The Full Federal Court has handed down a landmark decision that, if it stands, will have far-reaching implications for employers’ leave accrual practices. The 2-1 majority in Mondelez v the Australian Manufacturing Workers Union (AMWU) found that all employees (including part-time employees) are entitled to 10 “working days” of personal/carer’s leave per year, regardless of the number of hours ordinarily worked each shift.

In AMMA’s view, the decision is inconsistent with current and longstanding industry practice, the Explanatory Memorandum to the Fair Work Act 2009 (FW Act) and previous case law.

In the event there is no High Court appeal or legislative developments associated with this decision, employers are encouraged to start reviewing their leave accrual practices and assess their organisational risk exposure.

A summary of this decision is set out below. Members with concerns and/or seeking advice should contact their local AMMA office.

Background

Section 96 of the FW Act entitles employees to 10 days of paid personal/carer’s leave for each year of service with leave accruing progressively according to employees’ ordinary hours of work.

On 16 October 2017, Mondelez Australia Pty Ltd (Mondelez) made an application to the Fair Work Commission (FWC) for approval of an enterprise agreement covering its Cadbury chocolate manufacturing plant in Tasmania. All full-time employees at the plant work 36 ordinary hours per week, with some working 7.2 hours per day over five days per week, and others 12 hours per day over three days per week.

The proposed enterprise agreement provided for 80 hours of personal/carer’s leave for all full-time employees regardless of which roster they worked. The FWC expressed concern that employees who worked 12-hour shifts would not be entitled to their full 10 days personal/carer’s leave under the FW Act.

The FWC invited Mondelez to make undertakings to rectify the apparent shortfall however Mondelez declined and made submissions that there was no inconsistency between the entitlement in the enterprise agreement and the National Employment Standards (NES).

The enterprise agreement was subsequently approved after an amendment provided employees working 12-hour shifts 96 hours of paid personal/carer’s leave per year of service. Seeking to put an end to any dispute on the matter, Mondelez applied to the Federal Court for two declarations as follows:

  1. when 12-hour shift workers are absent from work, 12 hours should be deducted from their personal/carer’s leave balance for each day of personal/carer’s leave; and
  2. that the personal/carer’s leave entitlements provided for under its enterprise agreement exceeded the NES minimums for employees working 12-hour shifts.

Parties interpret the meaning of “days”

Mondelez argued that its shift workers who worked three 12-hour shifts per week (36 ordinary hours) should accrue 72 hours of personal/carer’s leave per year, reflecting 10 days of 7.2 ordinary hours per day of work. Mondelez submitted the word “day” in the FW Act referred to a “notional day” which it argued was supported by examples in the FW Act’s Explanatory Memorandum and the statement in the Explanatory Memorandum that the NES would not change the total entitlement to two weeks of average ordinary hours (i.e. 76 hours) provided for under the former Workplace Relations Act.

Further, the employer argued this reflected a standard five-day work pattern of ordinary hours of work to ensure that the quantum of leave was not impacted by differences in the actual spread of the ordinary hours worked in a week. Mondelez’s interpretation was that the NES would provide its employees with 72 hours (equivalent to 10 days or two weeks’) paid personal/carer’s leave for each year of service and that the provision of 96 hours of personal/carer’s leave for 12-hour shift workers was more beneficial than the NES.

Mondelez raised a number of reasons why an alternative interpretation of the entitlement under the NES creates specific anomalies referring to part-time employees, part-day absences, inequities between employees working different shift patterns, and difficulties for employers in making financial provisions for accrued leave.

The (then) Minister for Small and Family business, the Workplace and Deregulation, intervened in the case, supporting Mondelez’s position, submitting that the 10 days referred to in the NES is an entitlement to accrue a particular number of hours of personal/carer’s leave equivalent to an employee’s ordinary hours of work in a two-week period for each year of service.

The AMWU’s contention was that under the NES employees are entitled to be absent from work without loss of pay on 10 “working days” per year. The AMWU submitted the word “day” should be given its ordinary meaning and that the absence of a definition and use throughout the FW Act supports the ordinary meaning of “calendar day”.

Majority supports “working day” construction

A majority of the Full Bench (Bromberg and Rangiah JJ) rejected Mondelez’s interpretation of the NES instead finding that employees were provided 10 “working days” of personal/carer’s leave for each year of service regardless of the number of hours worked each day or how many days worked per week.

