In the recent decision in Mondelez Australia Pty Ltd v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union, the High Court has overturned a ruling of the Federal Court regarding the definition of a ‘day’ for the purposes of calculating an employee’s entitlement to personal/carer’s leave under the Fair Work Act 2009 (Cth) (FWA). Pursuant to the High Court’s decision, a ‘day’ for the purposes of the FWA will be regarded as a ‘notional day’ rather than a ‘working day’.
Background and the decision of the Federal Court
Mondelez Australia Pty Ltd (Mondelez) operated a chocolate factory at which all full time employees worked 36 hours per week. Some of these employees worked 7.2 hour shifts each day, while others worked 12 hour shifts 3 days a week. In 2017 Mondelez submitted a new enterprise agreement to the Fair Work Commission for approval. The agreement as approved provided an entitlement to personal leave of 96 hours per year for employees working 12 hour shifts and 80 hours per year for other employees. Under section 96(1) of the FWA, employees are entitled to 10 days of paid personal/carer’s leave for each year of employment. In the course of approval of the new enterprise agreement, a dispute arose about whether the leave entitlements granted to employees working 12 hour shifts under the new enterprise agreement met the requirements of the FWA.
Mondelez (supported by the Commonwealth Government) was of the view that under the FWA, its employees would only be entitled to 72 hours of paid personal/carer’s leave for each year of service, and sought a declaration that its enterprise agreement was more beneficial than the rights under the FWA. The union argued that the entitlement to personal/carer’s leave under the enterprise agreement was less than what was required under the FWA, as employees who worked 12 hour shifts should receive the equivalent of 10 full days paid personal/carer’s leave (being the equivalent of 120 hours).
The Federal Court held that:
- a ‘day’ of leave is not based on an average of a relevant employee’s ordinary hours worked in a week;
- a ‘day’ is the portion of a 24 hour period that would be allotted to work;
- days of leave can be converted into hours, and the number of hours of leave a ‘day’ will constitute depends the number of hours worked on the day the leave is taken; and
- employees are entitled to be paid (at their base rate of pay) for all of the ordinary hours the employee would otherwise have worked on that working day.
Accordingly, the Court found that those employees who worked 3, 12 hour shifts per a week were entitled to 120 hours of paid personal leave per year as a result of their ordinary hours of work. That is, a ‘day’ for the purposes of the FWA should be interpreted as a ‘working day’ (how many hours the relevant employee would have worked) rather than a ‘notional day’ (average daily ordinary hours based on a five day work week). The Federal Court acknowledged that this judgement would mean that those employees who worked only 3 days per week had a greater entitlement to personal leave than those who worked a full 5 days per week.
Mondelez and the Commonwealth Government appealed this decision to the High Court.
High Court Decision
The High Court noted that:
- the FWA is intended to provide fairness, flexibility, certainty and stability for employers and their employees;
- pursuant to section 96(2) of the FWA, an employee’s entitlement to paid personal/carer’s leave accrues progressively during a year of service according to the employee’s ordinary hours of work; and
- under the FWA, “ordinary hours of work” is defined to mean the hours agreed by the employee and his or her employer as the employee’s ordinary hours of work or, if there is no agreement, 38 hours for a full-time employee or, for an employee who is not full-time, the lesser of 38 hours and the employee’s usual weekly hours of work.
Accordingly, the High Court held that it was clear from the wording of the FWA that “an entitlement to paid personal/carer’s leave accrues progressively in the course of a year of service, for all employees, by reference to ordinary hours worked and not by reference to days or working patterns.”
In light of the above, the High Court confirmed that, a ‘day’ for the purposes of the FWA is a ‘notional day’ and not a ‘working day’. Accordingly, ‘10 days’ is to be construed as two standard five day working weeks and refers to 1/26th of an employee’s ordinary hours of work in a year. The High Court considered that this interpretation of ’10 days’ was fair to all employees covered by the FWA as it accommodates the fact that all employees’ working patterns are not uniform. As a result, a ‘day’ is 1/10th of the equivalent of an employee’s ordinary hours of work in a two-week (fortnightly) period.
The High Court rejected the ‘working day’ construction adopted by the Federal Court on the basis that:
- the ‘working day’ construction would lead to inequalities between employees with different work patterns, and so would be unfair;
- on the ‘working day’ construction, part-time employees would be entitled to the same amount of leave as, or more leave than, full-time employees; and
- employees who take the same number of hours of paid personal/carer’s leave, but who are working shifts of different hours, will have different portions of the day deducted from their accrued leave.
The High Court has clarified that personal/carer’s leave is to be calculated according to a ‘notional day’ of work. Employers will need to ensure that their systems of payment are compliant with the decision of the High Court and that the current levels of personal/carer’s leave recorded as accrued by their employees are correct.
If you have any questions or concerns in relation to employee leave entitlements, please do not hesitate to contact us.