Information current at date of publication: 13 August 2020
The average reading time for this Alert is 4 minutes.
Mondelez Australia Pty Ltd v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union, Minister for Jobs and Industrial Relations v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union [2020] HCA 29
In September last year we issued an alert about a Federal Court decision which considered the meaning of a ‘day’ for the purpose of personal/carer’s leave under the Fair Work Act 2009 (Cth). The High Court has overturned that decision, confirming that a ‘day’ should be understood by reference to an employee’s ‘ordinary hours of work’.
Background
The issue arose in relation to Mondelez employees who worked 36 hours per week, averaged over a 4-week cycle and in 12 hour shifts. Mondelez provided the employees with 96 hours of personal leave per year of service, which equated to eight 12-hour days of personal leave.
The majority of the Federal Court found that the employees were entitled to ten days of personal leave, meaning in this case 120 hours of personal leave. Conversely, if they were rostered to work five 7.2 hour shifts per week, they would only be entitled to 72 hours of paid personal leave per annum.
The Minister and Mondelez appealed the decision, and the High Court handed down its judgment on 13 August.
Fairness and certainty under the Fair Work Act
The majority of the High Court ultimately found that the ‘working day’ interpretation adopted by the Federal Court was not consistent with the purpose or language of the Fair Work Act. The Act aims to provide fairness, flexibility, certainty and stability to both employers and their employees. Enabling inequalities between employees with different work patterns would oppose these objectives.
Accordingly, the High Court declared that the expression ‘10 days’ in the Act refers to 10 ‘notional days’ rather than 10 ‘working days’. This means that personal leave is accrued on the basis of an employee’s ordinary hours of work in a year. This was a slightly different interpretation to that proposed by Mondelez, which argued that the word ‘day’ meant the employee's average daily ordinary hours of work based on a standard five-day working week. However, the results of the ‘average day’ and ‘notional day’ interpretations were the same.
The High Court found that the ‘notional day’ interpretation protects employees against loss of earnings by ensuring that the amount of leave accrued does not vary according to their pattern of work. If employees were to accrue leave on the basis of their ‘working days’, employees whose hours were spread over fewer days with longer shifts would accrue more leave than employees who worked the same number of hours per week over more days. Similarly, part-time employees could become entitled to the same amount of leave as full-time employees.
The High Court also found that a ‘working day’ interpretation would have adverse consequences for flexible working arrangements. It could result in employers preferring employees who could work a five-day working week. This would be inconsistent with allowing employees to balance their employment commitments with their family or home responsibilities.
The High Court determined that these outcomes would be unfair and contrary to the purposes of the Act. It concluded that calculating leave entitlements on the basis of ordinary hours of work promotes fairness and certainty, by ensuring that both employers and employees are able to know, at any point in time, how much paid leave an employee has accrued.
The previous decision of the Federal Court caused unrest with employers, many of whom had payroll systems that accrued leave based on the number of ordinary hours an employee works, and on a pro-rata basis for part-time employees. The decision of the High Court resolves this issue, providing certainty for businesses when calculating their employees’ leave entitlements. However, although the High Court accepted Mondelez’ argument, the employees’ leave entitlements were still ultimately determined by the terms of the Mondelez enterprise agreement. Employers who are currently drafting or negotiating enterprise agreements should take note of how the entitlement to personal leave under the Act is now being interpreted, and consider how this should influence the wording of any leave-related agreement terms.
How we can help
If your organisation wishes to review its leave accrual practices, please contact Russell Kennedy’s Workplace Relations, Employment and Safety team.
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