Entitlement to Personal Leave – Full Court rules on Test Case

UPDATE: On 13 December 2019, the High Court granted both the Morrison Government & the employer, Mondelez Australia Pty Ltd, special leave to appeal the Federal Court decision.

On 21 August 2019, a Full Federal Court issued a long-awaited decision of enormous significance within the industrial relations landscape, ruling that the annual entitlement to “10 days of paid personal/carer’s leave” contained within the Fair Work Act 2009 (Cth) is to be interpreted as 10 “working days” for all permanent employees. This entitlement to 10 “working days” per year also extends to part-timers, regardless of the number of hours or days they work per week.

In coming to its judgement in Mondelez v AMWU & Ors [2019] FCAFC 138, the Full Court rejected the long-standing and widely applied practice that the entitlement is notionally capped at 76 hours per year for full-timers with part-timers receiving a pro rata amount, confirming instead that, in the case of employees who work as many as 12 ordinary hours per day, they will accrue an entitlement equivalent to as much as 120 hours of personal/carer’s leave per year (i.e. 10 days x 12 hours).

The background

When the WorkChoices legislation standardised personal/carer’s leave at the amount of 10 days per year across the federal system of industrial relations from March 2006, that legislation contained specific wording that implied that the entitlement of 10 days was taken to mean a maximum annual accrual of 76 hours (pro rata for part-time employees). When the Fair Work Act 2009 (the FW Act) superseded WorkChoices, the reference to “10 days of paid personal/carer’s leave” continued on within the National Employment Standards but no such wording was included to clarify if the entitlement equated to a notional number of total hours per year.

In the absence of specific wording to the contrary and, in light of the fact the FW Act contained no designated definition with respect to the term “day”, the vast majority of employers have continued to comfortably apply the traditionally accepted notion that “10 days of paid personal/carer’s leave” equated to a maximum of 76 hours per year (pro rata for part-time employees). This interpretation of the wording within the National Employment Standards (NES) has not been so comprehensively considered by a relevant court until the current ‘Mondelez’ matter.

Worth noting:   The traditionally accepted practice of accruing personal/carer’s leave on an hourly basis with a notional annual cap had a further foundation in the Queensland state system of industrial relations, wherein, prior to the commencement of WorkChoices, many awards defined the sick leave entitlement (as it was known then) as an entitlement of 60.8 hours per year (equivalent to 8 days), which accrued on the basis of 7.6 hours per six week period. This entitlement was clearly pro rata for part-time employees.

The ‘Mondelez’ matter

The issue of the interpretation of the entitlement to “10 days” personal/carer’s leave under the NES first reared its head for the employer, chocolate manufacturers Mondelez International, in late-2017, when, during the approval process for their proposed enterprise agreement, they refused to provide an undertaking to the Fair Work Commission (FWC) that would address the FWC’s identified concern that employees working 12-hour shifts would not be entitled to their full 10 day NES entitlement to personal/carer’s leave (as the proposed agreement capped accrual at 96 hours per year).

Mondelez disputed the FWC’s original interpretation regarding the calculation of personal/carer’s leave for employees who work more than 7.6 hours per day and the case found its way to the Federal Court in late-2018, after the FWC rejected the requests of Mondelez and the then Federal Workplace Relations Minister, Craig Laundy, for the proposed agreement to be considered by a Full Bench of the FWC.

During proceedings before the Federal Court, Mondelez argued that the NES wording referencing “10 days of paid personal/carer’s leave” should be construed as meaning a “notional day”, with the traditionally accepted model being a “notional day” of maximum 7.6 hours with accrual being proportionate for part-time workers. Mondelez argued that any other construction of the wording would promote “inequitable” outcomes and “unreasonable results” amongst workers whilst also making financial provision for personal/carer’s leave exceedingly difficult for employers.

