Employee entitlements – how do you calculate an employee's personal leave entitlement?

The High Court held that the 'working day' construction determined by the Full Federal Court was inconsistent with the Fair Work Act and found in favour of the 'nominal day' construction entitling employees to accrue leave based on their ordinary working hours. 

The decision has been welcomed by employers, confirming the general and longstanding practice of calculating personal leave accruals based on an employee's ordinary hours of work; also known as the 'pro-rated method'.

The Facts of the Case

Two employees employed by Mondelez Australia Pty Ltd ("Mondelez") worked, on average, 36 ordinary hours of work over 3 x 12-hour shifts each week and were covered by an enterprise agreement. 

On the employees' behalf, the Australian Manufacturing Workers' Union ("AMWU") submitted that pursuant to section 96(1) of the Fair Work Act, each employee was entitled to be absent from work without loss of pay on ten calendar days per year, defining a 'day' to be a 24 hour period i.e. a "working day". This would mean that the employees would be entitled to 10 ordinary working days of 10x12 hour shifts, or 120 hours over the course of a year.

Mondelez, with the Commonwealth as intervener, contended that section 96(1) does not refer to a calendar or 24 hour 'day' but to its 'industrial meaning' of a 'notional day' consisting of one-tenth of the equivalent of an employee's ordinary hours of work in a two-week period. This would mean the maximum amount of leave accrued under the Fair Work Act would be 76 hours over the course of a year.

The High Court Decision

The High Court majority rejected the 'working day' construction put forward by the AMWU and instead found in favour of the 'nominal day' advocated by Mondelez.

The Court noted the immediate legislative context of section 96(1) makes it clear that the expression '10 days' does not bear its ordinary meaning and that other provisions of the Act relating to personal leave were dependent on the calculation of an employee's ordinary hours of work and could not operate harmoniously if the 'working day' construction was applied to section 96(1).  The Court pointed to the potential disparities caused by using the ordinary meaning, noting that part-time employees working for multiple employers may inadvertently be entitled to 10 days' leave from each employer, while a full time worker would only receive 10 days leave from their sole employer. 

Ultimately the High Court found that accepting the construction of a 'working day' would give rise to "absurd results and inequitable outcomes, and would be contrary to the legislative purposes of fairness and flexibility in the Fair Work Act" 

The High Court therefore found that:

"A 'day' for the purposes of section 96(1) refers to a 'notional day', consisting of one-tenth of the equivalent of an employee's ordinary hours of work in a two-week (fortnightly) period."

So what does this mean for employers?

Personal leave should be accrued at 1/10th of the employee's ordinary working hours over a two-week period or 1/26th of their total ordinary hours over the course of a year. This is a return to the standard accrual calculations, used by employers prior to the Full Federal Court decision. 

Employers that may have updated their method of accruing personal leave in the light of the Full Court decision should now update their accrual practices once again.