Tuesday, 18 August 2020

Update: High Court overturns Mondelez decision; clarifies what constitutes a day of personal leave

Under the Fair Work Act 2009 (the Act), an employee is entitled to 10 days of paid personal/carer’s leave for each year of service with an employer.

For many years, it has been generally understood by employers that personal leave accrues in hourly increments based on “notional days”, that is, 7.6 hours for a full-time employee working 38 hours per week (38 hours divided by 5 days). In practical terms, for full-time employees working the same hours each day, taking a single day of personal leave would usually have 7.6 hours deducted from their personal leave balance.

However, last year in a case concerning two employees of food manufacturer Mondelez Australia working three 12 hour shifts per week, the Full Court of the Federal Court (FCAFC) found that the personal leave entitlement under the Act is accrued and taken in days based on “the portion of a 24 hour period that would otherwise be allotted to working”.  The FCAFC found these employees were entitled to ten 12-hour personal leave days per year. Additionally, the FCAFC found that part-time employees were also entitled to 10 days of paid personal leave.

This meant that following that decision, the value of one day’s leave was to be determined by every individual employee’s ordinary hours of rostered work on the day the leave is taken. For employees who work more than the average of ordinary hours per day, they would be entitled to more hours of personal/carer’s leave. For example, if an employee worked a 10-hour shift within their ordinary hours, they would be entitled to be paid 10 hours of personal/carer’s leave for that day and only “one day” of personal leave be deducted from their personal/carer’s leave balance.

Mondelez and the Minister for Jobs and Industrial Relations appealed the decision in the High Court on the ground that the FCAFC erred in construing “day” as a “working day” for the purposes of personal leave.

The High Court agreed and overturned the FCAFC’s decision, finding that a day of personal leave “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.”

For employees whose patterns of work do not follow two-week cycles, the entitlement to 10 days’ leave can be calculated as 1/26th of an employee’s ordinary hours of work in a year.

The High Court also rejected the FCAFC’s comments regarding part-time employees, finding that part-time employees accrue personal leave pro-rata based on ordinary hours of work.

What does this mean for employers?

Employers can now have confidence in administering personal leave entitlements and the accrual of personal leave is based on 10 “notional days” based on the employee’s ordinary hours of work. This is ascertained based on the ordinary hours worked over a two-week period, or 1/26 of the number of ordinary hours worked over the course of a year for employees who work different roster patterns.

Similarly, part-time employees will accrue personal leave pro-rata according to their ordinary hours of work, consistent with the traditional understanding of personal leave accrual.

It remains the case that personal leave should be paid and deducted according to an employee’s ordinary hours of work for that period in which personal leave is taken.

Employers who adjusted their payroll to reflect the previous decision of the FCAFC will also need to check their payroll systems to ensure entitlements are reconciled and administered correctly.

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This article was produced by HR Legal. It is intended to provide general information only in summary format on legal issues. It does not constitute legal advice, and should not be relied on as such.

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