On Thursday, 13 August 2020, the High Court made a landmark decision regarding the case between Mondelez Australia Pty Ltd and the Australian Manufacturing Workers Union (AMWU).

The dispute involved two employees at Mondelez’ Cadbury food manufacturing plant in Tasmania. In particular, the company’s method of calculating the accruing and taking of paid personal/carer’s leave.

At the time, the two employee’s in question were working three 12-hour shifts per week, while other employees were working five 7.2 hour shifts per week. Both employee groups worked the same 36 hours per week.

Under the company’s enterprise agreement, the 12-hour shift employees were receiving 96 hours (eight days) of paid personal leave per annum. When one such employee would take paid personal leave, it would deduct 12 hours from their total amount of accrued leave.

However, both the employees and the AMWU argued this agreement provided less than what is set out in Section 96 of the Fair Work Act, which states:

  • For each year of service with his or her employer, an employee is entitled to 10 days of paid personal/carer’s leave.
  • An 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 accumulates from year to year.

In essence, the employees argued they were entitled to 10 days of paid personal leave per annum, compared to the eight days they were receiving. If this position was accepted, it means that the employees would be entitled to 120 hours of paid personal leave, as opposed to the 96 hours they were already receiving.

However, the High Court eventually rejected this position, as it conflicted with the usual way that paid personal leave is calculated, which is based on an employee’s hours of work – not days.

The High Court’s decision overturns a decision made by the Full Federal Court in August 2019.

What this means for employers

Effectively, the way in which employers calculate the accrual and taking of paid personal leave remains the same, as it was prior to the Mondelez case.

This means that full-time and part-time employees are entitled to two weeks of paid personal/carer’s leave based on their ordinary hours of service. To be exact, personal leave accrual is 1/26th of an employee’s ordinary hours of service, which is 2 weeks out of a total 52 weeks.

So, if you have a full-time employee working Monday to Friday, 7.6 hours each day, 38 hours per week, when they take a day of leave it will be paid at 7.6 hours a day, Monday to Friday.

However, if you have a full-time employee working 38 hours per week outside of the usual Monday to Friday pattern, the approach is slightly different.

Say an employee works 10 hours on Mon, Tues, Wed and then 8 hours of Thursday. Under this arrangement, if the employee takes paid leave on Mon, Tues or Wed, they’re paid 10 hours of leave. But, if the employee takes leave on Thursday, they’re paid 8 hours of leave. On top of this, no leave is paid on the Friday, as the employee usually doesn’t work on that day.

Accrual of paid leave for overtime hours

Typically, paid leave does not accrue for overtime hours. However, this depends on the terms of your relevant award.

Some awards state that additional hours for part-time employees must be paid at the overtime rate, even if the employee has worked fewer than 38 hours per week. Other awards state that employees should only be paid overtime rates after working more than 38 hours per week.

If your award falls under the latter (overtime is only paid after 38 hours per week), then those additional hours would contribute to a part-time employee’s accrued paid personal leave.

No changes to payroll

Initially, when the Full Federal Court made the decision in favour of the employees on August 2019, it sparked concerns that the decision would cost employers billions of dollars in wage increases and force them to change their payroll system.

As a result of the High Court’s latest decision, this is no longer a concern. As long as your payroll system is consistent with the procedures in place prior to the Mondelez case (you are calculating paid leave based on an employee’s ordinary hours of service, not days), then you have nothing to worry about.

If, however, you have concerns about how the initial decision – and the aftermath – has affected your payroll, review your current procedures to ensure they are up to date.

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