Australia: Updating the National Employment Standards - have the politicians done a Set & Forget?

Workplace Solutions Quarterly Newsletter - June 2015

Since the enactment of the Work Choices legislation in 2006 Australia has been getting used to a concept, unknown in the country since Federation, of a national set of legislated (not judicially decided) minimum standards for all employees.

When the concept was first introduced, some of us were concerned about two possible problems: firstly, that having certain conditions fixed by legislation could result in them atrophying, despite changes in society or economic circumstances requiring their modification or updating, due to a lack of political will or consensus; and secondly these conditions might be subject to change due to some temporarily prevailing political obsession, or in response to a particular extreme set of facts.

After the best part of a decade of these "National Employment Standards" being in operation it would be fair to say that the "NES" concept is accepted as a permanent part of the industrial relations landscape. Indeed they are enshrined as a cross reference in most (if not all) Modern Awards. Moreover, there has been very little if any "political tinkering" with them – the only change being amendments in 2012 that related to parental leave and requests for flexible working arrangements (which were not politically controversial). However, the first mentioned anxiety, namely that some conditions might start to atrophy despite the need for incremental change, is still a worry.

Long Service Leave NES an example of political inertia

There are some problem areas that do need to be addressed and perhaps the Productivity Commission in its current enquiry will give the matter some attention – as an obvious example, there is Part 2-2 Division 9 of the Fair Work Act 2009 (Cth), concerning Long Service Leave. Long Service leave is a "claytons" Standard. The provisions are merely a stop-gap measure, preserving existing rights and obligations, pending the development of a National minimum scheme (akin to the regime in the NES about annual leave).

In 2012 the Panel appointed by the then Labor Government to review the operation of the Fair Work Act, namely Professor Ronald McCallum, the Honourable Michael Moore and Professor John Edwards ("the Review Panel") made a recommendation that "the Commonwealth, State and Territory Governments should expedite the development of a National Long Service Leave Standard with a view to introducing it by 1 January 2015". Notwithstanding that recommendation, no progress has been made, some six (6) years after the so called "standard" was introduced and almost three (3) years after the Review Panel made its recommendation for a national standard to be in place by the start of this year. It might well be that nothing happens at all, or for a very long time.

Granted, long service leave does present a significant problem getting agreement, or even consensus, on a minimum national standard, because traditionally this form of leave has been a patch work quilt of legislative, arbitral and industry level schemes (including portability schemes), with the entitlements varying, some times quite widely, between various jurisdictions and industries.

But annual leave, which is a real national minimum standard, has been established for nine years. Yet what has happened there demonstrates the point in a more straight forward context, namely that NES conditions may atrophy if the job of keeping those conditions up to date and appropriate is left to politicians.

Experience with the annual leave NES

The experience with the annual leave NES is that problems have been identified for the politicians by experts, and statutory solutions suggested – but nothing has been done; the job of "fixing" the problems has ended up with the judiciary, which has done what they can but with the obvious limitation that they cannot "legislate" – they can only work within established principles of statutory interpretation.

There are three examples of where the judiciary has had to "fix" problems with the annual leave NES, after the problems had been identified by the Review Panel in its July 2012 report ("the 2012 Review Report"). They are these.

  1. Whether it is permissible for an employer to "load" an employee's hourly rate of pay with an "annual leave component" such that when the employee actually wanted to take leave he or she could do so but would not receive any payment at all, the payment notionally having been provided in the weekly rate of pay;
  2. Whether, in New South Wales, an employee accrued and could receive annual leave entitlement when he or she was absent from work due to a workers' compensation injury and receiving payments in respect of that incapacity; and
  3. Whether on termination of employment an employee was entitled to be paid in respect of his or her untaken annual leave payment at the base rate of pay or at the rate that the employee would actually have received if instead of being terminated from employment had taken the accumulated leave (ie would any award or contract conferred annual leave loading have to be paid as part of that termination payment).

Each of these issues was given some attention by the Review Panel in its 2012 Review Report. The following is what the Review Panel proposed, and then we shall see what happened (i.e. nothing from the legislators, but "breakthrough" decisions from the judges).

Payment of annual leave "in advance"

In respect of the first matter the Panel said in the section entitled "5.2.8 Pre-payment of Leave" and said this:-

"The Panel has considered this issue and is of the view that the arguments of both sides are finely balanced, and as such, does not recommend any change to the provisions at this stage. It is unclear whether the Parliament intended for agreements to provide pre-payment for leave in this matter; however, the Panel will be concerned if agreements became an avenue for the widespread avoidance of payment for annual leave. The Panel therefore recommends that the Government closely monitor developments in this area with a view to possibly amending legislation at a later stage if necessary."

In essence the Panel was expressing some concern about the practice that was then developing, and which had been sanctioned by a majority Full Bench of Fair Work Australia in the Hull-Moody Finishes Pty Ltd Agreement [2011] FWAFB 6709, and was indicating to the Parliament that if the practice became widespread then legislative change to prohibit or limit it would have to be considered.

There is no evidence whatsoever, and I am sure it is the fact that the Parliament has not given the matter any consideration since the 2012 Review Report, even though, after the Report was published there was continuing controversy about the matter – for example, in Re BM & KA Group Enterprise Agreement 2013 [2013] FWC 3654, Commissioner Cribb did not follow the majority decision in the Hull-Moody Finishes matter, relying on a subsequent decision of (now retired) Justice Gray of the Federal Court to the apparently contrary effect – CFMEU v Jeld- Wen Australia Pty Limited [2012] FCA 45.

