The Dawn Of A New “Day” – Recent Full Federal Court Decision Shakes Up the Meaning and Accrual of Personal/Carer’s Leave Entitlements

This month we look at a recent Full Federal Court decision which is likely to have significant impacts on the accrual and taking of personal/carer’s leave. We explain how this decision affects employers and outline the steps you should take to ensure you are managing your employee entitlements correctly.

Quick refresher – The entitlement to paid personal/carer’s leave

The National Employment Standards (NES) in the Fair Work Act 2009 (Cth) (the Act) provides that employees (other than casual employees) are entitled to a minimum of 10 “days” of paid personal/carer’s leave per year.

These “days” can be used when an employee is ill or injured or where they need to care for a family or household member who is ill or injured or there is some unexpected emergency.

An employee’s entitlement to paid personal/carer’s leave accrues progressively during a year of service according to the employee’s ‘ordinary hours of work,’ and accumulates from year to year.

Most (if not all) national system employers have typically operated on the basis that these entitlements accrue gradually over the course of a year, represented as a set number of hours. In other words, if a full-time employee works 38 hours spread across 5 days per week (or an average of 7.6 hours per day), then they will accrue 76 hours of personal/carer’s leave in a year (being 10 ‘notional’ days of 7.6 hours). To use another example, if a part-time employee works 36 hours per week (or an average of 7.2 hours per day when spread across 5 days), then they will accrue 72 hours of personal/carer’s leave in a year (being 10 ‘notional’ days of 7.2 hours). The common understanding has been that the maximum entitlement, irrespective of the number of hours worked, is 76 hours per year.

Many payroll support programs are based on these assumptions. However, the accuracy of these assumptions recently came under examination by the Full Court of the Federal Court in the case of Mondelez v the Australian Worker’s Union (AMWU) (Mondelez). Why is this important? Well, because of the decision in this case, a new meaning of the word “day” has dawned which all employers must now apply, unless it is overturned, and as currently determined fundamentally changes the way in which personal/carer’s leave entitlements are accrued.

Earlier this month, the Federal Government announced that it will seek leave, in the High Court, to appeal this decision. We will notify employers of the outcome of this appeal once known.

In the meantime, employers need to consider do they wait for the appeal to be decided or do they make changes now. At the very least employers should be mindful that if the decision is not overturned by the High Court, they will need to revisit their payroll systems and change their accrual practices. We explain the details of the Mondelez case below.

The Mondelez Case

The key issue raised in the Mondelez case was this: should personal/carer’s leave really be interpreted as a ‘notional’ day calculated as an average of the ordinary hours worked when spread across 5 days, or is it more accurate to interpret it as an ‘actual’ day, based on the employee’s actual hours of work as per a roster (which could be some greater number of hours, for example 12 hours). This issue is particularly relevant for employers who engage shift workers, as was the case in Mondelez.

Mondelez (formerly Cadbury), had an Enterprise Agreement that provided that employees would receive a personal/carer’s leave entitlement that was more generous than their personal/carer’s leave entitlement under the NES. It provided that employees who worked 12-hour shifts would receive 96 hours per annum (as opposed to the 76 hours understood to be the maximum entitlement provided by the NES for full time employees) and all other employees would receive 80 hours.

Mondelez had two particular employees who worked three 12-hour shifts per week (or 36 hours per week). Whenever they took a personal/carer’s leave day, 12 hours would be deducted from their accrued 96 hours entitlement. The problem was that by deducting 12 hours each time they were sick, they didn’t actually receive a total of 10 “days” leave – rather they exhausted their entitlements after 8 days.

The employees, via the AMWU, then argued that the accrual of a ‘day’ in the NES should be based on an actual ‘calendar day’ rather than an averaged ‘notional’ day. In turn, it was argued that the employees in question should, where leave is taken, be paid for ten 12 hour shifts per year (or 120 hours per annum) as a result of their ordinary hours of work.

Understandably, Mondelez was concerned by this and counterargued that under such an arrangement, employees who work longer shifts would be entitled to more hours of personal/carer’s leave per annum, even though they work the same number of hours as other employees on average when spread across 5 days per week. This was said to be unfair and unreasonably add to the administrative burden felt by employers. However, the Court disagreed with the Mondelez response.

The Court sided with the employees and AMWU, finding that the word “day” for the purposes of section 96 of the Act (which deals with personal/carer’s leave) should be given its natural and ordinary meaning as a ‘calendar day’. In other words, if an employee working a 12-hour shift is sick, they must be paid in full for those 12 hours (as opposed to the averaged notional 7.2 hours for these workers). Further, while 12 hours should be deducted from their accrued entitlements on each day’s absence, this cannot be used to reduce the number of days per annum on which they are entitled to be on paid personal/carer’s leave. The entitlement is 10 days per annum regardless.

The Court emphasised that the whole point of personal/carer’s leave is to provide ill/injured employees with a form of income protection, so that they do not lose income when they are sick. This objective cannot be fulfilled if an employee who works a longer shift and therefore exhausts their averaged ‘notional’ personal/carer’s leave entitlement quicker than an employee working the same hours spread across 5 days, is only entitled to take some lesser number of days.

What does this mean for employers?

Subject to employer’s commencing compliance now, if the decision is not overturned, then employers will definitely need to undertake a reconciliation of leave accruals and usage dating back 6 years (subject to a decision on whether there is a limitation period that halts the reconciliation at 6 years). A failure to do so could enable eligible employees to seek compensation for any shortfall in entitlements as well the imposition of significant civil penalties against the employing entity and any Directors, Accountants, HR Managers or any other employee knowingly concerned in the contravention of the Act.

As it stands, the Mondelez decision is current law and employers should at least take precautionary steps to prepare for any confirmed required change. This should include reviewing payroll systems to identify how the Mondelez decision impacts their specific workplace practices.

Unless the decision is overturned, all wage employees must accrue 10 days of personal/carer’s leave per annum and they must be paid for all hours that would ordinarily be worked on any such occasions. Note that salary employees given standard salary arrangements will not be impacted by this decision. Note also that a particular problem might arise with part-time employees and rosters that provide for different hours on different days – there is still on-going consideration as to how to treat these arrangements (and as an example what is being considered here is whether there might be an averaging of hours or whether the hours/payment will reflect the actual day of work the employee is missing because of illness or injury) – so more to come here in these types of arrangements.

Aitken Legal will keep clients informed of any changes or updates on this issue. We are able to assist employers with reviewing their payroll processes. We can identify any pay discrepancies and advise on available options to address and minimise legal risk. For a confidential discussion about the exposures in your workplace, contact one of our Employment Lawyers, who are ready to assist.

Disclaimer: The information contained this article is general and intended as a guide only. Professional advice should be sought before applying any of the information to particular circumstances. While every reasonable care has been taken in the preparation of this update, Aitken Legal does not accept liability for any errors it may contain. Liability limited by a scheme approved under professional standards legislation.