In a decision strongly welcomed by the business community, the High Court of Australia has overturned on appeal the Federal Court’s decision in Mondelez v AMWU relating to the calculation of personal/carer’s leave entitlement.

By rejecting the Federal Court’s controversial interpretation of the Fair Work Act 2009’s (FW Act) personal/carer’s leave provisions, the High Court has effectively restored the longstanding common practice for calculating this entitlement and settled an enormous area of potential liability for employers.

Background

In August last year, confectionery company Mondelez International sought to put an end to any dispute about inconsistencies between personal/carer’s leave entitlements contained in its enterprise agreement and those provided for under the National Employment Standards (NES).

Mondelez submitted the word “day” in section 96(1) the FW Act referred to a “notional day” which it argued was supported by the FW Act’s explanatory memorandum and legislative history. This view was supported by the (then) Minister for Small and Family Business, the Workplace and Deregulation, who intervened in the case.

The AMWU contended 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”.

A majority of the Federal Court rejected Mondelez’s interpretation instead finding that employees are entitled to 10 days of personal/carer’s leave regardless of how many hours per day or shifts per week are worked by an employee – referred to as the “working day” construction.

This interpretation was highly controversial given the inequities it would produce across groups of employees who work the same number of ordinary hours in any two-week period but with different shift lengths, as well as the implications for part-time employees.

In December 2019, Mondelez and the Australian Government’s Minister for Industrial Relations sought special leave to appeal to the High Court.

For further background, read AMMA’s summary of the Federal Court’s decision here.

High Court restores common sense

Last week (13 August), a majority of the High Court rejected the Federal Court’s “working day” construction.

It found such an interpretation would “give rise to absurd results and inequitable outcomes, and would be contrary to the legislative purposes of fairness and flexibility in the Fair Work Act, the extrinsic materials and the legislative history.”

The High Court held “a ‘day’ for the purposes of s 96(1) refers to a ‘notional day’, consisting of one-tenth of the equivalent of an employee’s ordinary hours of work in a two-week (fortnightly) period.”

In construing the expression “10 days” in the FW Act, the majority considered the objects of the FW Act which intends to provide fairness, flexibility, certainty and stability for employers and their employees.

It also understood the NES to recognise that employees have different patterns of work, and the concept of “ordinary hours of work” can be readily applied to different patterns of work ensuring all employees are treated fairly.

The “notional day” construction, which the High Court supported, accounts for the fact that employees routinely work rosters and shifts that do not align with a standard 38-hour week, such as those in the resources and energy industry.

For example, employees working 76 hours across a fortnight would receive the same personal/carer’s leave entitlements irrespective of whether those 76 hours were worked across eight shifts or ten.

The majority also noted the provision of personal/leave entitlements under the FW Act is to be understood as a restatement, in simpler terms, of longstanding provisions of industrial relations law containing minimum employment conditions.

The High Court’s full decision can be found here or the judgment summary here.

High Court’s first NES ruling welcomed

The Federal Government, along with the business community, welcomed the High Court’s decision which restored clarity and certainty in relation to how personal/carer’s leave is calculated.

“If the Federal Court’s decision had been allowed to stand, it would have created inequities between employees and exposed employers to significantly increased costs, estimated to have been as much as $2 billion per year,” Minister for Finance Mathias Cormann said.

“The High Court’s decision avoids these inequities and ensures employees who work the same number of hours per week accrue the same number of hours of leave each year, regardless of how their shifts are rostered.”

In a public statement, AMMA Chief Executive Steve Knott AM said Australian employers could ‘breathe a sigh of relief’.

“This issue has only come about due to the poor drafting of the Fair Work Act. At the time everyone knew ’10 days’ meant ordinary hours spread across two working weeks, but the legislation failed to properly clarify this,” he said.

“Given a significant amount of businesses would have been exposed to huge liabilities if the Federal Court’s interpretation stood, it goes without saying the economy has dodged a significant bullet at a time when employers most need some relief.”

The Australian Chamber of Commerce and Industry recognised last week’s judgment as the High Court’s first decision on the National Employment Standards since the FW Act was introduced more than 10 years ago, offering welcome relief to businesses around the country.

“People who work the same amount of hours a week, whether they are full-time, part-time or a shift worker should get the same amount of sick leave – that’s just common sense,” ACCI CEO James Pearson said.

“The decision is also a win for flexible workers with variable hours, including those working part time and parents returning from parental leave as last years’ decision would have served as a major obstacle to family friendly working arrangements and young people seeking flexibility to balance work and study.”

Ai Group, which represented Mondelez in both proceedings, also welcomed the High Court’s judgment in preserving widespread industry practice and sparing a very large number of businesses from major cost implications.

“In addition, a major barrier would have been imposed on employers agreeing to part-time employment arrangements, including for employees returning from parental leave,” Innes Willox, Chief Executive of Ai Group said.

Following the announcement of this landmark ruling, the ACTU called on the Federal Government to amend the FW Act to provide all workers with 10 days sick leave and ensure access to federally funded, fully paid pandemic leave.

“The Federal Government must amend the Fair Work Act so that every worker has access to 10 days of paid personal leave every year, no matter what hours they work, and must also legislate paid pandemic leave for all workers,” ACTU Secretary Sally McManus said.

Next steps for employers

With the High Court having ruled on personal/carer’s leave entitlements for national system employees, resources and energy employers are encouraged to review their payroll processes to ensure they are calculating and paying people the correct entitlements.

While employers have been spared from exposure to huge cost implications for personal/carer’s leave, this issue highlights that employers need to understand their statutory obligations for paying employees’ entitlements.

Compliance and enforcement issues, including the possibility for criminalising serious underpayments in federal legislation, is one of five areas of Australia’s industrial relations system being closely examined by a series of Australian Government-led working groups.

The Fair Work Ombudsman (FWO) has also outlined a strong focus on compliance and enforcement of Australia’s industrial relations laws. Underpayments of staff in the corporate sector have become a significant issue of public concern and will continue to be a priority for the FWO in 2020-21.

AMMA’s expert workplace consultants are available to assist members with reviewing and auditing employment processes to ensure full compliance with statutory obligations.

Contact AMMA’s specialist workplace consulting team today for support.