The topic of paid annual leave was recently covered by my
colleague, Janine Smith, in Issue 9.05 of Human Capital Magazine.
However, the recent majority decision of the Full Bench of Fair
Work Australia, in Hull-Moody Finishes Pty Limited Enterprise
Agreement 2011  FWAFB6709, makes this topic worthy of
Paid annual leave has been an attribute of Australia's
workplace relations system for over 60 years. It has long been
recognised that leave from work is important for health and other
reasons. Employers well know, that employing someone as a regular
employee (as distinct from a casual), automatically brings with it
an entitlement to a minimum of four weeks paid leave.
However, as noted in issue 9.05, despite the four week leave
entitlement a significant number of employees do not take it.
Approximately 25% of full-time employees in Australia have at least
five weeks annual leave accrued. It may be that the employees'
workload prevents them taking the leave, but often employees
actively accumulate leave as a 'buffer'. Whilst this means
employees are not as well rested as they could be it also means
employers are accruing costs on a year on year basis.
In our experience some employers would prefer to have some way
of avoiding the problems which flow from accrual of holiday pay and
in this context the Hull-Moody Finishes decision -
provides an alternative.
In the decision, the majority (Vice President Watson and Senior
Deputy President Hamburger) held that provisions whereby employees
were paid a specific identified "annual leave" component
with their regular wages and then were required to take a minimum
of two weeks leave per year (without being paid), was
not contrary to the provisions in the National
Employment Standards (NES), relating to paid annual leave, as
contained within Part 2 of the Fair Work Act 2009 (the
'FW Act'). As a result, they held this arrangement was
permissible in the proposed agreement. Commissioner Cambridge
dissented. The main thrust of his opinion was that the proposed
scheme had the effect of "cashing out" and was both
contrary to the "cashing out" provisions and the overall
intention of the NES.
When looking at the most relevant sections of the NES (sections
90 and 92 of the FW Act) in isolation, one would have to agree with
the majority, that there is nothing in those sections that requires
payment for annual leave to be made at the time when the leave is
actually taken. It is also not "cashing out" because the
leave still has to be taken (although unpaid).
The majority decision is based on a logical, although perhaps
rather literal, reading of the relevant provisions. The consequence
of the interpretation of Section 90 adopted by the majority, is
that there is apparently nothing to stop an employer simply
contracting with an employee to pay all that employee's annual
leave pay as an identified "annual leave part payment"
component with their weekly pay. Employers adopting that same
initiative by common law agreement would immediately eliminate the
difficulties associated with managing a huge annual leave liability
from that point on.
The decision, which will not be subject to further appeal or
review, is a significant one for all. Employers (with
employees' agreement) have a significant alternative option in
managing annual leave hoarding and employees will undoubtedly lose
the desire to take annual leave.
This decision comes at an interesting time bearing in mind the
recently announced review of the FW Act. Undoubtedly this decision
will receive consideration in the review bearing in mind the long
standing entitlement to paid annual leave. The attitude of 'use
it or lose it' in relation to annual leave is something that
may help with leave "hoarding" but would also hopefully
assist with employee rest and recuperation. The Hull Moody
Finishes decision is a sign that more exotic methods to deal
with annual leave are now being pursued.
Our Workplace Solutions team frequently provide advice in
relation to employment entitlements and contractual provisions and
are happy to receive enquiries regarding same.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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