What's in a day? Federal Court ruling redefines sick leave

The Full Court of the Federal Court of Australia recently handed down a decision that is likely to have significant impacts on the accrual and taking of personal/carer’s leave — not to mention the management of the entitlement by employers.

The minimum entitlement to personal/carer’s leave is found in s96 of the Fair Work Act. It entitles employees to 10 days of personal/carer’s leave for each year of service with their employer, to accrue progressively during each year of service according to the employee’s ordinary hours of work.

Most, if not all, Australian employers have been operating on the understanding that the accrual of personal/carer’s leave occurs in standard hourly increments and it is similarly taken according to a standard day of work. However, the Full Court in Mondelez has confirmed this is not the case, and rather, the entitlement accrues and is taken in ‘days’.

Background

In Mondelez, the Full Court was required to determine whether the personal/carer’s leave provisions in an enterprise agreement were inconsistent with the National Employment Standards (NES) in the Fair Work Act.

The personal/carer’s leave provisions in the enterprise agreement provided that:

Employees, other than those on 12-hour shifts, were entitled to 80 hours of personal/carer’s leave; and
Employees who worked 12-hour shifts were entitled to 96 hours of personal/carer’s leave.

Mondelez had two employees who worked 12-hours shifts and, for each day of personal/carer’s leave taken, would be deducted 12 hours of their accrued leave. This approach meant that they would accrue eight days of personal/carer’s leave over the course of a year of service.

The arguments

Mondelez (with the support of the Minister for Small and Family Business Michaelia Cash) argued that the accrual of a ‘day’ of personal/carer’s leave in the NES should be based on the average daily ordinary hours of a five-day working week.

It relied on the explanatory memorandum to the Fair Work Act, which expressly states that the NES reflects a ‘standard’ five-day work pattern, and is intended to ensure that employees who work the same number of ordinary hours accrue the same entitlement, irrespective of the spread of those ordinary hours. For example, all employees who work 38 hours a week are entitled to 76 hours of personal/carer’s leave, irrespective of whether they work those 38 hours over five days or over four days.

Mondelez also argued that the Explanatory Memorandum clearly stated that the NES was not changing the entitlement under the previous Workplace Relations Act, which entitled employees to two weeks of paid personal/carer’s leave.

The Australian Manufacturing Workers Union (AMWU), representing the employees, argued the accrual of a ‘day’ of personal/carer’s leave in the NES should be based on a ‘calendar day’ (or a 24-hour period). On this interpretation, employees are entitled to 10 calendar days of personal/carer’s leave without loss of pay. The AMWU argued that Mondelez’s interpretation focused on the monetary quantum of the leave, whereas the true purpose of the entitlement is to protect an employee from loss of income as the result of personal or familial illness.

Mondelez raised concerns that this construction would create serious anomalies and unreasonable results, which could not have been the intention of the Fair Work Act. These included:

Employees who work longer shifts would be entitled to more personal/carer’s leave even if they work the same number of hours, on average;
Difficulty for employers in making financial provision for personal/carer’s leave, noting that the financial value does not eventuate until the leave is taken;
Even greater anomalies for part-time employees;
Significant difficulty when accounting for part-days of personal/carer’s leave; and
Inconsistency with NES provisions for cashing out personal/carer’s leave.

Decision

The Full Court confirmed that the natural and ordinary meaning of a ‘day’ in the context of the personal/carer’s leave provisions, which authorise an absence from work, must mean a ‘working day’.

On this construction, the majority of the Full Court agreed with the AMWU that the purpose of section 96 of the Fair Work Act is to establish a statutory form of income protection for employees who are ill or have to care for an immediate family or household member. This protection authorises employees to be absent from work without losing income for that working day.

According to the majority, Mondelez’s construction could result in employees suffering loss of income, where an employee who works longer shifts exhausts their personal/carer’s leave entitlement after six days and is therefore not entitled to payment for any subsequent absences within that year.

The majority were of the view that, once the purpose of section 96 is understood, the ‘anomalies’ raised by Mondelez cannot be seen as unintended outcomes. Rather, they are predictable consequences of the intended operation of that section, specifically noting the following.

There is no unfairness or inequity in circumstances where all employees are entitled to an equal number of working days with no loss of income, and where an employee who works three days is less likely to use their entitlement than an employee who works five days.
Mondelez placed too much emphasis on the monetary value of the leave and paid insufficient attention to the primary purpose of the leave as a form of income protection.
The requirement that the leave accrues according to an employee’s ordinary hours is significant when an employee is required to take a part-day of leave. For example, if an employee is required to take 1.5 days of accrued personal/carer’s leave where those days are an eight-hour and four-hour day respectively, then the half-day entitlement is reflected as two hours.

However, the majority did note that provisions concerning the cashing out of personal/carer’s leave may have the effect of being non-compliant with the NES in circumstances where the monetary value of the entitlement is not known unless or until the employee takes the leave.

Finally, in rejecting Mondelez’s construction, the majority found that an employee who takes personal/carer’s leave is entitled to payment (at their base ordinary rate) for all of the hours they would have worked but for the injury or illness, including any overtime.

The majority, therefore, refused to make the orders sought by Mondelez that the provisions in the enterprise agreement were more beneficial than those in the NES.

It should be noted that Judge O’Callaghan issued a dissenting judgment in which he accepted Mondelez’s construction that the entitlement to 10 days must operate as a unit of time expressed as ordinary hours of work. He was of the view that the explanatory memorandum clearly states that the provision ensures that the amount of leave accrued is not affected by the differences in the actual spread of ordinary hours.

Lessons for employers

There are a number of matters arising out of this decision which will require careful review and consideration by employers. For example, most payroll systems currently manage the accrual of personal/carer’s leave in hours. Employers will need to review these systems as to whether or not they are compliant with the legislative requirement that an employee is entitled to accrue 10 days of leave.

While it was not a subject of dispute in this decision, it also appears that, in clarifying that the NES entitles employees to 10 days of personal/carer’s leave, the Full Court has confirmed part-time employees are also entitled to accrue 10 days for each year of service, albeit at a higher rate of accrual than full-time employees.

It remains to be seen whether this decision will be appealed to the High Court, however, employers should now be reviewing their personal/carer’s leave arrangements to ensure they are consistent with this interpretation.

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