Australia: A “day” by any other name: High Court delivers a landmark judgment clarifying paid personal leave entitlements under the NES

Mondelez Australia Pty Ltd v AMWU [2020] HCA 29

In an eagerly anticipated decision, the High Court has decided that the entitlement to ’10 days’ of personal leave under the Fair Work Act 2009 (Cth) is a reference to the average of an employee’s ordinary hours of work over a two-week period, or 1/26^th of the ordinary hours of work in a year, rather than ’10 working days’ of paid personal leave per year.

This has special relevance to all workplaces where ordinary hours are compressed over less than 5 days per week, and indeed to all part time employees.

Context

Perhaps because of geographical location or the desire for continuous production from modern plant and equipment, our labour market has evolved to include various flexible arrangements in scheduling hours of work.

Under section 96 of the Fair Work Act, full-time and part-time employees are entitled to 10 working days of paid personal/carer’s leave for each year of employment. This leave is intended to protect employee’s against loss of earnings by reference to ordinary hours of work when they are incapacitated by illness, injury or need to provide care to family.

The High Court has confirmed that payment for those absences is to be based on an employee’s ordinary hours of work over a two week period.

It is curious that this question remained unresolved more than 11 years after these provisions were enacted.

In our experience, this issue (and the related issue of how annual leave is properly accrued and paid) has been an ongoing uncertainty for employers, and we have seen inconsistencies on how these have been applied across different industries.

This decision will hopefully lead to clarification of leave entitlements that is so desperately needed.

Summary

Two Mondelez Australia Pty Ltd (Mondelez) employees were employed to work 36 hours per week, averaged over a four week cycle. That means that instead of working a regular Monday to Friday week, they worked their ordinary hours over three 12 hour shifts each week.

The question before the Court was whether these employees were entitled to:

1. 76 hours of personal leave per year – being 36 ordinary hours per week divided by 5, (as this is the usual number of working days in a week), times 10 days; [1] or
2. 120 hours of personal leave per year – being 12 ordinary hours per day (as this is the usual number of hours worked per shift) times 10 days.[2]In an earlier decision, the Full Federal Court favoured the latter “working day” interpretation, which led to inconsistent outcomes between employees in the same workplace who completed the same work on different rosters. The High Court overturned that approach and favoured the former view.
3. Mondelez brought an application for declarations to clarify the issue.

Factors that led to the decision

There are two judgments which favour the employer’s position and found the “notional day” interpretation to be the correct one.

The first judgment was written by the plurality of Chief Justice Keifel, Justices Nettle and Gordon, and the second is a separate judgment by Justice Edelman.[3] Whilst these judgments give different emphases to different arguments, they broadly take into account following factors:

Objects of the Fair Work Act

The objects of the Fair Work Act are to provide fairness, flexibility, certainty and stability for employers and their employees. “Fairness” necessarily includes fairness between employees, particularly given the reality of modern day employees working different rosters side-by-side.

On the AMWU’s "working day" construction, part-time employees would be entitled to the same amount of leave as, or more leave than, full-time employees. For example, a part-time employee working one day per week for 7.6 ordinary hours would be entitled to the same amount of paid personal leave per annum as a full-time employee. And a part-time employee working more ordinary hours per week as a single shift would accrue more hours of leave than a full-time employee.

Additionally, a person who was employed one day per week by a number of employers would be entitled to ten days of paid personal leave from each employer. This differential treatment between full-time and part-time employees does not resonate with, and is directly contrary to, the objects of the Fair Work Act, and was conclusively rejected by the High Court.

Statutory context

The plurality also placed significant emphasis on the statutory context of section 96(1), and examined the similarity of language and concepts in other provisions of the Fair Work Act. In particular, it was considered necessary to align the accrual rules contained in section 96 with the payment rules contained in section 99.

Further, as Edelman J indicated, the apparent anomaly of Mondelez’s “notional day” interpretation, with 10 calendar days of paid personal leave for day workers but only six calendar days of leave for some shift workers, is lessened once it is appreciated that a shift worker (like the relevant Mondelez employees), with compressed hours of work and fewer days of work, is inherently less likely to fall ill on a day when they are required to attend work, than an employee who works on more days, and less likely to need to provide care on a day of work, although if they do need to do so then they will need to take more hours of leave on that day of work. Hence a shift worker with the same ordinary hours of work will need fewer days of leave but the same number of hours of leave to ensure the same "safety net" protection of income as a day worker. As stated by Edelman J, this anomaly disappears when the full context of section 96(1) is considered and it becomes apparent that Mondelez's interpretation was that which was intended by Parliament.

Explanatory memorandum

Although an explanatory memorandum is not prepared by Parliament, there has been a very spirited application of the explanatory memorandum by some members of the Court. The explanatory memorandum to the Fair Work Bill 2008 (Cth) confirmed that section 96 does not depart from its equivalent entitlements in the Workplace Relations Act 1996 (Cth), which made it clear that the reference to “10 days” in section 96 does not bear its “ordinary meaning” (i.e. 10 calendar days), but instead was merely a simpler way of expressing the concept that employees were entitled to the equivalent to 2 weeks of paid personal leave each year. That is, the predecessor provisions had clearly adopted the “notional day” interpretation to the personal leave provisions, and there was nothing that indicated that the Fair Work Act was intended by Parliament to depart from this position.

What does this mean for employers?

This decision has a number of potential implications for employers, in particular those that employ part-time employees, or employees who work shift-based rosters.

Personal leave

It is now abundantly clear whether the reference to “days” in section 96 of the Fair Work Act means 10 notional days based on an employee’s ordinary hours of work. This is equivalent to 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.

Employers should consider whether their payroll systems need to be updated to reflect this position, particularly if those systems are based on the previous Full Court interpretation of “day”.

Interaction with Enterprise Agreements and individual contracts

This decision will not impact on employees covered by enterprise agreements or contracts of employments (depending on their wording) that contain a different paid personal leave entitlement to the NES.

Annual leave

Although annual leave was not addressed in any detail, it appears tolerably clear that the plurality would have interpreted annual leave provisions of the Fair Work Act in the same manner. As stated by the plurality, the similarity of language and concepts in the paid personal leave scheme and the paid annual leave scheme in the Fair Work Act reflects that "10 days" (in respect of paid personal/carer's leave) and "4 weeks" (in respect of paid annual leave) progressively accrue according to an employee's "ordinary hours of work" and are cashed out in the same way.

However where an employer compresses an employee’s hours, what constitutes a “week” under the Fair Work Act will become a less frequent issue than what is interpreted to be a “day”, but it will still remain an issue.

[1] This was argued to arise from a "notional day", consisting of one-tenth of the equivalent of an employee's ordinary hours of work in a two week period (i.e. based on an employee’s averaged ordinary hours on an assumed 5 day working week).

[2] This is 10 “working days", consisting of the portion of a 24-hour period that would otherwise be allotted to working (i.e. the traditional “calendar day”).

[3] Gageler J dissented, preferring the Full Court’s “working day” interpretation, and would have dismissed the appeal.

This article was written by Anthony Longland, Partner and Giacomo Giorgi, Senior Associate.  

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