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Employment and Workplace Relations update: High Court clarifies personal leave entitlements

Aug 24, 2020

Recently, the High Court of Australia overturned a decision of a majority decision by the Full Court of the Federal Court of Australia that gave permanent employees 10 days’ paid personal leave per year regardless of their pattern of work or daily hours of work.

The decision of the High Court on 13 August 2020 confirms that the Fair Work Act’s personal leave entitlement is a progressively accruing entitlement to paid personal/carer’s leave where a ‘day’ refers to a ‘notional’ day — not, as had previously been decided by the Full Court, a ‘working day’.

The origins of the dispute

Employees of manufacturing company Mondelez Australia Pty Ltd (the maker of Cadbury chocolate) are covered by an enterprise agreement that provides for ordinary hours of 36 hours per week averaged over a four-week roster with shifts of 12 hours. The agreement expressly provided that employees working 12 hours shifts are entitled to 96 hours of paid personal leave per year, with 12 hours deducted from an employee’s personal leave balance on each occasion they were absent for personal leave or carer’s leave.

The practical effect of this was that these employees received eight days’ personal leave. It was argued before the Full Court of the Federal Court that this was inconsistent with and less beneficial to these employees than the 10 days’ provided in section 96 of the Fair Work Act.

Taking a literal approach to the question, the majority of the Full Court held that ‘day’ in section 96(1) of the Act refers to ‘the portion of a 24 hour period that would otherwise be allotted to work’. The effect of this was to provide 12-hour shift workers with 120 hours of personal leave per year and part-time employees with 10 days’ personal leave regardless of their rostered hours of work.

The High Court’s decision

By contrast, the majority of the High Court considered section 96(1) in the context of the Fair Work Act as a whole, including with reference to section 92(2) which provides that personal leave accrues according to an employee’s ‘ordinary hours of work’, as well as the legislative history of the personal leave entitlement and fairness as between different employees.

The majority of the High Court rejected the ‘working day’ construction because amongst other things it “is not consistent with the purpose of s 96 or the stated objectives of the Fair Work Act of fairness, flexibility, certainty and stability”. They observed that this approach:

  • was unfair because it would lead to inequalities between employees with different work patterns;
  • was inflexible for potentially discouraging part-time employment and thereby affecting both employers in managing their businesses and employees who relied on the flexibility of part-time arrangements balancing their work and family responsibilities by increasing the on-costs of part-time employment; and
  • created uncertainty for employers in the calculation and deduction of part-day absences from the entitlement.

The High Court resolved these disparities of fairness, inflexibility and uncertainty by declaring that:

Practical implications

As a result of the decision, if an employee is entitled to personal leave under the Fair Work Act, employers simply need to calculate the employee’s personal leave entitlement of 10 days per year on a pro rata basis, with personal leave accruing at the rate of 1/26 of the employee’s ordinary hours of work in a year, irrespective of whether they are full-time, part-time or a shift worker.

Given that most employers accrue personal leave on this basis anyway, no changes to leave records and payroll will be necessary in most cases. However, if changes were made to your records as a result of the earlier decision of the Federal Court of Australia, then an adjustment may now be made to those accruals.

More information

For more information on the High Court’s decision, or advice in relation to personal leave entitlements, please contact a member of our Employment and Workplace Relations team on (03) 8600 8888.

Note: This update is a guide only and is not intended to constitute legal advice.