Federal Government and Cadbury seek leave to appeal Federal Court decision that left bad taste in employers’ mouths

The Federal Government and major employer Mondelez, who operates a Cadbury plant in Tasmania, will seek leave to appeal last month’s landmark Full Federal Court decision regarding paid personal/carers’ leave, to the High Court. The decision concerned the meaning of the word “day” for the purpose of the entitlement to 10 days paid personal/carer’s leave in s 96(1) of the Fair Work Act 2009 (FW Act).

In a two to one decision[1], the Full Court found that personal leave should accrue and be taken by reference to a “working day”, being the number of hours actually worked by an employee over a 24 hour period, rather than a “notional working day” being an employee’s average ordinary hours based on an assumed five day working week.

Confused as to what this means for employers? You’re not alone.

Background

The FW Act provides that an employee is entitled to 10 days of paid personal/carer’s leave for each year of service with his or her employer. Sounds simple right? Wrong. As the Full Court acknowledged, “for a provision expressed so simply, its interpretation is surprisingly complex.”[2]

The FW Act, unlike its predecessor, expresses the entitlement to personal/carer’s leave in days not hours. However, it was commonly understood that the entitlement should be calculated by reference to an average amount of hours per day worked over a standard five day work pattern. For example, an employee who works 38 hours per week (i.e. an average of 7.6 hours per day) would be entitled to 10 days or 76 hours of paid personal/carer’s leave per year, regardless of whether the employee’s ordinary hours were worked over five days at an average of 7.6 hours per day, or over 3 days at an average of 12 hours per day.

The recent Full Court decision deviates from this common industry practice, and if upheld, will significantly change the previously accepted practice of how to calculate personal/carer’s leave.

What was the case about?

The Australian Manufacturing Workers Union (AMWU) represented two Cadbury shift workers who worked three 12 hour shifts per week. The AMWU argued these employees should be entitled to 10 “calendar days” of personal/carer’s leave per year, not 10 “notional days”. The practical implication of this argument was that these employees would receive 120 hours of personal/carer’s leave per year by reference to the hours they actually worked on each working day, not 76 hours per year by reference to an average amount of daily ordinary hours.

Mondelez disagreed with this submission arguing that employees who worked a 38 hour week were entitled to 10 “notional days” of personal/carers leave per year, being 7.6 hours per day and 76 hours per year, irrespective of the number of hours the employee would ordinarily work on each day. Mondelez argued the “notional day” construction was consistent with Parliament’s intention expressed in the Explanatory Memorandum for the Fair Work Bill 2008 (Cth).[3]

The Minister for Jobs and Industrial Relations intervened in the case in support of Mondelez’ position.

The Decision of the Full Federal Court

In their joint decision, the majority of the Full Court noted that regardless of which interpretation it favoured, it would be impossible to avoid unequal outcomes for employees.

The Court ultimately rejected Mondelez’ proposed interpretation of a “notional day” and instead preferred the AMWU’s approach. However, it did not adopt the “calendar day” interpretation either and instead interpreted the word day to mean a “working day” being the portion, of a 24 hour period that would otherwise be allotted to work.

The Full Court observed that in its view the “working day” construction was consistent with the purpose of s96(1) of the FW Act to provide a form of income protection for employees who were not able to work due to illness or carer responsibilities. In responding to Mondelez’ submission that it would be “inequitable” for an employee who works fewer but longer shifts to effectively receive more personal/carer’s leave than an employee who works a standard five-day week, Justices Bromberg and Rangiah stated:

“If both employees are able to take an equal number of working days of paid personal/carer’s leave and neither loses income, how can there be inequity or unfairness to one of them? Neither has had to work on the relevant days. Neither had suffered a loss of earnings as a consequence of not working.”[4]

Justice O’Callaghan dissented and found that personal/carer’s leave should accrue based on ordinary hours to ensure that employees working the same overall hours accrued the same amount of leave. His decision reflects the almost universal interpretation prior to the Full Court decision.

The Appeal

On 16 September 2019, Attorney General and Industrial Relations Minister Christian Porter announced the Federal Government was appealing the decision because the Full Federal Court’s judgement had “sparked confusion and uncertainty around the way sick and carers leave entitlements should be calculated.”

Mondelez also confirmed it would seek leave to appeal stating “the decision affects not only Mondelēz International but all Australian employers with non-standard shift arrangements” and “potentially impacts the competitiveness of local manufacturing.”

Where to from here?

The Federal Court decision as it currently stands has significant costs implications for employers, particularly those who engage shift workers. If the decision is upheld, employers will need to revisit how entitlements to personal/carer’s leave are accrued and taken to ensure consistency with this decision. There may also be back pay implications.

However, should leave to appeal be granted, the High Court may provide further clarity on the ‘surprisingly complex’ interpretation of the personal/carer’s leave entitlement.

Our Employment Advisory team can assist you in understanding how this decision, and the potential appeal may affect your business.

[1] Justices Bromberg and Rangiah majority; Justice O’Callaghan dissenting.

[2] Mondelez v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union Known as the Australian Manufacturing Workers Union (AMWU) [2019] FCAFC 138, 2 [2].

[3]  Ibid 8 [28].

[4]  Ibid 35 [156].

Authored by:

Tessa Duthie, Associate

Stacey Nicolaou, Lawyer