Court decision

High Court provides relief on personal leave accruals, quashing controversial Mondelez ruling

By Andrew Tobin / 13 August 2020

High Court majority decision re personal/carer’s leave, 13 August 2020

This morning, in a ground-breaking ruling for employers, the High Court in Mondelez v AMWU [2020] HCA 29 ended the confusion and uncertainty around personal/carer’s leave accruals by quashing the contentious August 2019 ruling of the Full Federal Court in Mondelez. The Full Federal Court's decision had caused issues for employers in terms of compliance with their obligations under the Fair Work Act 2009 (Cth) (the FW Act) and the National Employment Standards (NES). 

The Full Federal Court's decision essentially held that the introduction of the NES in January 2010 changed the way personal leave was accrued from the previous system under the Workplace Relations Act 1996 (Cth) (WR Act).

The High Court’s decision confirms the previous long-standing understanding and practical application for payroll purposes of s96(1) of the FW Act, i.e. permanent employees are entitled to 10 “notional days” of personal/carer’s leave a year by reference to their ordinary hours of work. This outcome takes account of the infinite variability of work patterns and avoids anomalous and inconsistent results arising from that variability.

The High Court rejected submissions from the Australian Manufacturing Workers’ Union (AMWU) that the introduction of the FW Act brought about a change securing an entitlement for every employee to 10 paid absences from work every year regardless of hours worked.

Full Federal Court decision of Mondelez, 21 August 2019

On 21 August 2019 the Full Federal Court in Mondelez Australia Pty Ltd v AMWU [2019] FCFCA had ruled (by 2-1 majority) that "day" in section 96(1) was the "portion of a 24 hour period that would otherwise be allotted to working". The decision resulted in employees working a compressed working week consisting of three days on 12-hour shifts being entitled to 120 hours of personal leave per year, overturning the longstanding practice that full-time employees were entitled to 76 hours or 10 days of personal leave based on 38 ordinary hours a week, regardless of rostered hours or shift patterns. 

Special leave to appeal sought and granted

Mondelez and Federal Attorney-General & IR Minister, Christian Porter sought and obtained special leave to the High Court to appeal the Federal Court decision. Mr Porter warned that the decision “created significant inequities between employees”.

Issue for determination by High Court

Section 96(1) of the FW Act provides 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) provides that '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 accumulates from year to year.”

The issue was whether "day" in "10 days" in s 96(1) 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, or a "working day", consisting of the portion of a 24-hour period that would otherwise be allotted to working, and thereby authorising an employee to be absent without loss of pay on 10 working days per year.

Decision of High Court

The High Court allowed the appeal (by 4-1 majority), preferring the "notional day" interpretation:

"The expression '10 days' in s96(1) of the Fair Work Act 2009 (Cth) means an amount of paid personal/carer's leave accruing for every year of service equivalent to an employee's ordinary hours of work in a week over a two-week (fortnightly) period, or 1/26 of the employee's ordinary hours of work in a year. A 'day' for the purposes of s 96(1) refers to a 'notional day', consisting of one-tenth of the equivalent of an employee's ordinary hours of work in a two-week (fortnightly) period." 

Chief Justice Kiefel and Justices Nettle and Gordon stated that the “working day” interpretation would give rise to “absurd results and inequitable outcomes” and would be contrary to the legislative purposes of fairness, flexibility, certainty and stability. It would have meant that every employee, regardless of their pattern of work or distribution of hours, would be entitled to 10 days paid leave. This construction was rejected.

Justice Edelman agreed with these orders, but Justice Gageler stated he would have dismissed the appeals, warning that "construing '10 days' as a shorthand reference to an unspecified number of ordinary hours of work calculated according to an unexpressed mathematical formula overstrains the minimalist statutory text".

Certainty and relief for employers 

If the Full Federal Court’s decision had been upheld there would have been ongoing financial implications for Australian businesses. It would likely have created uncertainty for part-time employees requiring flexible work practices. Employers may have been required to allow part-time employees to access more hours of personal leave than full-time employees, despite working less hours.

Today’s decision is a welcome relief for employers. The certainty may also benefit employees. It signals a return to the certainty of accrual of leave based on hours and the taking of leave by drawing from the employee’s pool of accrued paid personal leave on an hourly basis. 

What next for employers

Employers who have altered their employment contracts to ensure consistency with the Full Federal Court decision may wish to take the opportunity to review and update these contracts. Similarly, employers who have been operating manual leave accruals are now able to revert to the previous system accrual in hours method available in most payroll systems. Consideration may be given to scaling back additional personal leave accruals paid to employees, or even seeking offset. We recommend seeking advice first as there are associated complexities.

Our Workplace and Employment team is ready to advise and assist with any related issues.

Authors
Andrew Tobin
Partner
Andrew is a Partner and the head of HopgoodGanim Lawyers’ Workplace and Employment practice.

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