A day is a day, isn’t it? As the Full Bench of the Federal Court has recently found, the answer to the question is surprisingly complex.
In Mondelez v AMWU, the court was asked to consider the meaning of the word “day” in relation to the NES entitlement to 10 days of paid personal/carer’s leave.
The matter related to 12-hour shift workers at Mondelez’s Cadbury plant in Tasmania but has broad reaching implications for employers of shift workers and employees working condensed hours over less than 5 days per week.
What was the question for the court?
The dispute between the employer and union related to section 96(1) of the Fair Work Act 2009 (Cth) (FW Act), which provides that that “for each year of service with his or her employer, an employee is entitled to 10 days of paid personal/carer’s leave”.
In Mondelez, the union argued that an employee should be paid for their actual ordinary hours when taking a personal leave day, while the employer argued the employee should be paid the “notional” ordinary hours of a day worker working 5 days per week. The question is an important one, as the different constructions produce different practical outcomes.
Take for example the employees Anna and John. Anna is employed as a part time employee, working 36 ordinary hours per week. She works 12 ordinary hours per day over a fixed 3 days on, 4 days off roster cycle. John also works 36 ordinary hours per week, but over 5 days per week (7.2 ordinary hours each day).
The employer’s argument would mean Anna should be paid 7.2 “notional” ordinary hours’ wages on a sick day, with 7.2 hours being deducted from her accrued leave balance. The union’s competing argument would mean Anna should be paid 12 “actual” ordinary hours’ wages on a sick day (with one day being deducted from her leave balance).
On the employer’s argument, John would use up his entitlement to personal/carer’s leave over 10 calendar days, whereas Anna’s entitlement will be used up over 6 calendar days after which she would start losing income. However, on the union’s argument, Anna would have access to up to 120 hours of personal/carer’s leave per year, whereas John would only have access to 72 hours.
As you can see from the above example, the two constructions produce vastly different outcomes for Anna and John, despite them working the same number of ordinary hours each week.
What were the arguments on either side?
The employer argued that the Explanatory Memorandum makes it clear that Parliament intended section 96(1) to adopt the “notional” day construction. In particular, the employer argued that the Explanatory Memorandum stated that the FW Act was not intended to change the quantum of personal/carer’s leave entitlements and the previous Workplace Relations Act 1996 (Cth) (WR Act) had expressed the entitlement in hours, not days.
The union, on the other hand, argued the entitlement to be paid for a “day” under the FW Act is an entitlement to be paid for the ordinary hours that would have been worked on the day but for the employee’s illness or carer’s responsibilities. The union said the court could not consider the Explanatory Memorandum because the words of the FW Act are clear and support this position.
What did the court decide?
By a 2-1 majority, the court found in favour of the union, finding that an employee working shifts that compress their weekly hours into less than 5 days should be paid for the actual ordinary hours they would have worked on a sick day.
On the facts of this case, the majority found this meant part time 12 hour shift workers working a 36-hour week are entitled, under the NES, to the equivalent of ten 12 hour days of personal/carer’s leave per year (120 hours), not 72 hours as argued by the employer.
The majority had regard to the Explanatory Memorandum, and found the passage stating the FW Act did not change the quantum of the entitlement to personal/carer’s leave from the WR Act entitlement is inaccurate. The majority noted, for example, that under the WR Act, paid carer’s leave was capped at 10 “nominal days”. There is no such cap under the FW Act, so the majority found it cannot be said there are no changes from the WR Act.
The majority further stated that had Parliament intended for a “day” for the purposes of personal/carer’s leave to be restricted to average weekly hours divided by 5, Parliament would have made that expressly clear.
The practical outcome of the majority decision is that employees working condensed working weeks (such as shift workers) are entitled to more hours of paid personal/carer’s leave than employees working 5 days per week, but neither group of employees lose income over a period of 10 calendar days.
Justice Callaghan disagreed with the majority and issued a separate dissenting judgment.
His Honour relied on the Explanatory Memorandum and found that Parliament did not intend for the amount of personal/carer’s leave to be affected by any different spread of an employee’s ordinary hours of work in a week.
Where to from here?
It is unclear at this time whether Mondelez and the government will appeal the decision. However the decision, as it stands, is a reminder that the courts will consider personal/carer’s leave entitlements as a form of “income protection”, with entitlements to be construed favourably to employees in the event of uncertainty.
Moving forward, employers will need to ensure that they calculate personal/carers’ leave based on their employees’ ordinary hours each day and review their payroll systems and processes to ensure that they are accounting for leave in line with the court’s decision. It is important to remember that the decision applies regardless of the terms of any enterprise agreement to the contrary. Employers can also expect heavier scrutiny from unions on the issue, with the AMWU welcoming what it describes as a “long-awaited decision”.
The most significant practical and commercial implications for employers, particularly those in the health, construction and mining industries, include:
Financial impact. The decision will likely impact employers of shift workers whose systems have currently been accruing and deducting leave in hours. Moving forward, employers will need to budget according to the pattern of hours employees are rostered to work, and the difference may be significant for part time shift workers.
Accounting uncertainty. As a result of this financial impact, employers should immediately consider how to effectively budget for their organisation’s personal/carer’s leave liability. This is likely to be particularly difficult where employees work on changing or rotating rosters, with a different pattern of ordinary hours from month to month.
Considering compliance. For employers who have not been paying employees in line with the decision, compliance and systems issues should be addressed early, to understand the risks of any claims for past practices and avoid any future liability for contraventions of the FW Act. Making changes to payroll systems may involve upfront time and cost, but it will be crucial to minimising risk.
Reviewing rostering and leave systems. One of the clearest ways for employers to manage the impact of the decision is to review rostering practices and, where possible, minimise the impact on the organisation of rotating rosters or “shift swaps”. Employers will need to consider their leave application processes and how they will keep abreast of employees’ ordinary hours to ensure they do not run the risk of underpayment.