In finding that employees accrue 10 “working days” of personal/carer’s leave per year, the Court rejected Mondelez’s construction of a “notional day”. The majority referred to common law judgments that supported the proposition that “day” in terms of leave accruals should be construed according to its natural and ordinary meaning, as argued by the AMWU.

The majority found that passages within the Explanatory Memorandum appeared to support Mondelez’s submission that s 96(1) of the FW Act was intended to operate upon averaging of ordinary hours of work over an assumed standard five-day week, as per the previous Workplace Relations Act. However, it found the meaning of “day” in s 96(1) of the FW Act was clear, and the “extrinsic material” in the Explanatory Memorandum could not displace the actual words used in the relevant statutory provisions.

The Court further considered the purpose of personal/carer’s leave in protecting employees against loss of earnings when unable to work due to relevant illness, injury or unexpected emergency. The majority found Mondelez’s construction was inconsistent with the purpose of providing, within the defined limits, “income protection” for employees as some are more likely to suffer a loss of income than others.

In considering Mondelez’s contention that the “working day” construction is inconsistent with part-day absences and the provisions for cashing out personal/carer’s leave, the majority found its concerns were not a sufficient obstacle to the acceptance of the “working day” construction, taking into account the ordinary meaning and purpose of personal/carer’s leave. The majority also rejected Mondelez’s contention that s 106 of the FW Act relating to unpaid domestic and family violence leave, which post-dates the commencement of the proceedings, affects the meaning of “days” under s 96(1) of the FW Act.

In considering the first declaration sought by Mondelez, the majority found it was based on the assumption that personal/carer’s leave was to be calculated in hours according to the “notional day construction”, which was rejected by the Court. On the second declaration sought, the majority found the 12-hour shift workers were entitled to ten 12-hour periods of personal/carer’s leave each year (120 hours instead of the 96 provided under the enterprise agreement).

Mondelez’s application was dismissed.

Dissenting judgment backs longstanding practice

In the dissenting judgment, O’Callaghan J supported Mondelez’s and the Minister’s interpretation of the NES. His view was that Parliament did not intend for the spread of an employee’s ordinary hours of work to create the disparate result that would apply to the two groups of Mondelez employees.

O’Callaghan J found there was “relevant ambiguity or obscurity” about the use of “day” in s 96 of the FW Act that the Explanatory Memorandum sought to resolve. He found the examples provided illustrate the intended operation of the accrual and provisions of personal/carer’s leave.

“(Those examples) reinforce the expression of the determination of Parliament that the amount of personal/carer’s leave to be accrued is not to be affected by any different spread of an employee’s ordinary hours of work in a week, and is designed to achieve what senior counsel for the applicant, correctly in my view, described as “equity as between different classes of employees,”” O’Callaghan J found.

As a result, O’Callaghan J’s view was that the 96 hours personal/carer’s leave provided for employees working on 12 hour shifts under the Mondelez enterprise agreement exceeded their entitlements under the NES.

Implications for employers

The majority decision significantly deviates from longstanding and widespread industry practice, the Explanatory Memorandum to the FW Act, advice published by the Fair Work Ombudsman and previous case law, on the accrual and entitlement to paid personal/carer’s leave.

There are significant implications for both employers and employees with the decision likely to have further implications for annual leave accruals and payments.

Should there be no High Court appeal or legislative development associated with this decision, the first step for employers is to start contingency planning, conducting an audit of current leave accrual practices and payroll systems and assess their organisational risk exposure.

Employers will need to conduct extensive auditing and reconciliation of leave accruals and usage for at least the past six years. Businesses will need to consider the financial impact of conducting these reconciliations as with any reconciliation there is the likelihood of significant under or over accrual issues and associated under or overpayments for some employees.

Given that many resources and energy sector employers operate a broad range of work patterns and rosters, and some flexible work arrangements, there are potential implications arising from this decision that mean that existing rosters and patterns of work may no longer meet business needs. The cost and potential for increased unplanned absences associated with these types of rosters could mean they are not viable business options and would require the implementation of new work roster patterns. There are also practical issues with addressing inequalities of personal/carer’s leave entitlements between employees working different work patterns.

If you have any concerns about the implications of this decision on your business and/or require support in assessing risk exposure, please phone your local AMMA office or email the consulting team at [email protected].