The business at the heart of a landmark ruling on what constitutes the appropriate number of sick leave hours for employees is set to appeal the original verdict, in conjunction with the federal government.
Mondelez International – which operates four food processing plants in Australia, including Tasmania’s Cadbury plant – announced back in September that it was planning to appeal the Federal Court’s August ruling about sick leave entitlements.
In August 2018, the Australian Industry Group said that much hinged on the outcome of the case, which debated what constituted “a day” when allocating the mandated 10 days of personal/carer’s leave for employees.
Mondelez had contested that allocation should be based on the standard 38-hour working week.
“Mondelez contends that the entitlement to “10 days of paid personal/carer’s leave” in s 96(1) of the FW Act must be construed according to the “industrial meaning” of the word “day”. That meaning is said to be a “notional day”, consisting of an employee’s average daily ordinary hours based on an assumed five-day working week – that is, average weekly ordinary hours divided by five,” the court noted.
“For example, an employee who works 36 ordinary hours per week works an average of 7.2 hours per day over an assumed five-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.”
But the Australian Manufacturing Workers Union (AMWU) disputed this, pushing instead a definition based on calendar days, to cover all hours normally worked in a calendar day, such as those employees who work 12-hour shifts as standard rather than 7.5 hours.
The office of federal minister for Small and Family Business, the Workplace and Deregulation also became involved in the case, given the potential precedent the court judgment could have for all Australian employers.
Handing down its verdict on 21 August this year, the Federal Court effectively sided with the union’s interpretation, ruling that “the expression ‘10 days’ in s 96 of the Fair Work Act must be read together with, and take its meaning in part from, inextricably related provisions in Division 6, in particular s 96(2) (‘[a]n employee’s entitlement to paid personal/carer’s leave accrues progressively during a year of service according to the employee’s ordinary hours of work’) and s 99 (‘[i]f … an employee takes a period of paid personal/carer’s leave, the employer must pay the employee at the employee’s base rate of pay for the employee’s ordinary hours of work in the period’).”
The court concluded: “Once it is apparent that the entitlement to be paid such leave and the relevant rate of pay used to calculate the amount to be paid in respect of it are founded on ordinary hours of work, then the entitlement to ‘10 days’ leave for each year of service under s 96 must operate as a unit of time directly referrable to, or expressed as, ordinary hours of work.”
Mondelez, government to appeal ruling
A month after the ruling was handed down, both Mondelez and the federal government flagged their intention to appeal the decision.
Mondelez said in a statement issued on 16 September, 2019, that it would seek special leave to appeal in the High Court.
It said that “the Federal Court decision has changed the long-term understanding and practice of calculating certain leave entitlements for non-standard shift workers. In doing so, Mondelēz International considers the decision:
- creates inequality between employees in the same workplace who complete the same work, however on different rosters;
- changes the understanding of pro-rata entitlements for part-time employees’ personal/carer’s leave;
- changes industry practice of calculating personal leave entitlements for full-time and part-time employees (on a pro-rata basis); and
- significantly departs from the parliament’s legislative intent as set out in the Fair Work Act’s Explanatory Memorandum.”
According to Mondelez, such a situation would impact all employers “with non-standard shift arrangements”, citing nursing, mining, construction, special events, transport, distribution and aged care as other examples.
“This ruling creates inequality and uncertainty for businesses and workers and potentially impacts the competitiveness of local manufacturing. The cost of implementing the decision across industry would also be significant. We feel we have little choice but to appeal in order to clarify this matter,” said Amanda Banfield, Mondelez International’s president for Australia, New Zealand and Japan.
“We have a long and proud heritage in Australia, and in particular at our Cadbury factory in Claremont, Tasmania, where we are looking forward to marking 100 years of manufacturing in 2022.
“We work closely with Australian suppliers and we are proud of the generous terms and conditions, training and benefits we offer our people.”
On the same day, the federal government flagged its intention to also appeal the ruling, which it said “has sparked confusion and uncertainty around the way sick and carer’s leave entitlements should be calculated”.
“Prior to the decision in Mondelez v AMWU and Ors, employers and employees all understood that full-time staff who worked a 38-hour week were entitled to accrue 76 hours of personal leave each year, based on the number of ordinary hours they worked over a normal two-week period,” Attorney-General Christian Porter’s office said in a statement.
“That had been the situation that existed for decades and it was meant to remain the situation when Labor introduced the Fair Work Act in 2009, which changed the wording of the provisions regarding how leave was to be accrued to ‘10 days’ per year.”
According to his office, “in a business where two part-time employees both work 20 hours each week, but one chooses to work their hours across five shifts and the other across four shifts, one would be entitled 40 hours personal leave per annum (10x4 hours) and the other 50 hours (10x5 hours)”.
Mondelez was approached to provide an update on the status of its appeal.
What it means for employers
While the matter is yet to be resolved, law firm Hall & Wilcox warned that there are “significant implications” for employers in the meantime.
“To reduce the risks associated with misclassification of leave entitlements, employers may implement the following,” special counsel Jillian Howard and senior associate Jessica Pratt said in a recent blog post on the firm’s website on 28 October 2019.
“Identify employees affected by this decision, i.e. shift workers or employees who have different ordinary hours on different days.
“Review payroll and leave calculator systems to ensure the systems calculate leave in a way that is reflective of this decision, i.e. based on days rather than hours.
“Consider whether payroll and leave calculator systems should be changed/updated to reflect that entitlements are to be accrued and deducted by reference to days in respect of ordinary hours of work.
“[And] be aware of the risks of claims for backpay from employees if accrual and calculation of leave is not in accordance with this decision.”
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.