On 21 August 2019, the Federal Court of Australia reached a significant decision on the way employees accrue leave. The decision affects a specific category of employee leave: personal/carer’s leave, and comes as a result of a court case between global confectionery business, Mondelez, and the Australian Manufacturing Workers Union.
Broadly, the court ruled against Mondelez in a decision which alters the way that personal/carer’s leave should be accrued for employees. The verdict bucks the traditional approach taken to this category of leave by employers in Australia, and means that most will need to adjust the way they implement and handle payroll for it.
Accrual of Personal/Carer’s Leave Under the Fair Work Act
Under section 96 of Australia’s Fair Work Act, employees are entitled to 10 days of personal/carer’s leave for each year of service they complete with their employer. In interpreting this rule, almost all Australian employers have, up to now, worked on the assumption that personal/carer’s leave accrues progressively in hourly increments. With the August 2019 court decision, that approach changed.
What Has Changed?
The court’s decision in Mondelez Australia Pty Ltd v AMWU [2019] FCAFC 138 adjusts the prevailing legal interpretation so that personal/carer’s leave is accrued in increments of days rather than hours.
The Arguments
The contested issue between Mondelez and the AMWU concerned the entitlement to personal/carer’s leave for employees’ working 12 hours shifts per day, and those working less than 12 hours per day.
- Mondelez argued that the leave accrued by employees should be proportionate to their hours worked: the more hours worked, the more days leave accrued - where ‘day’ is defined as an average of an employee’s hours over a 5 day work week.
- The AMWU argued against that, stating that ‘days leave’ referred to calendar days (rather than an average of weekly hours) and that, furthermore, because of the interrelated National Employment Standards (NES) and the FWA, employees in Australia are entitled to a minimum 10 calendar days of personal/carer’s leave each year.
Under Mondelez’s interpretation, thanks to definition of ‘day’, employees who work longer hours could end up with fewer days of personal/carer’s leave than an employee working less hours. By contrast, under the AMWU’s interpretation both types of employee would be entitled to at least 10 days leave.
The Decision
The decision of the Federal Court reflected the majority opinion that the purpose of personal/carer’s leave is to provide income protection during illness or injury. Therefore, the definition of ‘day’ should be construed as a ‘calendar day’ to optimise that outcome for employees and reflect the original legislative intention.
Consequences for Employers
Pending an upcoming appeal of the Federal Court’s decision, to help employers adjust to the new regime, Australia’s Fair Work Ombudsman (FWO) has issued new advice on how to treat personal/carer’s leave accrual:
- All employees (full and part time) are entitled to 10 working days of paid personal/carer’s leave for each year of employment.
- Personal/carer’s leave is intended to protect employees’ income when they cannot work due to illness or injury, or to provide care to a family member who is ill or injured.
- Personal/carer’s leave is now to be calculated in working days rather than hours. A ‘working day’ means the portion of a 24 hours period that an employee spends working.
- Entitlement to personal/carer’s leave is based on the time an employee has spent working for an employer, and is to be calculated in days. Every 5.2 weeks, for example, will accrue another full day of leave.
- Days of personal/carer’s leave taken by employees are deducted from their balance accordingly. Part days are also deducted.
The legislative definition of ‘day’ may cause some confusion to employers who pay their shift workers annual salaries - and especially where those salaries include overtime compensation for work beyond regular hours. In practice, the decision may mean employees within an organisation will end up accruing different amounts of personal/carer’s leave (beyond their entitlement) and employers will have to ensure their payroll systems are capable of handling that.
For more information and insight into Australia's payroll, tax, and leave regulations, browse our Australia Global Insight Guide.