On 13 August 2020 the High Court of Australia granted the appeal by Mondelez International Pty Ltd, better known in Australia as Cadbury. The appeal was in relation to the decision handed down by the full Federal Court last year (Mondelez Australia Pty Ltd V Automotive), which challenged the traditional construction of what a ‘day’ was in calculating an employee’s leave entitlements under the Fair Work Act.
As explained below by Emily Shoemark and Margaret Young, the High Court’s decisions has overturned the Full Court of the Federal Court decision, and has clarified the correct interpretation of what a ‘day’ is when calculating days of personal or carer’s leave.
Background
One of the National Employment Standards (NES) in Australia, which is the safety net of minimum employment conditions, is that a full-time employee is entitled to 10 days of personal/carer’s leave per year.
Two of Mondelez Australia Pty Ltd’s employees, represented by their union, commenced legal proceedings against their employer on the basis that they believed that they were entitled to ten days of personal/carer’s leave per year, but calculated based on 12 hours per day due to the shifts they worked. They argued that the ‘day’ referred to in the NES was a reference to a working day, which in their case was 12 hours. Both of the employees worked three 12 hour shifts per week which resulted in a 36-hour week.
On the contrary, Mondelez Australia Pty Ltd argued that the employees were only entitled to 10 ‘notional days’ of leave – being one tenth of the ordinary hours worked in a 2-week period. In the case of the two employees, this equated to 6 days of personal or carers leave per year.
The Fair Work Act
The principles under the Fair Work Act referred to in this case are:
- Section 96 of the Fair Work Act that, ‘for each year of service with his or her employer, an employee is entitled to 10 days of paid personal/carer’s leave’ and that this leave is to accrue ‘progressively during a year of service according to the employee’s ordinary hours of work, and accumulates from year to year’.
- Section 99 that payment for leave taken is based on the employees ‘ordinary hours of work’.
- Section 55 should an enterprise agreement be entered, that it must not include terms that are detrimental to an employee.
The decision
The majority of the High Court rejected the ‘working day construction’ put forward by the AMWU and outlined that in calculating an employee’s day, that employee’s ordinary hours of work must be referenced. The Court also found that section 96(1) referred to a standard five-day working week. On this basis, to accurately assess an employee’s day, the ‘notional day’ should be applied. The ‘notional day’ is determined by one tenth of the ordinary hours worked by the employee in a two-week period.
In a step further than the one tenth method, as often pattens of work do not adhere to a two-week cycle, the most precise way to calculate personal/carers leave is as 1/26 of an employee’s ordinary hours of work each year.
The Court rejected the construction of s96 with reference to a ‘working day’ as it 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 impact
The impact of this decision has removed the fears that were initially instilled from the Federal Court’s ruling last year of the ‘working day construction’, as well as possible hesitation of flexible working arrangements, shift working and varied hours due to the possible financial impact of increased leave entitlements. The decision also removes the potential inequity where a shift worker could be entitled to almost double the leave than a non-shift working colleague.
Essentially, the personal/carer’s leave entitlement for a shift worker should be calculated in accordance with annual hours of work and income.
Ordinary hours of work per year/26 = annual personal/carer’s leave entitlement.
How can we help?
If you are unsure about the impact the decision on your employment or business, or you are unsure of what the correct entitlements are in your circumstances, please do not hesitate to contact our Business Services team on 02 6285 8000 or by email.
