Important development for employers regarding personal leave

The Federal Court of Australia has recently issued an important decision which clarifies how employers must accrue and pay statutory personal leave entitlements for their employees. Personal leave comprises leave taken due to personal illness or injury (sick leave) or to provide care or support to a member of an employee’s immediate family or household who requires care or support because of illness or injury or due to an unexpected emergency (carer’s leave). The recent decision is likely to have implications for many businesses.

Background

In the case of Mondelez v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union [2019] FCAFC 138, the Full Court of the Federal Court was required to determine a dispute between Mondelez, an international food and beverage company, and the relevant Union regarding how personal leave should be accrued and paid for employees who work at the Company’s factory in Tasmania. The case centred around the provision in the National Employment Standards (NES) that employees, other than casuals, are “entitled to 10 days of paid personal/carer’s leave” for each year of service.

In summary, the employees who work in the particular factory for Mondelez are required to work 36 ordinary hours per week according to two different rosters. Under one roster, employees are required to work 7.2 hours per day, 5 days per week. Under the other roster, employees are required to work 12 hours per day, 3 days per week.

According to Mondelez, the employees at the factory should be entitled to paid personal leave calculated as an average of an employee’s daily ordinary hours based on a 5-day working week. Therefore, all employees at the factory are entitled to 10 days of paid personal leave for each year of service calculated at the rate 7.2 hours per day (i.e. 36 hours / 5 days = 7.2 hours), regardless of which type of shift is worked by the particular employee.
On the other hand, the Union argued that the entitlement to paid personal leave each day should be determined based on the actual ordinary hours of work that would have been worked by the particular employee on the day of the absence. Under this approach, the employees who worked the roster of 7.2 hours x 5, would be entitled to paid personal leave of 7.2 hours per day. Whereas the employees who worked the roster of 12 hours x 3, would be entitled to paid personal leave of 12 hours per day of absence. If an employee who worked the 12-hour shift roster was sick on one of the 4 days each week they did not work, they obviously would not be entitled to any paid leave for that day.

The majority of the Full Court accepted the Union’s interpretation. According to them, Mondelez’s understanding of paid personal leave placed too much emphasis on the monetary value of the entitlement and paid insufficient attention to the real purpose of the leave as being a form of income protection for permanent employees during periods of illness or injury or unexpected emergency.

Implications for Employers

In light of the above, employers should be aware that the statutory entitlement to personal leave accrues and is to be paid in increments of days and part-days, not hours. In particular, full-time and part-time employees are entitled to 10 days of paid personal leave for each year of service based on the number of ordinary hours that the employee would have actually worked on the particular day of absence. Ordinary hours do not include overtime hours.

Pursuant to the Court’s decision, for every day of personal leave taken by an employee, an employer is entitled to deduct one day from an employee’s leave balance. In situations where an employee takes only part of a day of leave, only that part taken can be deducted.

So, for example, if an employee works according to a 5 day roster of 4 x 8 hour shifts plus 1 x 6 hour shift, and the employee is absent on the day he/she was scheduled to work the 6 hour shift, the employee will only be entitled to 6 hours paid personal leave. However, one day would be deducted from the employee’s accrued personal leave balance.

As a matter of best practice, employers should review their past personal leave accruals and payments as well as their current payroll practice to ensure there is no underpayment issue and that they are complying with their legal obligations going forward. We note that many payroll systems currently deal with personal leave entitlements in hours, not days as is required.

If an employer is not accruing and paying personal leave in accordance with the NES, it will be exposed to a range of sanctions, including fines of up to $63,000 per breach for corporations and compensation for any damage suffered as a result of the breach.

Disclaimer

This article is general commentary on a topical issue and does not constitute legal advice. If you are concerned about any topics covered in this article, we recommend that you seek legal advice.

Queries

For further information please contact Martin Alden or Robert King.

The Author

Martin Alden

PARTNER, MELBOURNE