First court ruling on payment of annual leave loading on termination[ 11-Aug-2013 ]
Stephen Edward Ryan v Whitehaven Coal Mining Pty Ltd (NSW Local Court, 26 July 2013)
Mr Ryan (the Applicant) brought an application against Whitehaven Coal Mining Pty Ltd (the Respondent) under the Fair Work Act 2009 (Cth) (the Act), claiming an amount of unpaid annual leave which he argued was payable to him upon the resignation of his employment.
The Applicant was employed by the Respondent on 4 August 2008 as a mine operator. The Applicant was provided a contract of employment dated 20 May 2009 (the contract). The contract contained two clauses about annual leave:
- Clause 13 – your entitlements to annual leave, personal leave, and public holidays will be in accordance with legislation including the “Australian Fair Pay and Conditions Standard” in the Workplace Relations Act 1996 (Cth) and the provisions of the Agreement set out below.
- Clause 14 – you will accrue, on a pro rata basis, 5 weeks annual leave per year. When you take annual leave, you will be paid your ordinary rate of pay plus a loading of 20%, or your projected roster earnings, whichever is the greater. If you leave Whitehaven, or if you are terminated, you will be paid any untaken annual leave you have accrued at the ordinary rate.
It is observed from clause 14 that any untaken annual leave would be paid out at what was described as the “ordinary rate.”
From 16 February 2010, the Applicant was covered by the terms and conditions of the Whitehaven Open Cut Operations (Tarrawonga) Enterprise Agreement (the Enterprise Agreement). Clause 14 of the Enterprise Agreement dealt with leave entitlements:
Entitlements to leave are in accordance with the entitlements set out under the applicable FW Act provisions and the provisions of this Agreement set out below.
Clause 14.1 provided:
...employees are entitled 5 weeks annual leave per year, accruing progressively. For periods of annual leave, employees will be paid the greater of: - their ordinary time rate of pay and an annual leave loading of 20%; or – the projected roster earnings. In each case employees will receive the bonus payment set out at clause 12.3
The Enterprise Agreement did not specifically deal with what was to occur when an employee’s employment came to an end and the employee had annual leave which he or she had not taken.
The Applicant resigned from his position as mine operator on 30 May 2011 and indicated that he would conclude his employment in one weeks’ time.
The Applicant submitted that the rate at which the amount to be paid for his untaken annual leave is that provided for in clause 14.1 of the Enterprise Agreement, which referred back to the Act. Therefore, the Applicant claimed he is entitled to receive the annual leave loading in accordance with section 90(2) of the Act.
Section 90(2) of the Act provides:
If, when the employment of an employee ends, the employee has a period of untaken paid annual leave, the employer must pay the employee the amount that would have been payable to the employee had the employee taken that period of leave.
The Applicant was claiming $2,376.25 exclusive of any interest.
The Respondent submitted that:
- Regard was to be had to the fact that section 90(1) provided for employees to be paid annual leave at the base rate of pay when construing section 90(2). The result of doing so was at the end of the employment an employee was to be paid for unused accrued annual leave at the base rate of pay.
- Section 87(2) of the Act (providing for employee’s entitlement to paid annual leave to accrue progressively during a year of service) is interconnected with section 90(2) and that the payment of annual leave at the full rate of pay would be at odds with the accrual and payment of the entitlement based upon “ordinary hours of work.”
- The Applicant’s contention that section 90(2) as to the construction of section 90(2) would lead to an absurd result that an employee would be entitled to the “full rate of pay” upon termination under the NES rather than the “base rate of pay.”
- An enterprise agreement might contain terms which supplement, or are ancillary or incidental to an entitlement under the NES, but only in a way where the effect would not be detrimental to an employee (section 55(4) of the Act).
During the proceedings, the Australian Mines and Metals Association were granted leave to intervene and put submissions in the proceedings, primarily as to the appropriate construction to be given to the Act.
The NSW Local Court discussed its approach to interpretation based on the Acts Interpretation Act 1901 (Cth) and the objects of the Act particularly:
- Ensuring a guaranteed safety net of fair, relevant and enforceable minimum terms and conditions through the NES, modern awards and minimum wage orders;
- Ensuring that the guaranteed safety net of fair, relevant and enforceable minimum wages and conditions can no longer be undermined by the making of statutory individual employment agreements of any kind given that such agreements can never be part of a fair workplace relations system.
The Local Court was of the view that the operation of section 90(1) is relevant when considering the operation of section 90(2).
The Local Court expressed a view that the minimum standard is that an employee whose employment comes to an end, is to be paid the amount that he or she would have been paid if they had taken the unpaid annual leave as at the date that employment ends. This is consistent with the intention of the legislature evidence in both section 3 and section 61 of the Act, to provide through the NES minimum standards in relation to aspects of employment, including in relation to the payment of annual leave.
The Local Court did not accept the Respondent’s submissions.
The Applicant was therefore entitled to be paid the $2,376.25.
In response to this decision, former Fair Work Australia president Geoffrey Giudice said the ruling is probably not the last word on the matter, however reflects the current position. He further commented that the decision “does not distinguish between the minimum entitlements prescribed by the NES and the potential for supplementation of those entitlements in an enterprise agreement pursuant to section 55(4).”
What can your business learn from this decision?
There has been a long running dispute over the correct interpretation of the NES provision requiring the employer to pay the employee on termination of employment “the amount that would have been payable to the employee had the employee taken that period of leave.”
This decision supports the FWO’s view that if an employee is entitled to annual leave and annual leave loading during their employment, the employee must be paid the annual leave loading on termination.