November 2010

To accrue or not to accrue? That is the $36 million question on annual leave for NSW employers!

Employers in NSW are faced with a tough choice: continue to accrue annual leave for those off on workers comp; or stop the accrual, save the money, and call on the lawyers to argue that the Fair Work Act took $36 million from injured workers and gave it to their employers.

$36 million? In 2008-09 weekly compensation payments in NSW exceeded $468 million. Assuming all was paid at average weekly earnings of about $900, that represents 520,000 weeks of compensation, producing 40,000 weeks of annual leave accruals, which at $900 a week amounts to $36 million. The amount is small for each worker, but the total is impressive.

For many years it has been the practice in NSW to accrue annual leave when an employee is off work receiving weekly compensation. The NSW Annual Holidays Act provided that leave accrued during employment, and section 49 of the Workers Compensation Act allowed compensation to be paid while on annual leave.

Some commentators are saying the Federal Fair Work Act changed all that, and brought $36 million worth of savings to NSW employers. How could that be?

The Fair Work Act created a national regime for employment law and displaced the various state and territory laws, including the NSW Annual Holidays Act. But it was Federal Government policy that the Fair Work Act would not take away existing entitlements of employees or employers.

So are the commentators right or is the Fair Work Act wrong?

Section 130(1) of the Fair Work Act says that an employee is not entitled to take or accrue annual leave when on workers compensation. That provision seems to overturn the existing entitlement (confirmed in CFMEU v Cook Construction Pty Ltd [2006] AIRC 65) that injured workers accrue annual leave whilst absent on workers compensation.

But then section 130(2) of the Fair Work Act provides that an employee is not prevented from taking or accruing leave when on workers compensation if doing so "… is permitted by a compensation law".

The big question, the $36 million question, is whether those words, read with section 49 of the NSW Workers Compensation Act, preserve the long granted entitlement to accrue annual leave when on workers compensation.

It’s a technical argument. Those commentators say that section 49 of the Workers Compensation Act does not by express words permit the taking or accruing of leave. Yes, they agree, the section allows a worker to take (already accrued) annual leave and then be paid workers compensation whilst on that leave. But, it is said, because section 49 does not contain the word "permit", or some synonym, section 130(2) of the Fair Work Act has no work to do in preserving the existing entitlement, at least not in NSW.

None of the other states or territories have a workers compensation law that contains a provision that expressly permits the taking or accrual of leave. So what was Parliament’s purpose in including section 130(2)? Is there a worker anywhere in Australia who has the benefit of section 130(2)? Why would Parliament test lawyers by including a section that appears to have no practical application?

A technical response to the commentators might be to say the no state or territory has the power to pass a law expressly permitting the taking or accrual of annual leave whilst on workers compensation. Such a law would be invalid under the Constitution because the Fair Work Act has already dealt with the question of annual leave entitlements. Accruing annual leave is not an incident of a workers compensation regime, so section 130(2) can not be read as granting a state the legislative power to override the Fair Work Act.

Another technical response is to ask what happens to the accrual of leave when an employee goes on previously accrued annual leave. The commentators agree it is permissable to receive workers compensation when taking accrued leave. We all accrue a little bit of leave when on leave. Do we lose that little bit of accrual if we happen to also be on workers compensation at the same time?

Or does the section permit the taking of previously accrued annual leave when on workers compensation, and the accrual of annual leave when taking that previously accrued annual leave, but not the accrual of annual leave when on workers compensation, unless the worker is already on annual leave? The arguments are indeed technical and confusing.

The solution is to read and understand the phrase "permitted by a compensation law" in the context of the entirety of the Fair Work Act with its aim to unifying entitlements, rather than removing them. On this approach, if a compensation law deals with the topic of receiving workers compensation at the same time as annual leave, then that is enough to say that the compensation law relevantly permits the taking or accruing of annual leave when receiving workers compensation. And on that basis section 130(2) of the Fair Work Act preserves the entitlement.

If that was not the intention of section 130(2) then it would have been preferable if section 130(2) had never been included at all, and the loss of the $36 million accrual thereby be made explicit.

But given the uncertainty and the unlikelihood of any particular case reaching the courts for a determination, employers are faced with the difficult choice of taking the perhaps unintended accrual windfall or respecting existing practices.

Time already to amend the Fair Work Act?

Author: Mark Paul

Our expertise