Annual Leave and Modern Awards: A Recent Decision by the Full Bench of the Fair Work Commission

A recent decision by the Full Bench of the Fair Work Commission addressed a number of issues raised in relation modern awards, and in particular, their provisions regarding annual leave. The Full Bench addressed the issues of: cashing out annual leave; excessive annual leave; annual close-down; granting annual leave in advance; purchased leave; payment of annual leave entitlements on termination and EFT and paid annual leave.

The determination we will discuss here is the one made in relation to the accrual of excessive annual leave (excessive being more than 8 weeks for non shift workers and 10 weeks for shift workers). The Full Bench addressed this issue by referring to relevant historical and legislative contexts, noting that prior to the commencement of the National Employment Standards (NES) and modern awards, ‘federal and State legislation and awards commonly provided employers with a right to direct employees to take annual leave’.

The key legislative provision examined was s134 (1) of the Fair Work Act 2009 (Cth) which sets out the objectives of modern awards. Summarily, the objective of modern awards, together with the NES, is to provide a fair and relevant minimum safety net of terms and conditions, taking into account things like standards of living, the needs of low income earners, the need to encourage collective bargaining, the promotion of social inclusion through increased workforce participation, the promotion of flexible modern work practices, efficient and productive performance of work, implications for businesses, and so on.

The Full Bench acknowledged in its decision that there was strong evidence proving that a significant number of employees at any given time accrue in excess of six weeks or more of annual leave, and that this was neither in the best interests of the employer or the employee as per the objectives set out in s134(1).

The Employer Group who submitted evidence before the Full Bench presented findings that not taking leave can lead to a serious threat to the health and safety of employees while it also presents a significant issue for employers. ACCI proposed that annual leave is critical to preventing burnout and poor health and that such leave assists in maintaining job safety and satisfaction; that allowing employers to direct the taking of annual leave is conducive to a more balanced, rested and productive workforce and supports the objective contained in s134(1)(d).

Another argument was in the liability excessive annual leave accruals presented for employers and the potential for cash flow problems when accrued annual leave is paid on termination of employment.

Further, the decision looked at there being less chance for disputes regarding the taking of annual leave if there was more certainty about it contained within modern awards.

The compulsion of an employee to take annual leave is a concept already understood by modern Australian employees as prior to 2006 (when the responsibility for annual leave broadly shifted to the federal jurisdiction) employers had the ability to direct employees to take annual leave, subject to adequate notice. This historical Australian employment context which allowed employers to direct employees to take excessive annual leave suggests that the Australian population generally has some pre-existing appreciation and understanding of this type of mechanism within industrial regulation. It has been an accepted concept for the majority of recent history and so amending it into the terms of modern awards is likely to be a relatively smooth transition.

In order to address the problem, the Full Bench generated a model term which incorporates the employers’ right to direct an employee to take their excessive annual leave but also allows the employee to exercise control over the time at which their leave is to be taken. The provisional view of the Full Bench is that this term should be inserted into all modern awards meaning that anyone working under a modern award would be subject to the amended annual leave provisions.

You can find a summary of this decision on the Fair Work Commission’s website. Inserted into this decision is the Full Bench’s draft of the provisional model term at paragraph 4. All interested parties have been given the opportunity to make submissions and adduce evidence in relation to whether the various model terms drafted by the Full Bench should be inserted into modern awards. The matter is listed for further hearing before the Full Bench of the Fair Work Commission on 8 December 2015. Stay tuned for the final decision.

Whether you are an employee or a business owner, you may wish to consider how this potential change in modern awards is likely to impact you. If you have a large annual leave accrual – perhaps it’s time to start planning an extended holiday!

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