Calculating employee entitlements can be complex and demanding at the best of times, however the decision of the Full Court of the Federal Court in Mondelez v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union known as the Australian Manufacturers Workers Union (AMWU) [2019] FCAFC 138 will, unless disturbed, add a further dimension to this task.

In Mondelez the Full Bench reviewed an Enterprise Agreement that related to the operations of Mondelez, a food manufacturer which has, amongst other things, a Cadbury plant at Claremont in Tasmania.

Under particular scrutiny was whether or not the Agreement's terms with respect to personal/carer's leave were inconsistent with the way in which such leave is dealt with under the Fair Work Act (Act). This required an analysis of the Act in relation to the accumulation and payment of (paid) personal/carer's leave.

Under section 96 (1) of the Act, an employee is entitled to 10 "days " of paid personal/carer's leave for each year of service with his or her employer. Such entitlement to paid personal/carer's leave accrues progressively during a year of service according to the employee's 'ordinary hours of work', and accumulates from year to year.

Payment for paid personal/carer's leave is provided for in section 99 of the Act which states that where an employee takes a period of paid personal/carer's leave, the employer must pay the employee at the employee's base rate of pay for the employee's 'ordinary hours of work' in the period.

At issue was the meaning of the word 'day'. 'Day' is not defined in the Act.

Mondelez submitted the word 'day' as it appears in section 96(1) of the Act has its 'industrial meaning' of being a 'notional day'. That is to say 'day' is used as a shorthand reference to the employee's average daily ordinary hours based on an assumed 5 day working week.

It gave, as an example, that a full time employee who works 38 hours a week over 5 days will accrue the same amount of leave as a full time employee who works the same number of hours over 4 days per week - over a year of service, both employees would accrue 76 hours of paid personal/carer's leave.

Mondelez relied heavily on the Explanatory Memorandum (to which we will return).

The Union asserted that the word 'day' had its natural meaning. It submitted that the entitlement of a worker to be paid for a 'day' is an entitlement to be paid for the hours that would have been worked on that day but for the illness or responsibility as carer which caused the absence.

On the Union's interpretation employees working 36 hours a week whether they work 7.2 hours every day over 5 days or 12 hour shifts on say 3 days a week, both will be entitled to be paid at their base rate for the hours they would have worked but for the illness or injury etc. Furthermore, regardless of whether an employee worked for example 7.2 hours a day or 12 hours a day, the employer could only deduct one day for each calendar day of leave taken.

Varying outcomes could occur depending on the hours normally worked. For example, the entitlement of a 12 hour employee to take 10 days paid personal carer's leave could amount to up to 120 hours (per annum). On the other hand, a 7.2 hour employee's entitlement could be only up to 72 hours (per annum). For an employee who fell ill only on days where they were rostered to work 4 hours, their entitlement could amount to 40 hours (per annum).

The Full Court was influenced by the concept that personal leave was designed to protect the income of employees when they needed to take personal/carer's leave. If the Union's interpretation was favoured, then the employee would be paid at the base rate for the ordinary hours they would have worked had it not been for the illness or injury which kept them away from work. In that context no employee would lose that income.

The Full Bench in a 2:1 majority decision rejected the respective positions advanced by Mondelez and the Minister for Jobs and Industrial Relations. It concluded (at para 199) that:

(1) A 'day' in s 96(1) of the FW Act refers to the portion of a 24 hour period that would otherwise be allotted to work (a 'working day').

(2) A 'day' of 'paid personal/carer's leave' under s 96(1) is an authorised absence from work for a working day for a reason set out in s 97.

(3) Under s 96(1), an employee accrues an entitlement to be absent from work for a reason set out in s 97 for ten such working days for each year of service.

(4) The entitlement to paid personal/carer's leave under s 96(1) is not an entitlement to take such leave, which only arises when one of the conditions in s 97 is satisfied.

(5) For every day of paid personal/carer's leave taken, a day is deducted from the employee's accrued leave balance.

(6) Under s 96(1), the accrual is of part-days of paid personal/carer's leave, not only full days.

(7) An employee may take a part-day of paid personal/carer's leave, and an equivalent part-day is deducted from the employee's leave balance.

(8) The expression 'ordinary hours of work' in ss 96(2) and 99 distinguishes ordinary hours from overtime hours.

(9) The expression 'ordinary hours of work' is used in s 96(2) to indicate that part-days of paid personal/carer's leave entitlement are calculated on the basis of ordinary hours.

(10) The purpose of paid personal/carer's leave is as a form of income protection for employees during the periods of illness, injury or unexpected emergency described in s 97.

(11) Paid personal/carer's leave accrues over the whole length of employee's employment with a particular employer, to the extent that it is not taken.

(12) The amount of paid personal/carer's leave that may be taken in a year is limited to the amount that has been accrued, but is not otherwise limited.

O'Callaghan J in a dissenting judgment considered that, given there was ambiguity in the legislation, it was appropriate to resort to the Explanatory Memorandum which stated:

(1) 'Although [the entitlement to accrue two weeks leave] is expressed as an entitlement to 10 days (reflecting a 'standard' 5 day work pattern'), by relying on an employee's ordinary hours of work, the Bill ensures that the amount of leave accrued over a period is not affected by differences in the actual spread of an employee's ordinary hours of work in a week; and

(2) Therefore, a full time employee who works 38 hours a week over 5 days (Monday to Friday) would accrue the same amount of leave as a full time employee who works 38 ordinary hours over four days per week. Over a year of service both employees would accrue 76 hours of paid personal/carer's leave'.

O'Callaghan J's referenced the examples given in the Explanatory Memorandum which illustrated the intended operation of the accrual and payment provisions before concluding (para 217):

Those examples, in my respectful view, reinforce the expression of the determination of Parliament that the amount of personal/carer's leave to be accrued is not to be affected by any different spread of an employee's ordinary hours of work in a week, and is designed to achieve what senior counsel for the applicant, correctly in my view, described as "equity as between different classes of employees". In my view, the position advanced by the respondents produces an outcome that creates inequities between different classes of employees that Parliament did not intend.

Whilst he favoured the interpretation of the Act advanced by Mondelez and the Minister, his is a minority decision and therefore of limited weight.

Mondelez (which it is understood was represented by the AIG) may seek leave to appeal this decision to the High Court; which if left undisturbed, is likely to have substantial implications for many employers.

If this happens, the Government will likely seek to intervene in any High Court challenge and one cannot dismiss the possibility of legislative reform.

In the interim, employers should, at the very least, keep a watching brief on this significant case. If this case stands then employers may need to revisit how their payroll function accrues for personal leave for shiftworkers to ensure those employees are not short changed. It also, of course, raises the spectre of backpay for employees who did not receive payment for personal/carer's leave in circumstances where they were entitled to it in accordance with the decision.

Richard Ottley, Partner
Phone: +61 2 9777 8380

Michael Byrnes, Partner
Phone: +61 2 9233 5544

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.