Australia: Recent judgment of Fair Work Commission potentially exposes employers to increased termination notice payments

A decision handed down by the Fair Work Commission on 3 February 20161 may have major ramifications for employers whose enterprise agreements provide for "Rest and Recreation" periods (R&R) between shifts.

Kentz (Australia) Pty Ltd (Kentz) had an enterprise agreement applicable to construction, commissioning and marine construction work at the Ichthys LNG Onshore Constructions Project at Blaydin Point. The standard work cycle was, subject to variations for operational reasons, four weeks on followed by one week of R&R.

Clause 8.6(a) of the Agreement (headed "Rest and Recreation") stated:

"The work cycle of each Employee will commence on his or her commencement date on the Project. The Employer may choose to shorten or lengthen the Employee's first work cycle to align the Employee's work cycle with that of other Employees. The work cycle forms the basis for scheduling and staffing of the Project. Employees will only receive R&R where determined by the Employer and there are more than two (2) weeks' work for the Employee to complete on the Project."

Kentz had been gradually demobilising its workforce as the work required to be done by it on the Project came to an end. This resulted in around 150 employees being given notice of termination. In many cases, this notice was given immediately prior to a period of R&R and, because the employee would not ordinarily have been paid for the period of R&R, they were not paid for that week of notice. The CEPU argued that they should be.

The Commissioner found in favour of the CEPU on two grounds. The first relied on the interpretation of the last sentence of clause 8.6(a) which read:

"Employees will only receive R&R where determined by the Employer and there are more than two (2) weeks' work for the Employee to complete on the Project."

Where an employee was given notice of less than two weeks (which was virtually all cases), the Commission found that this clause meant that the employee could not be put on R&R for those last two weeks.2 It followed that that must be paid in lieu of notice as if they had worked the full period of the notice.

The second ground was the finding that R&R is a form of regulated and approved leave. It is established law that a period of notice cannot run concurrently with a period of leave and, therefore, the notice period must commence after the period of leave with the result being that the employee is paid in lieu of notice for the full notice period.

In reaching the finding that R&R is a form of leave, the Commissioner considered3 the things that characterise leave as follows:

  • it has a purpose;
  • it is approved by the employer;
  • there is a set time for returning from the leave – that is, it is not open ended;
  • the absence does not affect employment security or continuity;
  • it may be paid or unpaid;
  • it can be fixed in time, the timing negotiated or be required by an unexpected event;
  • it is subject to regulation of some form.

The Commissioner then4 described R&R in the following terms, it:

  • has a purpose, which is rest and recreation;
  • is approved by the employer;
  • is not open ended;
  • does not affect security of employment or continuity of employment;
  • is unpaid;
  • is fixed by the roster; and
  • is regulated by the provisions of the agreement.

Having made that comparison, the Commissioner concluded that R&R "is a form of regulated and approved leave"5 and therefore "that notice of termination of employment cannot run concurrent with a period of leave."6 It followed that "pay in lieu of notice cannot assume that the employee would have been on unpaid leave for part of the notice period and, consequently, reduce the amount of payment in lieu of notice."7

The ETU (which is part of the CEPU) has stated that Kentz will now be obliged to backpay the 150 electricians who had been dismissed in excess of $1 million and that it has already identified more than 3,000 FIFO workers that it believes have been denied more than $10 million in entitlements in similar circumstances.8


1 Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Kentz (Australia) Pty Ltd [2016] FWC 669

2 at [69]-[76]

3 at [80]

4 at [82]

5 at [83]

6 at [84]

7 at [85]

8 ETU media release dated 4 February 2016

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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