In a significant decision, the High Court of Australia has clarified the method of calculating an employee's entitlement to paid personal/ carer's leave under the Fair Work legislation.
On 13 August 2020 the High Court of Australia handed down its decision in Mondelez Australia Pty Ltd v AMWU & Ors  HCA 29. Importantly, the decision clarifies the method of accruing and taking paid personal/ carer's leave for the purposes of the National Employment Standards under the Fair Work Act 2009 (Cth) (FW Act).
The High Court determined that employees working longer than standard hours are not entitled to use those hours as the basis for calculating their entitlement to 10 days paid personal/carer's leave. Rather, an employee's entitlement to paid personal/carer's leave is calculated by reference to an employee's ordinary hours of work and not the number of days worked by an employee. This outcome preserves common industry practice among employers and payroll professionals.
Mondelez Australia Pty Ltd (Mondelez) applied to the Fair Work Commission for approval of a new enterprise agreement to cover employees working at its Cadbury plant in Tasmania. The agreement provided employees with an entitlement to 96 hours per year of paid personal/ carer's leave for employees working 12 hour shifts and 80 hours per year for other employees. A dispute arose regarding whether two 12 hour shift workers were entitled to be paid for 12 hours per day of personal/ carer's leave, or alternatively only 7.2 hours per day. Mondelez sought a declaration concerning the employees' entitlements and the interpretation of the phrase '10 days of paid personal/carer's leave' in section 96(1) of the FW Act.
Mondelez argued that the entitlement to 10 days of personal/carer's leave in section 96(1) of the FW Act must be quantified based on a 'notional day'. The 'notional day' is 7.2 hours, consisting of 36 hours averaged over five standards days of work. This would mean that employees would be entitled to a total of 72 hours of paid personal/ carer's leave for each year of service (10 notional days of 7.2 hours).
Conversely, the AMWU contended that the entitlement to 10 days of personal/carer's leave must be calculated based on a calendar day which is a 24 hour period. This would mean that employees working 12 hour shifts would be entitled to 120 hours of paid personal/ carer's leave for each year of service (10 days of 12 hours), and not the 96 hours provided in the agreement.
On 21 August 2019 the majority of the Full Federal Court of Australia determined an employee's entitlement is based upon time working for the employer. The leave must be calculated in working days, not notional hours. The Full Court rejected Mondelez's interpretation of 'day', and instead determined that 'day' in section 96(1) refers to an employee's 'working day' being the portion of a 24 hour period the employee would otherwise be working. This meant that the Mondelez employees were entitled to personal/ carer's leave on the basis of ten 12 hour shifts per year of service.
The Federal Court's decision had significant implications, as Mondelez's approach to calculating personal/ carer's leave is general practice among many employers. Following the decision, employers needed to calculate leave based on an employee's actual 'working day'.
Mondelez and the Federal Minister for Jobs and Industrial Relations, Christian Porter, appealed the decision to the High Court. The Minister sought for the High Court to set aside the Federal Court's interpretation and replace it with a declaration that:
'The expression '10 days' in s 96(1) of the FW Act comprehends an amount of paid personal/carer's leave accruing for every year of service equivalent to an employee's usual weekly hours of work over a 2 week (fortnightly) period.'
What did the High Court decide?
A majority of the High Court (Kiefel CJ, Nettle and Gordon JJ) allowed the appeal and set aside order one from the Full Court of the Federal Court's decision.
Section 96(1) of the FW Act says that 'for each year of service with his or her employer, an employee is entitled to 10 days of paid personal/carer's leave.' Section 96(2) says that an employee's entitlement to this leave 'accrues progressively during a year of service according to the employee's ordinary hours of work, and accumulates from year to year.' Under section 99, payment for leave taken is calculated by reference to an employee's 'ordinary hours of work.'
Kiefel CJ, Nettle and Gordon JJ held that '10 days' in section 96(1) is two standard five-day working weeks. One 'day' refers to a 'notional day' consisting of one-tenth of the equivalent of an employee's ordinary hours of work in a two-week period. To account for the fact that patterns of work or distribution of hours do not always follow two-week cycles, the entitlement can also be calculated as 1/26 of an employee's ordinary hours of work in a year.
In do so, the majority rejected the 'working day' construction because it would mean that an employee whose hours are spread over fewer days with longer shifts would be entitled to more paid personal/carer's leave than an employee working the same number of hours per week spread over more days. Similarly, it would have caused inequality between full-time and part-time employees, as part-time employees would be entitled to the same amount of leave as, or more leave than full-time employees.
What does this mean for employers?
This decision means that an employee's entitlement to paid personal/carer's leave is calculated by reference to an employee's ordinary hours of work. This is determined by one 'day' being a notional day of one-tenth of the equivalent of an employee's ordinary hours of work in a two-week period, or as 1/26 of an employee's ordinary hours of work in a year.
Employers should seek legal advice specific if they believe they may have miscalculated personal/carer's leave entitlements for employees.
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.