On 13 August 2020, the High Court of Australia handed down its highly-anticipated decision in the Mondelez case.[1] Employers welcomed the decision since the High Court accepted the arguments put forward by the employer, Mondelez, as supported by the Federal Government and provided a common-sense approach to calculating personal/carer’s leave entitlements. The decision reversed an earlier judgement of the Full Court of the Federal Court on 21 August 2019.
Under the Fair Work Act 2009 (Cth) (Fair Work Act), employees are entitled to 10 days of paid personal/carer’s leave per year. The employees in this case were shift workers at the Cadbury chocolate factory in Tasmania who worked three 12-hour shifts per week, and they argued, supported by the AMWU, that they were entitled to 10 days of sick leave based on the length of their shifts, i.e. 120 hours per year.
By comparison, a typical full-time employee who works a standard 7.6 hours per day, across five days in a week, would normally accrue 76 hours of leave each year. In Mondelez, there was an enterprise agreement in place which set a full-time working week at 36 hours per week and provided shift workers with 96 hours of personal leave per year. This meant that when a shift worker takes paid personal/carer’s leave for one 12-hour shift, Mondelez deducted 12 hours from their accrued leave balance. Over the course of one year of service, employees accrue paid personal/carer’s leave sufficient to cover eight 12-hour shifts.
The arguments put forward by the AMWU had been accepted by the Federal Court before Mondelez launched an appeal to the High Court. Mondelez and the business community generally were understandably concerned that the Federal Court decision would have an inequitable outcome between employees, as well as representing a significant increase in employment costs and potential back claims.
A majority of the High Court rejected the “working day” approach to the calculation of leave that had been put forward for the AMWU. Instead, the Court held that what is meant by a “day” must be calculated by reference to an employee’s ordinary hours of work and that “10 days” represents two standard five-day working weeks.
In other words, the Fair Work Act should be understood to mean that one “day” refers to a “notional day” consisting of one-tenth of the equivalent of an employee’s ordinary hours of work in a two-week period. Since patterns of work do not always follow two-week cycles, the entitlement to “10 days” of paid personal/carer’s leave is best thought of as representing 1/26 of an employee’s ordinary hours of work in a year.
The “notional day” construction was accepted by the High Court as being a fairer interpretation which was consistent with the objectives of the Fair Work Act to provide fairness, flexibility, certainty and stability for employers and employees.
The majority judgement highlighted the following inequities which would occur if the interpretation adopted by the Full Court of the Federal Court, in accepting the AMWU’s submissions, were allowed to stand:
- An employee whose hours are spread over fewer days with longer shifts would be entitled to more paid personal/carer’s leave than an employee working the same number of hours per week spread over more days;
- a part-time employee working one day per week for 7.6 hours would be entitled to ten days of paid personal/carer’s leave per annum ( the same as a full-time employee). This meant that they would accrue the leave at 5 times the rate of a full-time employee; and
- a person who was employed one day per week by a number of employers would be entitled to 10 days of paid personal/carer’s leave from each employer (ie a staggering 50 days in each year).
The majority judgement commented that the 3 outcomes above would be directly contrary to the stated objects of the Act, being laws that are fair to working Australians, are flexible for businesses and promote productivity and growth. It added that the alternative interpretation would discourage an employer from employing anyone other than full-time employees.
What are the effects of this decision on employers?
The High Court decision means that employers will not have to recalculate and increase the personal/carer’s leave entitlements of part-time employees or employees who work shift based rosters involving longer hours per day but less days worked.
Although the issue was not addressed, the same reasoning will apply to interpreting the annual leave provisions in the Fair Work Act, meaning that employers will not be required to recalculate and increase annual leave entitlements for the same types of employees.
Accordingly, the decision provides greater clarity for employers about how to calculate both personal/carer’s leave and annual leave entitlements and is generally consistent with the common sense approach that most employers had adopted before the Federal Court threw doubt on the issue. Now is a good time to revisit your payroll practices and systems as well as your leave policies to ensure that they are consistent with the High Court decision.
If you would like assistance in this area, please contact our Employment Team at Hunt & Hunt.
with Michelle Nguyen
Graduate at Law
[1] Mondelez Australia Pty Ltd v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union; Minister for Jobs and Industrial Relations v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union [2020] HCA 29