And in the end, the Judges decisively resolved the issue (subject of course to Parliament amending the NES, and that seems unlikely any time soon). In Canavan Building Pty Limited [2014] FWCFB 3202 a five member Full Bench of the Fair Work Commission headed by the President Justice Ross ruled, with very cogent reasons (with respect), that the NES standard in relation to annual leave required that payment had to be made when the leave was taken, not before (or indeed long after) the event. In reaching that decision the Commission was guided by legislative history, established industrial standards, previous authorities, the absurd consequences that would arise if payment was not required when the leave was taken, and the existence of "cashing out provisions" in the NES, thus suggesting that otherwise payment had to be made when the leave was taken. The Commission was of the view that bearing in mind all these factors, the Parliament could not have intended the result that the Hull-Moody Finishes majority decision sanctioned.

This Judgment has effectively resolved the difficulty that should perhaps have been the responsibility of the Parliament to fix, bearing in mind that this was an NES matter.

Payment of leave while on workers' compensation

From time to time an issue can arise as to whether an employee who absent from work and is in receipt of workers' compensation payments due to a work related injury or condition is entitled to accrue annual leave entitlement, and/or take paid annual leave, while absent in those circumstances.

Section 130 (1) of the Fair Work Act 2009 (Cth), provides that an employee is not entitled to take or accrue various types of leave (including annual leave) when that employee is absent from work by reason of an illness or injury for which the employee is receiving workers' compensation payable under State or Territory Workers' Compensation law. However, sub section (2) of that Section says that the foregoing "does not prevent an employee from taking or accruing leave during a compensation period if the taking or accruing of the leave is permitted by such a law.

Section 49 of the Workers' Compensation Act 1987 (NSW) provides that an injured worker is entitled to compensation payments in respect of any period of work related incapacity notwithstanding that the worker was also entitled to receive payment for holidays or long service leave during that period.

In relation to the second issue the Review Panel recommended that Section 130 of the Fair Work Act 2001 (Cth) be amended to overcome uncertainty as to its intent, namely to make clear that employees do not accrue annual leave while absent from work and in receipt of workers' compensation payments.

Once again the Parliament did nothing, however in late 2014 the Federal Circuit Court of Australia dealt with the debate about the meaning of Section 130 in NSW Nurses and Midwives Association –v- Anglican Care, ruling that Section 49 of the Workers' Compensation Act 1987 (NSW) was to be construed as "permitting" an employee in receipt of workers' compensation payments under that Act to take or accrue annual leave, and thus that such "double entitlement" was not precluded by Section 130(1) of the Fair Work Act. In doing so her Honour in effect had to engage in a certain amount of judicial creativity because of the words of Section 49 did not seem to address directly the question of annual leave rights, but rather was directed to ensuring that an employee had the right to receive workers' compensation payments despite having an entitlement to annual leave. Her Honour said in paragraph 38 of her Judgment:

"The purpose or object of Section 130 is clearly to deny to an employee the benefit of accruing annual leave during the period of receipt of workers' compensation unless such accrual was permitted by compensation law. However, Section 49 of the Workers' Compensation Act does not prevent a worker from receiving both compensation and accruing annual leave. In that sense on a beneficial construction, Section 49 permits receipt of those payments by the worker. The Fair Work Act provides to the worker the benefit of the accrual of annual leave."

The Panel had recommended that the Parliament deal with this issue, but in the end a Judge has been left with the task and, subject to any superior Court ruling in the future all legislative change (unlikely of course) settled the issue.

Payment for untaken annual leave

In respect of the third matter the Panel was concerned about the fact that there was an ongoing debate as to whether an employee entitled to annual leave loading, pursuant to an Award (but or presumably a Contract of employment) when actually taking annual leave, ought be entitled to that payment being included in the monetary entitlement of the employee to untaken annual leave on termination of employment. Annual leave loading was originally included in employment contracts for the loss of overtime earnings during periods of annual leave, however it gradually spread across industry to encompass many employees, some of whom never had overtime. The difficulty arose from the fact that Section 90(1) of the Fair Work Act clearly prescribes that when an employee takes annual leave he or she is to be paid at his or her base rate of pay with no mention of leave loading. Yet, sub-section (ii) of that section provides:-

"If when the employment of an employee ends, the employee has a period of untaken paid annual leave, the employer must pay the employee the amount that would have been payable to the employee had the employee taken that period of leave."

The argument of course was that the expression "the amount that would have been payable to the employee had the employee taken that period of leave" was not simply the base rate of pay, but the award entitlement to annual leave loading. The Panel's recommendation was that Section 90 "be amended to provide that annual leave loading is not payable on termination of employment unless a Modern Award or Enterprise Agreement expressly provides to that effect."

Again the Parliament did nothing.

However, the Federal Court resolved the matter authoritatively to the Judgment of Justice Buchanan in Centennial Northern Mining Services Pty Limited –v- CFMEU (No. 2) [2015] FCA136. His Honour interpreted the provision as clearly requiring that annual leave loading be payable in respect of holiday pay on termination of employment. In coming to this conclusion his Honour was influenced by the agreement of the parties that the provision in question was ambiguous and the assistance came from the terms of the Explanatory Memorandum to the Bill which provided in respect of Clause 90 as follows:-

"Subclause 90(ii) provides that, on termination of employment, an employee is entitled to receive a payment in respect of any untaken paid annual leave. The payment will be equivalent to the amount that the employee would have been paid if the employee had taken the annual leave."

His Honour's Decision settles the matter subject to legislative initiative which at the moment looks most unlikely.


What we derived from the foregoing is that unless political circumstances change radically the prospects of legislative reform to National Employment Standards, at least in the near future, are remote and that adaptation of those Standards or their clarification will be left to the Judges. One has to wonder therefore whether it might have been better to have left the whole subject of National Standards to the specialists, rather than the politicians.

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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