The Full Court of the Federal Court has handed down its decision in the matter of Mondelez Australia Pty Ltd v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union known as the Australian Manufacturing Workers Union & Ors  FCAFC 138.
The application concerned how the entitlement to paid personal/carer's leave in s96(1) of the Fair Work Act (FW Act) is quantified. At the heart of the dispute is the meaning of the word "day" insofar as it relates to an employee's right to be absent from work on personal/carer's leave.
Summary of Facts
Mondelez operates food manufacturing plants across Australia and is a party to the Mondelez Australia Pty Ltd, Claremont Operations (Confectioners & Stores) Enterprise Bargaining Agreement 2017. The relevant clause under the EA with respect to personal/carer's leave provides that employees other than employees on a 12 hour shift are entitled to 80 hours of paid personal leave per annum. Employees working a 12 hour shift are entitled to 96 hours per annum of personal/carer's leave.
Ms Triffit, the second respondent and Mr McCormack, the third respondent worked three, 12 hour shifts and were therefore entitled to 96 hours of paid personal/carer's leave under the EA which was sufficient to cover absence for eight, 12 hour shifts. The dispute was whether the method of accounting of the personal/carer's leave on the applicant's construction of s 96(1) is in fact inconsistent with the section 96(1) of the FW Act. Section 96(1) of the FW Act stipulates:
“for each year of service with his or her employer, an employee is entitled to 10 days of paid personal/carer’s leave”
In their application to the Federal Court Mondelez sought two declarations. The first that when the second and third respondents were absent for a 12 hour shift of paid personal carer's leave that 12 hours are to be deduced from the accrued leave balance and the second that the entitlement to paid personal/carer's leave under the Mondelez Australia Pty Ltd, Claremont Operations (Confectioners & Stores) Enterprise Bargaining Agreement 2017 was more beneficial than the entitlement under the National Employment Standards.
Mondelez contended that, for the purposes of that provision, the definition of 'day' must be construed according to the industrial meaning of the word 'day', being a 'notional day'. A notional day reflects an employee's average weekly ordinary hours based on an assumed 5-day working week.
On the other hand, the respondents opposed that definition and instead submitted that 'day' in s 96(1) adopts its ordinary meaning, being a 'calendar day' or a 24 hour period, which in effect allows every employee to be absent from work without loss of pay on 10 calendar days per year. The difference in the definitions produces different practical outcomes in application.
Under Mondelez's 'notional day' construction, each employee is entitled to accrue 72 hours of paid personal leave over a year. In practice, for an employee who works 7.2 hours, 5 days a week, their entitlement will be used up over 10 calendar days, whereas a 12 hour employee's entitlement will be used up over 6 calendar days. Based on this construction a 12 hour employee would therefore lose income after the 6th day, whereas a 7.2 hour employee would not.
On the respondents' construction however, a 12 hour employee would be entitled to more paid hours of personal/carer's leave in comparison to a 7.2 hour employee. Notably, on this construction, neither employee would lose income over a period of 10 calendar days.
A majority of the Full Court determined that the application should be dismissed.
The Court determined that the primary purpose of personal/carer's leave is to provide a form of income protection during periods of illness or injury. It determined that when construing s96(1) of the FW Act attention should be principally focused on this primary purpose. In this context the Court determined that "day" should be construed as a "working day". That is, that portion of a 24 hour period that is allocated to working.
Under this construction all permanent employees, whatever their shift pattern, are entitled to payments reflecting the base pay they would have received had they been able to work. This does not include payment for any overtime that the employee was rostered to work. The leave balance for the employee should be debited with one "working day" for each day of leave taken.
The Court considered the impact of the phrase "according to the employee's ordinary hours of work", and determined that the phrase did not demonstrate that accrual of paid personal/carer's leave is to be on the basis of a number of hour rather than days. Rather, accrual by reference to ordinary hours in s96(2) is a mechanism that allows an employee's entitlement to paid personal carer's leave to be determined when the entitlement includes a part day.
In respect of overtime, the Court held that its "working day" construction accommodated the legislative intention for the provision of personal/carer's leave. That is to authorise employees to be absent, not only for their ordinary hours of work, but also any overtime hours they would otherwise have been required to work. The court noted that overtime hours are not included as part of a leave balance and the employee is paid nothing for those hours if the employee does not work.
The impact of how leave accrues, or is granted, in circumstances where an employee is paid an annualised salary which includes an amount for regular overtime, was not considered.
The principal conclusions as to the construction of s 96(1) were summarised by the court as follows at :
- A “day” in s 96(1) of the FW Act refers to the portion of a 24 hour period that would otherwise be allotted to work (a “working day”).
- A “day” of “paid personal/carer’s leave” under s 96(1) is an authorised absence from work for a working day for a reason set out in s 97.
- Under s 96(1), an employee accrues an entitlement to be absent from work for a reason set out in s 97 for 10 such working days for each year of service.
- The entitlement to paid personal/carer’s leave under s 96(1) is not an entitlement to take such leave, which only arises when one of the conditions in s 97 is satisfied.
- For every day of paid personal/carer’s leave taken, a day is deducted from the employee’s accrued leave balance.
- Under s 96(1), the accrual is of part-days of paid personal/carer’s leave, not only full days.
- An employee may take a part-day of paid personal/carer’s leave, and an equivalent part-day is deducted from the employee’s leave balance.
- The expression “ordinary hours of work” in ss 96(2) and 99 distinguishes ordinary hours from overtime hours.
- The expression “ordinary hours of work” is used in s 96(2) to indicate that part-days of paid personal/carer’s leave entitlement are calculated on the basis of ordinary hours.
- The purpose of paid personal/carer’s leave is as a form of income protection for employees during the periods of illness, injury or unexpected emergency described in s 97.
- Paid personal/carer’s leave accrues over the whole length of employee’s employment with a particular employer, to the extent that it is not taken.
- The amount of paid personal/carer’s leave that may be taken in a year is limited to the amount that has been accrued, but is not otherwise limited.
The Court determined that the second and third respondents were entitled to accrue 10 days of paid personal/carer's leave for each year of service. This meant their entitlement to a days paid personal/carer's leave is an entitlement to be absent from work for the portion of a 24 hour period that would otherwise be allocated to work. For the individual respondents that is 12 hours. Therefore they are entitled to be absent for 10 such periods for each year of service.
O'Callaghan J disagreed with the joint reasons of Bromberg and Rangiah JJ. In His Honour's reasons he stipulated that the second declaration sought by the applicant should be granted.
What Does the Decision Mean?
Whilst clarifying what a "day" means, the decision is likely to cause more confusion for those employers who pay annualised salaries to shift workers, particularly where those annualised salaries include compensation for regular overtime. It is clear that employees do not accrue leave on overtime hours, nor should they be paid for those overtime hours when on leave.
The decision is likely to mean that from a practical perspective employees in the one organisation will accrue different numbers of hours of leave. Whilst each employee will accrue 10 days of personal/carer's leave, the actual number of hours accrued will be different. Employers will need to consider how payroll systems can accommodate these differences, and how the actual hours of leave will be accrued and deducted.