: Mondelez Australia Pty Ltd v AMWU & Ors [2020] HCA 29
On 13 August 2020 the High Court handed down its decision in relation to the issue of leave accrual rates. In the landmark decision the High Court reversed the decision of the Full Court of the Federal Court of Australia and has saved employers throughout Australia an estimated $2bn.
Material facts:
Mondelez Australia Pty Ltd (‘Mondelez’), the owner of Cadburys, operated four food manufacturing sites throughout Australia. An enterprise agreement (‘EBA’) applied across the four sites which came into effect on 11 May 2018. The EBA provided that ordinary hours of work were 36 hours per week but this could be performed in different shift patterns from 8 to 12 hours per shift.
Clause 24.1 of the EBA provided that the workers performing 8 hours of work per shift were entitled to accrue 80 hours of personal leave per annum. Clause 24.2 of the EBA then provided that workers performing 12 hour shifts were entitled to accrue 96 hours of personal leave per annum. When workers on 12 hour shifts took one day’s personal leave Mondelez would deduct 12 hours from the accrued entitlement.
In the first instance proceedings, the AMWU sought declarations that for the purposes of s 96(1) of the Fair Work Act, 2009 (Cth) (‘Act’) a ‘day’ should be based on the work hours allotted in a ‘calendar day’ or a 24 hour period, when determining the rate at which personal leave/carer’s leave is accrued and taken.
The Minister for Jobs and Industrial Relations intervened and supported the argument of Mondelez that the Act required the use of the concept of a ‘notional day’, which for example, in a 38 hour week would be 7.6 hours per day. On the basis of this argument an employee would therefore accrue 76 hours of personal leave/carer’s leave per year.
The Full Court of the Federal Court rejected the arguments of Mondelez and the Minister and held that a ‘day’ for the purposes of s 96(1) of the Act was ‘the portion of a 24 hour period that would otherwise be allotted to work’. For example, if an employee worked 12 hour shifts they would accrue personal leave on the basis of 12 hours per day.
Mondelez and the Minister appealed to the High Court.
The Decision
In a 4 to 1 majority decision, the High Court accepted the argument of Mondelez and the Minister that although the use of the word ‘day’ in s 96 was not confined to the period allotted to work in a 24 hour period as this was inconsistent with the intention and purpose of the Act. Rather, the concept outlined in the previous Workplace Relations Act of 1/26 of the nominal hours worked over a year which amounted to 10 days or two weeks of paid personal leave should be applied.
Keifel CJ, Nettle and Gordon JJ held (at [41]):
‘The “working day” construction adopted by the majority of the Full Court (and urged by the Union parties in this Court) is not consistent with the purpose of s 96 or the stated objectives of the Fair Work Act of fairness, flexibility, certainty and stability. The “working day” construction would lead to inequalities between employees with different work patterns, and so would be unfair.’
The majority then discussed one example of the unfairness in the ‘working day’ construction – an employee who worked 36 hours per week in three 12 hour shifts would be entitled to 120 hours of paid personal leave (10 days at 12 hours per day) whereas an employee working 36 hours in 5 days at 7.2 hours per day would only be entitled to 72 hours of paid personal leave (10 days at 7.2 hours per day). Furthermore, the employees working 12 hour shifts would not be required to take as many days personal leave as an employee working 5 days per week, hence creating a further inequality.
The High Court allowed the appeal, set aside the orders of the Full Court of Federal Court and then declared:
‘The expression ’10 days’ in s 96(1) of the Fair Work Act, 2009 (Cth) means an amount of paid personal/carer’s leave accruing for every year of service equivalent to an employee’s ordinary hours of work in a week over a two-week (fortnightly) period, or 1/26 of the employee’s ordinary hours of work in a year. A ‘day’ for the purposes of s 96(1) refers to a ‘notional day’, consisting of one-tenth of the equivalent of an employee’s ordinary hours of work in a two-week (fortnightly) period.’
Put simply, s 96(1) operates on the basis that you calculate the ordinary hours over a two week period and then multiply it by 1/10 to determine the accrual for one notional day. Utilising an example of an employee working 38 hours per week then this would constitute 76 hours for a 2 week period or 7.6 hours per day (76 hours divided by 10).
What does the decision mean for employers?
The decision overturns the Full Court’s ‘working day’ interpretation that an employee accrues personal leave at the same rate at which they perform work on a particular shift. The interesting aspect is that the rationale of the decision can now be applied to the question of annual leave pursuant to s 87 of the Act (although this section refers to weeks as opposed to days) and compassionate leave pursuant to s 104. Furthermore, the decision is reinforcing the acceptance of the widely adopted approach by employers of leave accrual rates being calculated in hours as opposed to days/weeks.
What should you do?
The decision provides welcome clarification around accrual rates which is a relief for all employers. You should:
review the description of leave in your employment agreements/enterprise agreements to ensure it complies with the new interpretation;
ensure that the accrual rates are correct in your payroll systems;
ensure that the accrued entitlements are correctly reflected on the payslips issued to employees.
Simon Berry - Partner
If you require any further information, please do not hesitate to contact the Hilliard & Berry Solicitors’ office on (02) 8324 7500 asking for the Workplace Relations Team.