Federal Court resolves debate about annual leave loading
Since 2010 there has been ongoing confusion about
whether annual leave loading (and other payments associated with
annual leave) must be paid to employees upon termination of their
The Fair Work Act 2009 (Cth) requires an employer to
pay an employee during a period of paid annual leave at their base
rate of pay for the ordinary hours, which would have been worked
during the period.
The Act also requires that when paying out accrued annual leave
upon termination of employment, the employer must pay the amount
that would have been payable had the employee taken that period of
leave during employment.
Despite this, some modern awards and enterprise agreements
contain clauses requiring payment of annual leave loading (or other
additional payments) during annual leave but not when paying out
accrued annual leave upon termination of employment.
In the recent decision of Centennial Northern Mining
Services Pty Ltd. v CFMEU (No. 2)  FCA 136 the Federal
Court determined that Centennial's employees who were covered
by the relevant enterprise agreement were entitled to annual leave
loading (and other payments associated with annual leave) upon
termination of their employment. This was despite the enterprise
agreement stating that upon termination of employment, employees
were only entitled to payment of accrued annual leave based on
their ordinary rate of pay plus an average of their bonus.
The Federal Court found that the provisions of the Act meant
that an employee should not suffer a reduction in the value of
unpaid annual leave if employment comes to an end while paid annual
leave remains undertaken.
The Federal Court also found that the provision in
Centennial's enterprise agreement in relation to payment of
unused annual leave had no effect because it operated in a way that
excludes the operation of the Act. Therefore, upon termination of
employment, employees covered by Centennial's enterprise
agreement are entitled to be paid out their accrued annual leave at
the same rate they would have been entitled to if they had taken
the leave during employment.
What does this mean for employers?
For the moment, this means that despite what is in an agreement
or award, upon termination of employment an employee is entitled to
payment for accrued but unused annual leave and, if applicable,
annual leave loading.
The Fair Work Amendment Bill 2014 proposes to amend the Act so
that accrued but untaken annual leave is required to be paid at the
employee's base rate of pay. If this amendment is passed, then
upon termination of employment, employees will only be entitled to
payment of annual leave loading if their award, agreement or
contract requires it.
Winner – EOWA Employer of Choice for Women Citation 2009,
2010, 2011 and 2012
Winner – ALB Gold Employer of Choice 2011 and 2012
Finalist – ALB Australasian Law Awards 2008, 2010, 2011 and
2012 (Best Brisbane Firm)
Winner – BRW Client Choice Awards 2009 and 2010 - Best
Australian Law Firm (revenue less than $50m)
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.
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.
Long experience representing many of Australia's leading employers has taught us that in employment litigation the identity of an employee's representative is a major factor in how employee litigation runs.
Australian employees receive certain entitlements (such as annual leave and superannuation) where contractors do not.
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).