Please note this decision has now been overturned by the High Court. Click here for our latest update regarding this case.
The Full Court of the Federal Court has handed down a significant decision on the meaning of what constitutes a ‘day’ for the purposes of paid personal leave, which will have substantial implications for how many employers administer personal leave entitlements.
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, employees taking a single day of personal leave would usually have 7.6 hours deducted from their personal leave balance, irrespective of the number of hours of work they would have worked on that day.
The recent decision of the Federal Court in Mondelez v Australian Manufacturing Union concerned the personal leave entitlements of Mondelez employees, including two who worked three, 12-hour shifts per week. Mondelez, the employer, sought to argue that personal leave should be accrued and taken based on the concept of “notional days”.
The Full Court however rejected this approach, finding that the personal/carer’s 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”. Consequently, the Full Court found that the two employees who worked three 12-hour shifts per week were entitled to ten 12-hour personal leave days per year.
In doing so, the Court emphasised that the personal leave provisions of the Act establish a statutory form of income protection for permanent employees and that the Act requires employers to pay employees on personal leave “as if they had not been absent”.
This means that following this decision, the value of one day’s leave must 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 will be entitled to more hours of personal/carer’s leave. For example, if an employee works 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.
What about annual leave?
The Federal Court did not address the method of accruing and taking annual leave in its recent decision.
Under the Act, the entitlement to annual leave is expressed differently to personal leave, it is “4 weeks” paid annual leave (as opposed to days).
While the Full Court did not provide any certainty in relation to the treatment of annual leave, adopting an approach consistent with the Mondelez decision for annual leave as well as personal leave is recommended. That is, employees should be paid for their actual ordinary hours they would have worked on a day or period which has been taken as annual leave.
Implications for employers
Mondelez has sought to appeal the decision in the High Court. Until then, this decision still stands and is the guiding principle on the interpretation of the word “day” for the purposes of personal/carer’s leave.
This decision may create some difficulties for employers as many payroll systems calculate leave entitlements as a fraction of hours worked, and/or where employees take ‘half days’. It may also give rise to underpayments if employers have been incorrectly administering personal leave entitlements.
Moving forward employers will need to check their payroll systems to determine whether entitlements are administered correctly. If employees are accruing entitlements on an hourly basis, adjustments may need to be made to ensure employees are receiving personal leave entitlements based on the actual ordinary hours worked.
