September 2019

Part-time work, full-time entitlements? A glass and a half indeed

It has been somewhat of an understanding that part-time employees receive their entitlements pro-rata, based on the portion of time they work compared to full-time employees. The Commonwealth regulator, the Fair Work Ombudsman, has published this “fact” in the Fair Work Information Statement for many years:

4. Four weeks paid annual leave each year (pro rata if you're a part-time employee)

5. A total of 10 days paid sick and carer's leave each year (pro rata if you're a part-time employee), two days paid compassionate leave for each permissible occasion, two days unpaid carer's leave for each permissible occasion, and five days unpaid family and domestic violence leave (in a 12-month period).

But the recent decision of the Full Federal Court of Australia in Mondelez v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union known as the Australian Manufacturing Workers Union (AMWU) [2019] FCAFC 138 (Mondelez) says the Ombudsman, and consequently most employers, are wrong!

In a 2 to 1 split decision, the Federal Court – in deciding a different issue – opened the possibility that all permanent employees, regardless of whether they work full-time or part-time, are entitled to 10 days of personal/carer’s leave for each year of service. To put it another way, a part-time employee who works one day per week could, on the basis of the Mondelez decision, be entitled to the same amount of personal/carer’s leave each year as a full-time employee who works five days per week.

This outcome, some say, represents a massive shift for many employers and could have significant financial and other consequences. In an expected move, Mondelez and the Commonwealth are appealing the Mondelez decision to the High Court. But legislative amendment may still be needed.

What happened in Mondelez?

It’s important to keep in mind that in Mondelez, the Full Court was not specifically considering the entitlements of part-time employees. Instead, the Full Court was asked to determine what constitutes a ‘day of paid personal/carer’s leave’ for employees who work a non-standard spread of hours.

The employees at Mondelez worked an average of three 12-hour shifts per week. Therefore they worked the equivalent of full-time hours (36 hours per week) but over a different spread of days. The question before the Full Court was whether these employees were entitled to 10 standard 7.2-hour days of personal/carer’s leave per year or entitled to 10 ‘working days’ (i.e. 12-hour days) of personal/carer’s leave per year.

Mondelez argued that a ‘day’ is a notional 7.2 hours, equating to 72 hours per year (10 days or two weeks of leave for full-time employment). Mondelez said the entitlement is not to 120 hours’ worth of leave (10 shifts of 12-hours in length). The employees argued a ‘day’ is a ‘day’; their 12-hour working day.

The legislation

Section 96 of the Fair Work Act 2009 (Cth) provides:

Amount of leave

(1) For each year of service with his or her employer, an employee is entitled to 10 days of paid personal/carer's leave.

Accrual of leave

(2) 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.

Simple, right?

The decision

The Full Court observed that the personal/carer’s leave provisions in the FW Act operate with the purpose to provide income protection for employees against loss of earnings in circumstances of relevant illness, injury or unexpected emergency.

The majority of the Full Court held, therefore, that a ‘day’ of personal/carer’s leave under the FW Act is a standard working day. Whether the employee usually works 4 hours, 7 hours or 12 hours a day is irrelevant. If an employee takes personal/carer’s leave, they are entitled to be paid for the time they would have ordinarily worked that day. It is an entitlement to a day’s leave, or 10 days each year to be precise.

As such, the employees who worked three, 12-hour shifts a week, were entitled to 10 days leave or 120 hours of personal/carer’s leave per year (assuming they always work 12-hour shifts).

So, what’s the controversy?

The controversy for part-time employment has arisen from a number of comments made by the majority, including:

The ordinary, or “working day”, construction of s 96(1) of the FW Act, is consistent with the purpose of providing, within the delineated limits, income protection for all part-time and full-time national system employees. Under that construction, all part-time and full-time employees, whatever their pattern of shifts, are entitled to payments reflecting the income they would have earned had they been able to work. To return to the example of employees who work 36 ordinary hours per week, whether an employee works 7.2 hours every day over five days, or 12-hour shifts over three days, under the “working day” construction, both will be paid at their base rate for the ordinary hours they would have worked if not for the illness or injury. Neither will lose that income. Further, the leave balance for each will be debited with one “working day” for each day of leave taken. The effect of this construction is that, subject to the delineated limits, no employee who is unable to work because of illness or injury will lose income.

The understanding for business was that the words in s 96(2) of the FW Act, “according to the employee's ordinary hours of work”, meant leave accrued pro-rata for part-time employees. The majority did not agree:

‘…Under s 96(1), the accrual is expressly based upon time served with the employer and is expressly to be calculated in days. So, for example, every 5.2 weeks, the employee accrues an entitlement to another full day of paid personal/carer’s leave. In our view, the purpose served by the reference to “ordinary hours” in s 96(2) is as part of a mechanism that allows an employee’s entitlement to paid personal/carer’s leave be determined when the entitlement includes a part-day.’

There is no differentiation by the majority between full-time and part-time employees. As such, the implication is that all permanent employees are entitled to 10 days of paid personal/carers leave each year, not a pro-rated amount.

The dissenter

The minority of the Full Court, O’Callaghan J, recognised the inconsistency in the majority decision. Section 96(2) talks about “[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” (emphasis added). As such, he found that a day is 7.2 hours, or 10 days is 72 hours.

The Explanatory Memorandum to the FW Act gave the example:

Brendan is a part-time employee whose ordinary hours of work are 19 per week. He will accrue half the amount of paid personal/carer’s leave over a year of service as Tulah (38 hours), reflecting the lower number of ordinary hours that he works. This is also reflected in how much he is entitled to be paid if he takes a week’s paid personal/carer’s leave. If he takes a week’s personal/carer’s leave, he will be entitled to be paid for 19 ordinary hours at his base rate of pay.

After considering the Explanatory Memorandum, O’Callaghan J recognised that part-time employees have a different accrued entitlement, as to do otherwise “produces an outcome that creates inequities between different classes of employees that Parliament did not intend”.

Should you panic?

The current position in relation to a part-time employee’s entitlement to personal/carer’s leave is unsettled, to say the least.

On one hand, Mondelez represents the current state of the law. Under this approach, it is arguable that all permanent employees are entitled to 10 days of personal/carer’s leave per year, regardless of their working pattern.

On the other hand, it can be argued that Mondelez does not expressly deal with part-time employment. The comments that are causing concern do not form part of the core decision.

It is clear however that the majority in the Mondelez decision have created significant uncertainty regarding personal/carer’s leave entitlements for part-time employees. Until there is some measure of clarity, either through legislative amendment, a successful appeal or a subsequent decision, employers will need to exercise caution with regard to personal/carer’s leave entitlements.

In the meantime, feel free to contact us if you need a hand with how to approach your employees’ entitlements, whether its personal/carer’s leave, annual leave or any other type of leave.

 

Authors: James Mattson and Jade Bond