HIGH COURT RULING
The “new” right way to accrue personal / carer’s leave for your employees - Federal Court ruling overturned
On 13 August 2020, the High Court heard a well-followed Appeal on how employers should accrue personal / carer’s leave for their employees (Mondelez Australia Pty Ltd v AMWU & Ors).
It may come as a surprise you can get a different answer across 3 to 4 different employers about the way that they accrue leave in their payroll systems.
To make it more complicated, the law hasn’t been clear on this issue – which fell to case law to determine the true nature of the wording. In August 2019, the Federal Court determined the right way to accrue leave was based on “days”, but a day over a 24-hour period. Now, the new ruling states the “notional” day is the important factor in the calculation, rejecting the Federal Court’s position.
What does this mean? Read on…
What is an employee’s entitlement to personal / carer’s leave?
10 days per year for full-time workers, pro-rated for part-time workers. It is important to note that the Fair Work Act refers to “days” per year, not hours.
Casuals also can have unpaid personal / carer’s leave.
Where it gets tricky is in the definition of what is a day’s leave for some employees?
In this piece of case law, two employees work 3 x 12 hour shifts, equating to 36 hours per week. The employer, Mondelez, has taken 12 hours off each accrual every time they take a day’s leave from work. This would seem sensible, except that the law states that an employee is entitled to 10 paid days leave from work per year for sick leave.
The Union argued that if Mondelez takes 12 hours from for each shift, then this only covers them for 8 days absence per year, not the required 10 days by law. This is where it gets tricky – what was meant and what is fair?
When the Federal Court heard this case last year, they agreed with the Union’s interpretation that the employer needed to increase the accrual to ensure that each employee can take 10 days a year – in this instance, 120 hours a year instead of the hours that the employer was accruing.
Not surprisingly, the employer appealed this ruling, with various other parties weighing in including the Federal Minister for Jobs & Industrial Relations.
In looking at this case law, the first piece of information to understand is the way the Court looks at the 10-day leave, viewing 10 days personal leave as 2 x standard 5 day working weeks, or 1/10.
The “new” ruling
The key question is, what is the definition of a “day”? Is it:
A “notional” day consisting of 1/10 of an employee’s ordinary hours of work in a two week cycle; or
A “working” day equating to what an employee would normally work in that 24 hour period – i.e., it could be 5 hours or 12 hours.
The new High Court determination has ruled that it is a “notional” day. This Appeal overrules the Federal Court’s decision with a majority opinion, stating that “what is meant by a ‘day’ must be calculated by reference to an employee’s ordinary hours of work”.
They have fully rejected the concept that if an employee works longer hours in a day (i.e., 12 hours), then they should get more accrued hours of leave to cover a full 10 days off per year. The High Court has agreed with the employer that a “day” is simply the employee’s average daily ordinary hours of work, as opposed to a “day” being a 24 hour period.
They put it plainly below:
“The alternative construction is that the reference to "10 days" entitles every employee, regardless of their pattern of work or distribution of hours, to be absent without loss of pay on ten working days per year ("the 'working day' construction"). That construction is rejected. It would give rise to absurd results and inequitable outcomes, and would be contrary to the legislative purposes of fairness and flexibility in the Fair Work Act…”
The High Court rightly noted that over the course of a year, Employee A might work longer days but still work the same amount of hours as Employee B when averaged out. If they upheld the Federal Court’s ruling, then Employee A would get more paid leave than Employee B, which would be entirely unfair.
In your organisation, what is defined as a “notional day” for employees?
Whatever your payroll has done in the past, it is clear that you should only be accruing (and paying out) personal / carer’s leave on the basis of a “notional” day. This means, one size might not fit all – but then again, payroll is rarely even executed this way!
Understanding this concept is vital in determining that your business is both accruing, and deducting, the right amount of hours for personal / carer’s leave.
If this all sounds like gobbledygook and you aren’t sure if you business is doing the right thing (now or in the past), then contact Mel at mel@hrunplugged.com.au 0424 995 502. Visit our website for more info www.hrunplugged.com.au