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The federal government has hailed a landmark High Court ruling on personal leave, saying it would save employers up to $2 billion and promote flexibility in the workplace.

In a 4-1 decision, the court found that employees who worked 12-hour shifts at a Cadbury factory in Tasmania were not entitled to more leave than other employees.The judgment overturned a Full Federal Court ruling in August 2019 that attracted the ire of employer groups and had implications for more than a million people doing shift work, particularly in manufacturing and mining.

The High Court said personal/carer’s leave under section 96(1) of the Fair Work Act “must be calculated by reference to an employee’s ordinary hours of work”.

It said the “working day” construction proposed by the Australian Manufacturing Workers Union – and accepted by the Full Federal Court – was incorrect.

Acting Industrial Relations Minister Mathias Cormann said the decision “restores clarity and certainty in relation to how paid personal/carers’ leave entitlements are 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,” he said.

“That is the last thing employers needed right now as they continue to regrow their businesses and the jobs lost in recent months due to the pandemic.

“What the Federal Court found in its original decision is that workers doing the same number of hours each week but on different shift patterns should be entitled to different amounts of personal/carers leave.”

Work patterns

The AMWU took on the case on behalf of two workers at a Cadbury factory at Claremont, 15 kilometres north of the Hobart CBD.

A 2018 enterprise agreement provided for a 36-hour week, with the two workers concerned doing three shifts of 12 hours. It allowed for sick/carer’s leave of 96 hours, but the AMWU argued – and the Full Court agreed – that it should instead be 120 hours, or 10 days of 12 hours.

The court’s judgment summary noted that “10 days” in section 96(1) is two standard five-day working weeks.

“One ‘day’ refers to a ‘notional day’ consisting of one-tenth of the equivalent of an employee’s ordinary hours of work in a two-week period.

“Because patterns of work do not always follow two-week cycles, the entitlement to ’10 days’ of paid personal/carer’s leave can be calculated as 1/26 of an employee’s ordinary hours of work in a year.”

The lead judgment of Chief Justice Susan Kiefel and Justices Geoffrey Nettle and Michelle Gordon, also noted the AMWU view “would not encourage ‘flexible working arrangements’, another object of the Fair Work Act”.

“It would discourage an employer from employing anyone other than one person working a five-day working week, rather than employing a number of people over the course of that week, thereby avoiding employing a number of employees each being entitled to 10 days of paid personal/carer’s leave per annum,” the trio said.

Work-life balance

“And, of course, it would not be consistent with assisting employees to balance their work and family responsibilities if the only working arrangement on offer was a five-day working week.”

Mr Cormann said the decision “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”.

“This is the situation that Labor had reassured employers would be maintained when it drafted the Fair Work Act [in 2009] and replaced the long-standing method of how leave was to be accrued, based on hours worked over a normal fortnight, with a new definition of ’10 days’ per year.”

The AI Group, an employer association which ran the case, said the judgment preserved industry practice.

Chief executive Innes Willox said that aside from the cost, “a major barrier would have been imposed on employers agreeing to part-time employment arrangements, including for employees returning from parental leave”.

Australian Mines and Metals Association chief executive Steve Knott said the economy had “dodged a bullet”.

“A significant amount of businesses would have been exposed to huge liabilities if the Federal Court’s interpretation stood,” Mr Knott said.

“The concern with the ‘working day’ construction was that it would create great disparity between different groups of employees in workplaces where there are multiple different shifts and rosters in place, such as manufacturing plants or mine sites.

‘Much-needed certainty’

“It might, for example, have seen some employees receive 120 hours’ of leave entitlement and others receive 76 hours, despite working the same number of hours across a two-week period.”

Ashurst partner Jon Lovell said the decision was “a common-sense approach to employee leave entitlements”.

“Employees accrue and take leave according to their ordinary hours of work … the decision aligns with the existing payroll systems and processes of most major Australian employers, and provides employers with much-needed certainty,” he said.

“A different outcome would have seen employers needing to adjust employees’ leave accruals, undertake wholesale reviews of their payroll systems and consider rolling back more innovative and flexible work and roster patterns.”