This follows a first instance decision by the Full Court of the Federal Court of Australia in August 2019.

What were the Courts asked to decide?

Mondelez Australia Pty Ltd (Mondelez) operates several food processing businesses. It entered into an Enterprise Agreement with its employees and the Enterprise Agreement contained a clause that Mondelez claimed provided for a more generous personal leave entitlement than the National Employment Standards (NES).

Mondelez employees work a 36-hour week.  Some employees work the 36 hours in three, 12-hour shifts, whereas other employees work 8-hour shifts over 4.5 days. The Enterprise Agreement provided that employees who work the 12-hour shifts accrue 96 hours of personal leave each a year. Those working 8-hour shifts accrued 80 hours of personal leave a year.

Mondelez asserted its personal leave entitlement was more generous than the NES.  This was because the employees worked on average, 72 hours a fortnight, so their NES entitlement was 72 hours of paid personal leave a year.

The employees disputed this. They claimed that 10 days paid personal leave a year meant that, if an employee was sick on a day when they were rostered to work 12 hours, then they were entitled to be paid 12 hours. If over a 12-month period an employee took 10 days paid sick leave when they were rostered for a 12-hour day, then they were entitled to up to 120 hours of paid personal leave a year.

Under the Mondelez system however, an employee who accrued 96 hours of paid personal leave a year would only get 8 days of paid sick leave if 12 hours was deducted for each day they were sick.

The Federal Court Decision

Given the dispute, Mondelez applied to the Federal Court of Australia for declarations that the 80 hours and 96 hours were more generous than the provision in the Fair Work Act 2009. Thus, the Court had to decide what was intended by section 96 of the Fair Work Act.  Section 96 relevantly 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. 
• 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.”

Mondelez claimed that the meaning of “10 days” in section 96 had a “notional day” meaning.  It meant the number of hours a worker worked on average over 10 days. The Federal Court of Australia (by a 2-1 majority) ruled that the word “day” did not have a notional meaning but took its ordinary meaning of a 24-hour period.  It held that the paid sick leave provision was akin to “income protection insurance” and that an employee was entitled to 10 working days of sick leave a year, paid as if they had attended work for the hours they were rostered for that day.

In other words, those employees working 12-hour shifts would be entitled to 120 hours of leave every year accrued on a pro rata basis.

The High Court Decision

Mondelez appealed the Federal Court’s decision to the High Court of Australia and the High Court upheld the appeal. It ruled that the meaning of “10 days” for personal leave under the Fair Work Act 2009, was a notional 10 days – meaning the average hours an employee works over a fortnight (a 10 working days period).

The High Court held that to give the word “day” a 24-hour period would lead to “absurd results”, especially for part-time and shift workers, and was contrary to the flexibility and fairness intended by the Fair Work Act 2009.

The High Court’s decision depended heavily on the fact paid personal leave in the Fair Work Act 2009:

• accrues progressively (an employee does not receive a block of 10 days irrespective of the employee’s length of service – unlike compassionate leave for example); and
• is based on an employee’s “ordinary hours of work”.

The High Court held that these facts show that Parliament’s intention was for personal leave to be calculated on the average hours a person worked.  The High Court majority was also persuaded by the explanatory memorandum to the Fair Work Act 2009, which stated that the intention was to ensure that the spread of hours over a fortnight would not impact a worker’s entitlement.

What this means for employers

Many employers will breathe a sigh of relief, as the High Court’s notional day construction was what was predominantly applied by payroll systems prior to the Federal Court decision. Employers can continue to calculate personal leave entitlements based on the employee’s average ordinary hours.  It is, in many ways, a return to what was.

However, employers should:

• review their payroll system to ensure that personal leave is accrued and paid consistently with the High Court’s notional day construction;
• conduct a personal leave reconciliation; and
• ensure that references to personal leave in any employment agreements or policies are consistent with the notional day construction (especially if they were amended after the Federal Court decision);

Of course, if you have any questions about personal leave entitlements or whether your payroll system is accruing leave correctly, please contact us.

Queries

If you have any questions about this article, please contact the authors, or any member of our Employment, Workplace Relations & Safety team.

Disclaimer

This information and contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders and is for reference purposes only.  It does not constitute legal or financial advice.  If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.