Insights / August 14th, 2020

High Court delivers significant leave interpretation decision

This week the High Court delivered its long-awaited decision in the case of Mondelez v AMWU.

The High Court was asked to rule on the meaning of a “day” of leave in the context of the personal leave accrual provisions of the Fair Work Act 2009 (Cth) (“FW Act”).

Specifically, the FW Act provides that an employee is entitled to accrue ten days of paid personal leave per year. Personal leave is then paid out based upon an employee’s ordinary hours during the relevant period.

The employer in this case, Mondelez, interpreted the FW Act as providing for a total accrual of 76 hours of personal leave per year, being ten 7.6 hour days (based on the standard 38 hour working week).

However, the AMWU argued that this approach was insufficient for two of Mondelez’s workers at a Cadbury chocolate factory in Tasmania whose ordinary hours were averaged over 12-hour shifts. Each time these workers took personal leave, 12 hours was deducted from their leave accrual balance resulting in the workers exhausting their personal leave entitlement over less than ten “days”.

The AMWU contended that the FW Act should be interpreted as allowing employees to accrue ten days of personal leave each year based on their usual work day, ie. 120 hours of accrued personal leave per year for the Mondelez workers.

This case went to the Full Court of the Federal Court last year and was decided in the AMWU’s favour.

Following the Full Court’s judgment, which some commentators predicted would come at a cost of more than $2bn a year in additional costs for employers around Australia, Mondelez appealed to the High Court in conjunction with the Minister for Jobs and IR who intervened in the proceedings.

This case was argued before the High Court in July this year with the key issue being whether the personal leave accrual provisions in the FW Act are to be interpreted based on an average “notional day” or an employee’s actual “working day”.

On Thursday, the High Court overturned the Full Court of the Federal Court’s decision, finding that the AMWU’s approach would give rise to “absurd results and inequitable outcomes” and would be inconsistent with the objectives of the FW Act which include fairness, flexibility, certainty and stability.

Instead, the High Court confirmed that a “day” for the purposes of the personal leave provisions of the FW Act refers to a “notional day” of one-tenth of an employee’s ordinary hours in a fortnightly period.

Simply put, this means that for employees who work an average of 38 ordinary hours in a fortnight, a “notional day” would be 7.6 hours. These employees would therefore be entitled to accrue 76 hours of personal leave each year, regardless of how their hours were arranged during a fortnight. When taking personal leave, an employee will be entitled to payment for their applicable ordinary hours on the relevant day(s).

In addition to being a positive outcome for employers, the High Court's decision also presents an opportunity for employers to review their current leave accrual practices to ensure that they comply with the Court’s now settled approach on this issue.

If you'd like to discuss the effects this decision has on your business, contact us and one of our Employment and Workplace Relations experts will can assist.

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