Landmark Ruling on Leave Entitlements

Personal (sick) leave to be calculated on days not hours

Published by Australian Bookkeepers Network

9 September 2019

For bookkeepers who handle client payroll, last month the Full Federal Court handed down its decision in Mondelez v AMWU [2019] FCAFC 138, where it rejected the position put by Mondelez (the employer) that employees are entitled to personal/sick leave based on an average of their ordinary hours worked, and only up to a maximum of 76 hours per year. This is the widely-held view of most employers pursuant to the Fair Work Act 2009. Under this Act, the entitlement to sick leave is 10 days per year. Accordingly, the common approach taken when accruing personal leave was to accrue 76 hours per year (based on the premise that this equates to 10 days i.e. 7.6 hours per day, for a 38-hour working week).

The Federal Court, however, confirmed that personal leave is required by the Fair Work Act to be accrued and taken by reference to “days” (10 days per year) rather than a notional number of average hours. Consequently, Mondelez employees who worked three 12-hour shifts of ordinary hours per week are entitled to be paid for 12-hours per day of personal leave taken, rather than only 7.2-hours per day as was argued by Mondelez (i.e. 36 hours that they worked divided by 5 days per week).

This new interpretation is at odds with employers across a range of industries who provide for leave entitlements in enterprise agreements and payroll systems as a set number of hours per year, rather than 10 days per year. This approach is a hangover and is consistent with the former Workplace Relations Act, where the entitlement to leave was based on a number of hours. The Fair Work Act however expresses the entitlement in terms of days.

The key points from the Federal Court’s ruling include:

  • Contrary to what was thought to be the case and is widespread practice, a “day” of leave is not based on an employee’s average daily ordinary hours worked in a week, capped at a maximum of 38 ordinary hours per week (or an average of 7.6 hours per day).
  • Instead, personal leave accrues in “days” over a year of service, and a “day” is the portion of a 24-hour period that would be allotted to work.
  • For every day of personal leave taken, a day is deducted from the employee’s accrued leave balance.
  • If only a part of a day is taken, then the number of days in the employee’s leave balance is reduced proportionally.
  • While a day of leave could be converted into hours at any time, how many hours of leave a “day” will convert into depends on how many hours are worked on the day the leave is taken (see example 3, below).

EXAMPLE 1

As per the Mondalez case, an employee works 3 x 12-hour shifts of ordinary hours

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EXAMPLE 2

Tim and Jake both work 38-hour weeks for the same employer. Tim works 5 days for 7.6 hours, while Jake works 4 days for 9.5 hours.

image

EXAMPLE 3

Kate works three x 9 hour days (Monday to Wednesday) and one x 7 hour day (on Friday)

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Take-Home Messages

  • The employer (Mondalez) may seek leave to appeal this decision to the High Court, though there is no guarantee the Court will hear the case (leave is only granted in special, landmark cases where the law is uncertain or the Court thinks a mistake may have been made). As such, employers should continue to calculate leave entitlements as per normal while we await direction from Fair Work Australia on their final position on this issue.
  • If this interpretation stands, depending on further direction from Fair Work, employers may need to review their systems for the accrual and taking of leave – you may need to contact your payroll software provider.
  • Time counted towards annual leave continues to be based on ordinary hours, not overtime.

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