In reaching its 2-1 judgement, the Full Court rejected nearly all of the arguments posed by Mondelez, finding instead that a “day”, for the purposes of the entitlement to personal/carer’s leave, should be interpreted as a “working day” for each employee, being the time the employee is scheduled to work in a 24 hour period, commencing from the time the employee was due to start work on the particular day.

The Full Court dismissed the employer’s concerns in relation to the potential for inequality in respect of the personal/carer’s leave entitlement being different for employees working the same number of hours per week, saying:

Mondelez’ submission that it is “inequitable” that an employee who works fewer, longer shifts effectively gets more personal/carer’s leave than an employee who works a standard five-day week cannot be accepted. If both employees are able to take an equal number of “working days” of paid personal/carer’s leave and neither loses income, how can there be inequity or unfairness to one of them? Neither has had to work on the relevant days. Neither has suffered a loss of earnings as a consequence of not working.

The Full Court was also unsympathetic to Mondelez’ submissions regarding the difficulties that would be created for employers in attempting to calculate the personal/carer’s leave accruals for workers based on the “working day” interpretation, commenting:

“Mondelez points to the difficulties that would be caused for employers under the “working day” construction. These include problems for employers in making financial provision for personal/carer’s leave when employees working the same number of weekly hours have different entitlements. This argument again proceeds on the misapprehension of the effect of s 96(1) of the FW Act. The provision confers an equal entitlement upon all employees. What is different between employees is the entitlement to take paid personal/carer’s leave, which only arises in the circumstances set out in s 97. The very nature of paid personal/carer’s leave makes planning difficult, except by reference to averages or maxima. While it is true that planning for employers might be somewhat easier under the “notional day” construction, that provides insufficient support for that construction in light of the countervailing factors. (emphasis added)

Read the Full Court’s detailed reasoning in the 56-page decision, accessible at the bottom of this page.

Why this decision matters

Whilst some of us might question whether it really was the intent of the drafters of the FW Act to convey an entitlement to 10 “working days” of personal/carer’s leave to all permanent employees – indeed, even Justice David O’Callaghan was unable to reach the same conclusions as Justices Mordy Bromberg and Darryl Rangiah on construction of the term, “10 days of paid personal/carer’s leave” – this decision represents an authoritative majority ruling from the Federal Court. No previous case has comprehensively addressed the interpretation of the wording in the NES/FW Act (though a small number of similar cases have previously considered the wording of enterprise agreements which have limited scope).

As this decision expressly rules on the interpretation of the NES/FW Act, it has application to all permanent employees captured by a Modern Award, as well as national-system employees that are award-free. Permanent employees captured by an enterprise agreement are also directly affected by this interpretation as no enterprise agreement, regardless of its age, can convey an entitlement that is less beneficial than the entitlements extended by the NES.

What now?

If you are one of the majority of employers who has traditionally accrued personal/carer’s leave on an hourly basis with reference to a notional maximum of 76 hours per year, you will need to examine and amend your payroll system to ensure that each full-time and part-time employee is now accruing an entitlement equivalent to 10 “working days” per year.

This means, if you employ a full-time employee who works four, 9.5-hour days per week, you need to ensure they are accruing the equivalent of 95 hours personal/carer’s leave per year (i.e. 10 days x 9.5 hours). Similarly, if you employ a part-time employee who works two, 8-hour days each week, you now need to ensure they are accruing the equivalent of 80 hours personal/carer’s leave per year (i.e. 10 days x 8 hours).

If your payroll program will allow you to accrue personal/carer’s leave in days as opposed to hours, you should explore how this can be actioned.

Example formulas to assist employers in accurately accruing 10 “working days” of personal/carer’s leave can be found in our updated Fact Sheet – Personal Leave – Definition & Calculation. Subscribers, just login to your online account and go to ‘Fact Sheets’; you’ll find the updated resource under the ‘Leave’ subheading.

Mondelez v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union Known as the Australian Manufacturing Workers Union (AMWU) [2019] FCAFC 138 (21 August 2019)