22 August 2019

Unsweet outcome for Mondelez: Full Federal Court clarifies calculation of personal/carer’s leave under the NES

This article was written by Murray Kellock, Katherine Prowse and Irma Glinac.

Earlier this week, a Full Court of the Federal Court handed down a landmark decision relating to the meaning of “10 days of paid personal/carer’s leave” in s 96(1) of the Fair Work Act 2009.  The Full Court has clarified how the word “day” is to be interpreted, and how this will impact employees, such as shift-workers, who work longer work days. 

A majority of the Full Court ruled that the 10 days’ paid personal/carer’s leave entitlement should be calculated based on the employee’s “working day”, rather than a “notional” day.

The decision (Mondelez v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union Known as the Australian Manufacturing Workers Union (AMWU) [2019] FCAFC 138) will have significant implications for many employers, particularly those who employ shift-workers.

The case

The case considered how the entitlement to paid personal/carer’s leave is quantified under s 96(1) of the Fair Work Act 2009.  Section 96(1) provides that, “for each year of service with his or her employer, and employee is entitled to 10 days of paid personal/carer’s leave”. 

In the case, the dispute between the parties related to whether a pair of 12-hour shift workers were entitled ten 12-hour shifts of paid personal/carer’s leave per year of service.  The union argued that the employees should be entitled to 10 days of personal/carer’s leave at 12 hours per day (so, 120 hours of paid leave per year of service).  Conversely, Mondelez argued that like other employees who worked 36 hours per week, the employees were only entitled to 10 days of personal/carer’s leave at 7.2 hours per day (so, 72 hours of paid leave per year of service).

Mondelez and the union put forward competing submissions on how the word “day” in s 96(1) should be interpreted.  

Mondelez argued that the word “day” in s 96(1) is said to be a “notional day”, consisting of an employee’s average daily ordinary hours based on an assumed 5-day working week.  For example, an employee who works 36 ordinary hours per week works an average of 7.2 hours per day over an assumed 5-day working week.  The “notional day” is 7.2 hours and the employee is entitled to 10 such days (or 72 hours) of paid personal/carer’s leave for each year of service.  If the employee takes a day of personal/carer’s leave, the employee is paid 7.2 hours’ wages, and 7.2 hours is deducted from the employee’s accrued leave balance.  On this basis, all employees who work the same average weekly ordinary hours are entitled to receive the same number of hours of paid personal/carer’s leave.

Conversely, the union argued that the word “day” has its ordinary meaning of a “calendar day” and accordingly, it allows every employee to be absent from work without loss of pay on 10 calendar days per year.

Relevantly, the different interpretations produced different practical outcomes between, on the one hand, employees who work the same number of hours each day over a 5-day week, and, on the other hand, employees who work shifts that compress their weekly hours into a shorter number of days, or who work different hours on different days of the week.

The decision

In its decision, the Full Court noted the consequences of the competing interpretations of the section.

“Mondelez’ employees each work 36 ordinary hours per week. Some work 7.2 hours per day, five days per week. Others work 12 hours per day, three days per week. On Mondelez’ “notional day” construction, under s 96(1) of the Act, each employee is entitled to accrue 72 hours of paid personal/carer’s leave over a year; but a 7.2-hour employee’s entitlement will be used up over ten calendar days, whereas a 12-hour employee’s entitlement will be used up over six calendar days. On Mondelez’ construction, a 12-hour employee who is unable to work after the sixth day would lose income, whereas a 7.2-hour employee would not. In contrast, on the respondents’ construction, the 12-hour employee is entitled to more hours of paid personal/carer’s leave than the 7.2-hour employee, but neither would lose income over a period of ten calendar days.”

The Full Court rejected Mondelez’s interpretation of “day” under the section, and instead held that the meaning of the word “day” for the purposes of the section is “the portion of a 24 hour period that would otherwise be allotted to working”.  This could be described as a “working day”, and accordingly, under s 96(1), employees are authorised to be absent from work for 10 such “working days”.

The Full Court was persuaded by the fact that s 96(1) assists in establishing a statutory form of income protection for all national systems employees, other than casual employees.  It held that the section authorises employees to be absent from work during periods of illness or injury and requires employers to pay employees “as if they had not been absent”.   The Full Court noted that the “working day” interpretation of s 96(1) was consistent with this purpose.  Returning to the example of employees who work 36 ordinary hours per week, the Full Court also noted as follows:

“…whether an employee works 7.2 hours every day over five days, or 12-hour shifts over three days, under the “working day” construction, both will be paid at their base rate for the ordinary hours they would have worked if not for the illness or injury. Neither will lose that income. Further, the leave balance for each will be debited with one “working day” for each day of leave taken. The effect of this construction is that, subject to the delineated limits, no employee who is unable to work because of illness or injury will lose income.”

What does the decision mean for employers?

Mondelez’s approach to quantifying personal/carer’s leave under s 96(1) of the FW Act is a common industry practice, and the Full Court’s decision could have serious implications for employers applying this practice, particularly in respect of shift-workers.  While it is yet to be seen whether Mondelez will appeal the decision, employers need be aware of the confirmed approach to calculating such leave.  Moving forward, employers will need to ensure that they calculate leave under s 96(1) for each employee based on the employee’s particular “working day”, that is the "portion of a 24-hour period that would otherwise be allotted to work".  Employers should review their payroll systems to ensure that they are calculating leave in the correct way.

If you need advice on this issue or wish to discuss the implications of this decision to your business, please contact us directly.

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