29 August, 2019
In Mondelez v AMWU [2019] FCAFC 138, the Full Federal Court has decided what a sick day is.
What you need to know
- The Federal Court has determined that the National Employment Standards provide employees with access to 10 working days personal/carer's leave for each year of service, regardless of the number of ordinary hours the employee would ordinarily work on those days
- This represents a major departure from the system that operated from 2006 to 2009 when national minimum standards (including for personal/carer's leave) were first introduced
- The decision also jars with many employers' current leave accrual and payroll practices, and may adversely affect those employees working non-standard patterns of work
- The impact of the decision on other forms of leave, including annual leave, is unclear
What you need to do
- If the decision is not reversed by the High Court or by legislative change, many employers will need to undertake a major reconciliation of leave accruals and usage for at least the past six years. This is likely to result in significant under and over accrual issues (and associated under and overpayments) for employees working non-standard patterns of work
- Employers should also consider revisiting the effectiveness and efficiency of compressed hours of work patterns
- Given the uncertainty associated with any High Court appeal and/or Parliamentary processes, we recommend that you start contingency planning (including auditing your organisation's potential exposure) now
This case was initiated by the employer, Mondelez (supported by Ai Group). Mondelez operates a chocolate factory at which its full-time employees work 36 ordinary hours per week. Some employees work 7.2 hours per day, five days per week. Others work three 12-hour shifts per week.
Mondelez's case was that the NES entitles each employee to 72 hours (equivalent to 10 days or two weeks') paid personal/carer's leave for each year of service. For a five-day per week employee, this would cover 10 paid absences per year. For a three-day per week employee, this would cover six paid absences each year (each of 12 ordinary hours). Mondelez sought a declaration that its enterprise agreement (which provided employees with between 80 and 96 hours' paid personal/carer's leave) was more beneficial than the NES.
Mondelez's approach was broadly supported by the Federal Minister for Jobs and Industrial Relations who intervened in the case.
The Union contended that the NES entitlement instead covered absences on 10 calendar days for each year of service.
The majority's decision
A majority of the Full Federal Court (Bromberg and Rangiah JJ) decided that the NES provides employees with access to 10 working days personal/carer's leave for each year of service.
While the decision is complex, the majority's findings can be reduced to a few straightforward propositions:
- personal/carer's leave entitles an employee to absent themselves from their work on a normal working day because of illness or injury or to care for a family/household member;
- the NES provides that all employees accrue 10 such days' leave (referred to as working days) each year;
- for each working day on which an employee takes personal/carer's leave, their accrued leave balance is reduced by one day;
- the employee is entitled to be paid (at their base rate of pay) for all of the ordinary hours the employee would otherwise have worked on that working day.
The majority summarised these arrangements for providing personal/carer's leave as "a form of income protection for employees during periods of illness, injury or unexpected emergency".
The opposing case and dissenting judgment
The Minister submitted that the reference to "10 days" in the NES should be understood as an entitlement to accrue a particular number of hours of personal/carer's leave (equivalent to an employee's ordinary hours of work in a two-week period) for each year of service.
The Minister submitted that this interpretation:
- was supported by the language of the Fair Work Act;
- represented a continuation of the system that had operated since the introduction of national minimum standards in 2006;
- was reinforced by the Explanatory Memorandum, which expressly provided that the NES was not intended to change the quantum of personal/carer's leave provided under the predecessor Act and stated that the amount of paid personal/carer's leave accrual would not be affected by differences in the actual spread of an employee's hours; and
- would avoid anomalous outcomes and achieve practicable and workable outcomes.
Mondelez separately raised other issues, including specific anomalies and impracticalities that would result from the approach ultimately adopted by the majority.
In a brief dissenting judgment, O'Callaghan J accepted the Minister's interpretation, citing the text of the Fair Work Act, the Explanatory Memorandum and the practical implications of any alternative interpretation.
What does this mean?
If the decision stands, it will have far-reaching implications for employers and employees.
- Employees working compressed hours arrangements – These employees will generally have access to significantly more leave than under existing arrangements. For an employee working 3 x 12 hour shifts each week (as at Mondelez), the employee's NES accrual will cover the equivalent of 120 productive hours of paid personal leave per year (accruing year to year). This compares to 76 productive hours for an employee working the same total number of ordinary hours, but spread over five shifts per week.
- Employees working other non-standard arrangements – Depending on an employee's pattern of work, they may find themselves worse off than under existing arrangements. This is because an employee working part-time and/or a variable pattern of ordinary hours may exhaust their personal/carer's leave accrual (measured in working days) faster than if their accrual was only reduced by the actual ordinary hours the employee would otherwise have worked on the day. There is also the potential for different pay outcomes based on when an employee falls sick (or caring responsibilities arise) during a year.
- Employers – Many employers conduct operations involving a broad range of work patterns (comprising day work, shiftwork and continuous shiftwork), as well as provide employees with a range of different (often, tailored) flexible work arrangements.
The majority's decision represents a significant change for many employers' current leave accrual and payroll practices, and will require extensive auditing and remedial action. It also provides no certainty in relation to the appropriate treatment of other forms leave, including annual leave.
The decision also has potential implications for the suitability of various roster patterns to meet business needs – in particular, the costs of operating such a roster pattern, the potential for increases to unplanned absences for longer shifts within a variable shift pattern, and practical issues associated with addressing equity concerns between employees working different work patterns (which may flow through to bargaining claims for these groups).
Making the case: Insights from Geoff Giudice
This case deals with a problem which was first considered by the Fair Work Commission in 2012, seven years ago. It was reasonably apparent at that time, and has now become blindingly obvious, that the relevant Fair Work Act provisions, when taken with the Explanatory Memorandum, give rise to uncertainty in relation to employees who do not work a standard week of days of uniform length. Arising from that uncertainty are:
- financial implications for employers and employees, and
- questions of fairness and equity as between employees on non-standard working hours.
Legislative action to resolve the uncertainty is long overdue.
For further information, please contact:
Jon Lovell, Partner, Ashurst
jon.lovell@ashurst.com
