Notional day or working day? The High Court rules on the Mondelez case

In our previous article, we discussed the landmark Full Federal Court decision regarding the interpretation of what constitutes a ‘day’ in relation to the calculation of paid personal/carer’s leave under the National Employment Standards (NES) in the Fair Work Act 2009 (Cth) (FW Act). Since then, special leave was granted by the High Court to Mondelez Australia Pty Ltd (Mondelez) and the Australian Government to appeal the decision, and the High Court handed down its judgment on 13 August 2020. The High Court has now restored a common sense approach to calculating an employee’s leave entitlements.

Recap – the Full Federal Court decision of Mondelez

Section 96(1) of 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. Section 96(2) of the FW Act says that an employee’s entitlement to this leave accrues progressively during a year of service according to the employee’s ordinary hours of work. While that sounds simple, the interpretation of what those provisions actually mean led to this long running litigation.

The majority of the Full Federal Court determined that the word ‘day’ contained in section 96(1) of the FW Act was to be interpreted as a ‘working day’. Under that definition, every employee (regardless of how many hours they actually worked in a day) would be entitled to 10 personal/carer’s leave days per year.

The Mondelez case involved employees who had working patterns of 12 hour shifts, three days a week. On the interpretation determined by the Full Federal Court, the outcome was that these employees were entitled to 120 hours of sick leave per year (one working day = 12 hours, 10 days per year = 120 hours), in comparison to those who worked less hours over a greater span of days (e.g. one working day = 7.6 hours, 10 days per year = 76 hours).

This interpretation of a ‘day’ as a ‘working day’ rather than as a ‘notional day’ (i.e. an employee’s average daily ordinary hours based on a five day working week) by the Full Federal Court ran counter to the previously accepted practice of how to calculate personal/carer’s leave, and had serious ramifications for employers, exposing them to significant cost increases and difficulties in administering payroll systems, as well as risk of claims for back pay.

The High Court decision

The High Court has now handed down its judgment on this highly anticipated decision on how personal/carer’s leave is to be accrued and paid under the NES. In its majority judgment (Kiefel CJ, Nettle and Gordon JJ), the High Court overturned the Full Federal Court decision rejecting the ‘working day construction’.

The majority of the High Court declared that:

• 10 days is the equivalent of an employee’s ordinary hours of work in a two week period, or where work does not follow a two week cycle, 1/26 of their ordinary hours of work in a year;
• the amount of leave accrued for a full-time employee is based on their ordinary hours and does not vary according to an employee’s pattern of hours of work; and
• a day for the purposes of section 96(1) of the FW Act is a ‘notional day’, which is one-tenth of the equivalent of an employee’s ordinary hours of work in a two week period.

In delivering its judgment, the High Court addressed the objects of the FW Act, and its intention to provide fairness, flexibility, certainty and stability for both employers and their employees. It drew upon different sections of the FW Act and the importance of ascertaining an employee’s ordinary hours of work in subsequently determining accrued leave entitlements.[1] In concluding that a ‘day’ is to be construed as a ‘notional day’, the High Court noted that an employee’s pattern of work should not determine the accrued hours of leave.

The High Court explored the ‘working day’ construction in reaching its decision to ultimately reject this interpretation. In rejecting that interpretation, the majority noted that not only would employees working longer shifts and less days be entitled to more hours of leave, but part-time employees could also potentially receive the same amount as, or more hours of leave than, full-time employees. Again, this would lead to “absurd results and inequitable outcomes” and be contrary to the objects of the FW Act in “providing workplace relation laws that are fair to working Australians, are flexible for businesses, [and] promote productivity and economic growth“.[2]

What does this mean?

• Employers need to ensure that their payroll practices are compliant with the High Court’s decision in Mondelez on how personal/carer’s leave is accrued and paid under the NES. Employers should also note that the High Court’s reasoning will also apply when calculating an employee’s annual leave entitlements.
• For those employers who may have been operating manual or parallel personal/carer’s leave accrual systems in light of the Full Federal Court’s decision, those systems can now be brought to an end.
• Employers may need to review their current accrual levels to ensure that they are correct. If not, this could lead to employees having accrued less or more personal/carer’s leave than they are entitled to, and/or being paid the wrong amount of pay when on personal/carer’s leave. Where an employee has been overpaid while taking leave, consideration may need to be given to recovery of that overpayment or seeking to set-off those amounts against future leave being taken. Difficult issues can arise and legal advice should be sought on how best to achieve that outcome.

If your business requires assistance in navigating this area, please contact our Employment Advisory Team.

Authored by:

Brett Feltham, Partner
Sera Park, Associate

[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, [23].

[2] Fair Work Act 2009 (Cth) s 3(a).