Practicality prevails: High Court split decision fixes the paid personal leave anomaly

The ruling should come as a relief to employers across the country

BY Joe Murphy and Luis Izzo 14 Aug 2020

In a ground-breaking judgment, the High Court has issued its first decision on the Fair Work Act’s National Employment Standards since their introduction over 10 years ago.

The High Court (4-1 in favour) overruled the contentious ruling of the Full Federal Court in Mondelez, finding that employees are entitled to 10 “notional days” of personal leave a year by reference to their ordinary working hours. This contrasts with the Federal Court’s view that 10 days of personal leave entitles all employees (regardless of their actual working hours) to 10 x 24-hour periods off work each year.

The entitlement explained
Under the High Court’s approach, employees are entitled to 10 ‘notional days’ leave per year; however the duration of a ‘day’ is determined by identifying 1/10th of an employee’s ordinary hours over a two week period (which equates to 1/26th of their total ordinary hours over the course of a year).

By way of example:

For a full-time employee working 38 hours a week and 76 hours a fortnight, they would accrue on the basis of an entitlement to a 7.6-hour ‘notional day’. Over the course of a year, an employee would accrue 76 hours of leave, or 10 x 7.6-hour notional days.
For a part-time employee working 20 hours a week and 40 hours a fortnight, they would accrue on the basis of an entitlement to a 4-hour ‘notional day’, as opposed to 7.6 hours. Over the course of a year, the part time employee would accrue 40 hours of leave, or 10 x 4-hour notional days.
For shift workers working varied patterns of work across fortnights or months, the Court has said employers can determine the value of ‘a day’ by identifying 1/26th of the employee’s ordinary hours over the course of a whole year. This enables the parties to ignore weekly or monthly variations in rosters and assess the total hours of work as a whole. Again, for most full-time shift workers (who ultimately work an average of 38 hours per week over the course of a year), this means that they will be entitled to 10 x 7.6 hour days each year.

Relief for employers
The ruling should come as a relief to employers across the country, given that almost all payroll systems utilised in Australia can accrue and deduct leave according to the approach identified in the High Court judgment.

The judgment also dispenses with the argument that part-time employees can access the same (or even more) hours of personal leave each year when they do not work the same load as full-time employees.

Under the judgment, part-time employees are still entitled to 10 days’ leave, however, these are ‘notional days’ and the number of hours in each day of leave is to be calculated on a pro-rata basis depending on how many hours the part-timer works in a fortnight.

Practically speaking, this is a return to the accrual of leave on an hourly basis and the taking of leave, by drawing down from the employee’s pool of accrued paid personal leave on an hourly basis.

Focus on Federal Court approach to Fair Work Act disputes
The High Court labelled the ‘working day’ approach adopted in the previous Federal Court ruling as giving rise to “absurd results and inequitable outcomes, and would be contrary to the legislative purposes of fairness and flexibility”.

This decision stands out as an exception to a trend of recent Federal Court decisions pertaining to the Fair Work Act, where employers have complained of impractical or absurd outcomes arising from a literal interpretation of the Fair Work Act.

Hopefully, the decision marks a turning point whereby Courts will give more weight to the practical implications of various rulings before determining the Fair Work Act’s application.

Where to from here?
For those employers who have received advice from ABLA regarding the previous Mondelez decision, we intend to contact you in due course to discuss the implications of the latest decision.

If your business needs to review what this decision means, please get in touch at [email protected].

Joe Murphy
Managing Director - National Workplace
Australian Business Lawyers & Advisors

Luis Izzo
Managing Director - Sydney Workplace
Australian Business Lawyers & Advisors