Controversial decision on sick leave may leave employers exposed to back pay

Article By: Sarah Cappello Cappello Rowe Lawyers Sydney

Recently the Federal Court handed down a decision about sick leave that has the potential to leave many businesses exposed. The controversial decision, handed down on 21 August 2019, confirms that all employees, including part time employees, are entitled to a full 10 working days of personal/carer’s leave per year regardless of how many hours they work each day or the number of days they work each week.

The problem that will inevitably arise for many employers is that most payroll systems record leave as a total number of hours available to the employee and not days. If a business employs part time employees or offer shifts their payroll system may not accord to the requirement to pay leave on a ‘working day’ basis leaving them exposed to penalties, fines and prosecution.

Working example of possible exposure:

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, accumulating 72 hours of paid personal/carer’s leave for each year of service.

It was previously assumed that an employee who also works 36 ordinary hours per week but on a rotating 12 hour shift over 3 working days would also be entitled to the same 72 hours of paid personal/carer’s leave each year however this meant that the employee only had 6 full days of personal leave instead of the 10 working days that the Act provides. This was the issue that was highlighted in the case of Mondelez v AMWU & Ors [2019] FCAFC 138

Now it is clear that an employee working 12 hour shifts could access paid personal/carer’s leave of up to 120 hour per year, being 10 working days x 12 hour shifts. Likewise a part time employee is also entitled to 10 working days regardless of the number of days they work per week.

The case of Mondelez  

In the Federal Court claim Mondelez argued that any employee working 36 ordinary hours per week ought to receive the same 72 hours of personal/carer’s leave per year regardless of whether those hours are worked over 5 days or 3. The primary argument centred on the submission of a ‘notional working day’ of 7.2 hours without regard to the actual day the employee was rostered on to work. The Minister for Employment supported Mondelez’s argument and claimed that it was consistent with the Workplace Relations Act 1996 which preceded the Fair Work Act. The Court did not agree with Mondelez and instead found that leave must be calculated in working days and not hours.

In summary the Court determined;

  • “Full-time and part-time employees are entitled to 10 working days of paid personal/carer’s leave for each year of employment.
  • The leave protects those employees’ income when they are entitled to be absent from work due to illness or injury (or providing care or support to a family or household member who is ill, injured or suffering from an unexpected emergency).
  • The leave must be calculated in working days, not hours. A working day is the portion of a 24 hour period that an employee would otherwise be working.
  • An employee’s entitlement is expressly based upon time working for the employer and is expressly calculated in days. For example, every 5.2 weeks, an employee accrues an entitlement to another full day of leave.
  • For every day of personal/carer’s leave taken, an employer deducts a day from the employee’s accrued leave balance. If an employee takes a part-day of leave, then an equivalent part-day is deducted from the employee’s accrued leave balance”[1]

What does this mean for you – The Employer?

Many employers, and their payroll systems, accrue personal/carer’s leave on an hourly basis. Rather than expressing an employee’s leave entitlement in days or weeks, payroll software tends to record the accrual as an hourly amount (with 7.6 hours often reflecting one day’s accrual). In all, payroll systems tend to accrue 76 hours of personal/carer’s leave per year for full time employees, and a pro-rata amount for part-time employees.

Employers need to ensure that their payroll system properly reflects the new rules governing personal/carer’s leave particularly if they employ staff on a shift or part time basis.

The recent George Calombaris case demonstrates the costs of miscalculations regarding employee entitlements. To ensure your system is accurate and not leaving you exposed, please contact Cappello Rowe on 02 8325 1520. With as little as 1 hour, we can provide feedback on any gaps or issues you need to be aware of.

Contact Cappello Rowe today.