High Court confirms status quo on personal leave

On 13 August 2020, the High Court of Australia delivered its eagerly-awaited judgment in the case Mondelez Australia Pty Ltd v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union [2020] HCA 29 (Mondelez v AMWU). The matter dealt with the interpretation of the entitlement to 10 days of paid personal/carer’s leave in the Fair Work Act 2009 (Cth) (FW Act), specifically what is meant by a ‘day’ of leave.

The High Court’s decision comes nearly a year after the Full Court of the Federal Court first threw the existing interpretation of the entitlement into question in Mondelez v AMWU [2019] FCAFC 138 by preferring a ‘working day’ construction of the entitlement, as opposed to the established ‘notional day’ interpretation.

Fortunately, the High Court has found in favour of the status quo and found that the entitlement to paid personal leave should be determined on the basis of the ‘notional day’ approach.

What’s in a ‘day’?

The entitlement for full-time and part-time employees to access paid personal/carer’s leave arises under section 96(1) of the FW Act, which provides:

“For each year of service with his or her employer, an employee is entitled to 10 days of paid personal/carer’s leave.”

The crux of this case rested on how a ‘day’ was to be construed, with two competing interpretations in contention: a ‘working day’ or a ‘notional day’.

The ‘working day’ approach

The Australian Manufacturing Workers’ Union (AMWU) argued in favour of the ‘working day’ interpretation eventually adopted by the Federal Court last year. This approach interpreted a day to mean the portion of a 24-hour period that would otherwise be allotted to work.

As a result, an employee’s entitlement to personal leave would not be expressed in hours, but rather as days or fractions of a day. In practice, the ‘working day’ approach would mean that employees would be entitled to be absent with pay on 10 occasions for whatever their rostered hours were.

More importantly, it would make it impossible for businesses to know how much personal leave an employee was entitled to take until they actually wanted to take it, as the length of a “day” of personal leave would depend on how long the relevant “working day” in question was.

For example, an employee working days of variable length – say, a seven-hour shift one day and a nine-hour shift on another day – would be entitled to the full “day” of personal leave regardless of which day they were absent. If they took the seven-hour day off, that would be a “day”; if they took the nine-hour day off, that would also be a “day”.

It would also mean that an employee who works one day a week would, in effect, be entitled to ten weeks of personal leave per year of service.

The ‘notional day’ approach

This case arose from appeals by Mondelez and the Minister for Jobs and Industrial Relations against last year’s Federal Court decision. Mondelez and the Minister both argued that the Federal Court erred in adopting the ‘working day’ approach, and that the correct interpretation was in fact a ‘notional day’ approach.

The ‘notional day’ approach is based on paid personal leave being determined by reference to the employee’s ordinary hours of work, specifically that the 10 days of personal leave provided for is intended to be equivalent to two standard five-day working weeks for a full-time employee. As a result, a full-time employee working 76 hours per fortnight would be entitled to 76 hours of paid personal leave per year of service.

In practice, the ‘notional day’ approach would mean that that an employee’s entitlement to paid personal leave would be proportional or pro-rated based on their ordinary hours work, up to a maximum of 76 hours for a full-time employee.

Why does it matter?

The Federal Court’s decision last year would have had major consequences for employers, not least of which would have been an impossible degree of uncertainty as to what, exactly, employees’ entitlements to personal leave actually were.

The ‘notional day’ approach is the approach that has been historically adopted and applied by the vast majority of businesses in Australia – that is, that personal leave accrues on a pro rata basis according to an employee’s hours of work.

If the High Court had upheld the “working day” approach, this not only would have knock-on effects in administering the employment relationship between employer and employee, but also make it harder for businesses to accurately report their liabilities, which in turn may have made it more difficult for businesses to obtain finance in the form of credit or loans.

Of course, the several billion dollars in potential back pay claims would also have been a major problem for employers.

What was the Court’s decision?

Ultimately, a majority of the High Court found in favour of the ‘notional day’ approach to paid personal/carer’s leave in the matter of Mondelez v AMWU. This means that the current approach to paid personal leave used by Australian employers continues to be the status quo. As a result, after a year of uncertainty, businesses can rest easy without worrying about a sudden and dramatic increase in their liability for leave entitlements.

In coming to this decision, the majority had regard for the history and development of the FW Act, and the relevant extrinsic materials. In rejecting the ‘working day’ approach, the majority noted:

“It would give rise to absurd results and inequitable outcomes, and would be contrary to the legislative purposes of fairness and flexibility in the Fair Work Act, the extrinsic materials and the legislative history.”

What does this mean for my business?

This decision means that when it comes to determining and calculating your employees’ entitlement to paid personal leave, it’s business as usual.

For each year of service, an employee is entitled to paid personal leave equivalent to an employee’s ordinary hours of work in a two-week period, and as a result the entitlement is proportional or pro-rated depending on an employee’s ordinary hours of work.

For employee with a pattern of work that does not follow a two-week cycle, the amount of paid personal leave an employee becomes entitled to can also be calculated as 1/26th of the employee’s ordinary hours of work in a year.

If you are unsure of whether you have correctly calculated and managed your employees’ entitlement to paid personal leave, please contact the NRA Legal team on 1800 572 679 for further support and advice.