Unknown to many, over the last few years there has been
a hotly contested debate regarding how annual leave loading is
treated in termination payments in respect of accrued but unused
annual leave. But, before you get too excited about joining this
thrilling contest, the Federal Court has recently put an end to the
long standing argument. And, as the dust settles, employers have
come out with the burden of paying applicable annual leave loading
as part of termination payments.
The controversy over annual leave loading and termination
payments starts with section 90 of the Fair Work Act 2009. Section
90(1) provides that when an employee takes annual leave, he/she
must be paid at the "base rate of pay". However, section
90(2) goes on to say that, when a payment in lieu of accrued annual
leave is made on termination, it must be equivalent to the amount
that the employee "would have been paid" if he/she had
taken the annual leave. These two provisions, the former of which
cites minimum payment obligations, while the latter appears to open
the door to more generous payments, caused a lot of confusion and
debate, particularly when you introduce annual leave loading to the
equation. The water was further muddied by the fact that a number
of modern awards and enterprise agreements, which are the source of
annual leave loading entitlements, state that the loading is not
payable on termination, while others remained silent on the
So the question became: do employers have to pay annual leave
loading on termination, particularly if the applicable modern award
or enterprise agreement says they don't? The simple answer
The Court held that the words "would have been paid"
in section 90(2) have a clear meaning. On termination, employees
must receive the same payment they would have received had they
taken the annual leave. That includes annual leave loading.
Further, because modern awards or enterprise agreements cannot
undermine or exclude the National Employment Standards (annual
leave entitlements form part of the NES), a clause which excludes
payment of annual leave loading on termination has no effect.
And with that, issue settled. Unless appealed.
We do not disclaim anything about this article. We're
quite proud of it really.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The FWC upheld summary dismissal of a worker who tested positive for cannabis, despite being denied procedural fairness.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).