Four yearly review of modern awards: Full bench issues its decision on annual leave

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Four yearly review of modern awards: Full bench issues its decision on annual leave

As part of the Fair Work Commission (FWC)’s four yearly review of modern awards, the FWC determined that as there were a number of complexities in reviewing the modern awards, it was important that the issue of annual leave be dealt with as a common issue as annual leave related to all modern awards.

On 11 June, 2015 the FWC Full Bench issued its decision in relation to the issue of annual leave across the modern awards.

During the preliminary stages of the review, the FWC determined that there were a number of matters to be considered in the context of annual leave.The issues were determined by the FWC- these have been outlined below.

Excessive annual leave

Based on the evidence tendered by the employer associations in relation to employees not using their leave entitlements, and the threat to health and safety of employees, the Full Bench was satisfied that all modern awards should include a clause relating to employees taking excessive annual leave.

However, rather than adopting the clause proposed by the employer associations, the FWC proposed its own model term to deal with the taking of excessive annual leave. The proposed model term (which is open for comment) provides that excessive leave accruals (i.e. more than 8 weeks of paid annual leave) can be decreased by agreement between the employer and employee, by the employer direction to the employee or by the employee providing notice to the employer. As a safeguard, 6 weeks accrued annual leave must remain.

Cashing out annual leave

The FWC noted that under previous legislative regimes and predecessor bodies to the FWC, there was a consistency approach to reject proposals for the cashing out of annual leave on the basis that it undermined the purpose of annual leave. However, the FWC also noted that the Fair Work Act 2009 (Cth) (FW Act) now makes provision for the cashing out of annual leave and it is now a common feature of enterprise agreements as well.

Whilst the union parties strongly opposed the insertion of the cashing out provisions in modern awards, the FWC agreed with the employer associations that there should be an insertion of a cashing out of annual leave clause in all modern awards.However, the FWC proposed its own model clause. This model clause provides a number of safeguards:

A maximum of two weeks’ paid annual leave can by cashed out in any 12 month period (in the case of part time employees, this is based on the employee’s weekly ordinary hours);

Specific requirements relating to record keeping and the content of any agreement relating to cashing out accrued annual leave;

§ If the employee is under 18 years’ of age the agreement to cash out a particular amount of accrued paid annual leave must be signed by the employee’s parent or guardian; and

The clause is to include notes at the end of the clause referring to the general protections provisions of the FW Act relating to employer undue influence and misrepresentation in relation to rights under the clause.

Annual close down

Employer associations sought to include a close down provision into 65 modern awards. The purpose of this clause was to enable businesses to shut down and require annual leave to be taken at the best time in terms of production or service fluctuations.The unions opposed this claim.

The FWC was not persuaded by the submissions to grant the variation for three reasons:

The model term proposed by the employer associations was not reasonable in light of the FW Act;

Close down provisions need to be considered on an award by award basis as different industries had different demands;

Employers would be able to reduce the annual leave liability.

The FWC provided the option for interested parties to apply to seek a variation on an individual award basis.

Granting leave in advance

The FWC agreed with the proposal by employer associations to vary 48 modern awards to include a provision which permitted the taking of annual leave in advance of having accrued the entitlement. The provision would also allow an employer to make a deduction from monies payable to an employee on termination of employment. Union groups opposed this claim.

The FWC proposed its own model terms and also indicated its view that it should be extended to all modern awards.The model term was to include requirements regarding the agreement to be kept on an employee’s record.

Payment of annual leave entitlements on termination

An issue that is subject to regular contention is that of annual leave entitlements payable on termination, in particular whether annual leave loading or other entitlements are to be paid. The ACTU sought a variation to 118 modern awards to remove inconsistency and ambiguity on this issue.

The Full Bench declined to make the variations as sought as this time. It did not consider it appropriate to do so as the issue was currently under consideration by Federal Parliament under amendments proposed in the Fair Work Amendment Bill 2014. Further it noted that the recent decision on the matter is on appeal to the Full Bench of the Federal Court of Australia.

Electronic funds transfer (EFT) and paid annual leave

The employer associations sought a variation to 51 modern awards which required employers to pay annual leave prior to the commencement of the period of leave to allow employees who are usually paid by EFT to also permit the payment of annual leave in this manner and in accordance with the employer’s ordinary pay cycle.

The Full Bench agreed with this claim, noting that the requirement to pay annual leave in advance was no longer of relevance in light of evidence which showed that most employers pay employees by EFT or other electronic means rather than on a cash basis.

Purchased leave

In relation to purchased annual leave, the Australian Industry Group proposed a model clause to be inserted into each modern award to allow employees additional annual leave in a year with a corresponding reduction in salary either for the period of their annual leave (for example, half pay for twice the standard annual leave period) or throughout the year.

This proposal was not pressed further during the proceedings.However, the FWC noted that there seemed to be a level of interest in providing the arrangements which facilitate the purchase of additional annual leave.The FWC will publish a discussion paper in relation to this issue which parties will have the opportunity to make submissions regarding whether a provision for purchased leave should be included in modern awards.

Comment – what can your business learn from this decision?

As noted above, while the decision to vary modern awards to include a cashing out of annual leave clause will apply to all awards; other variations will only apply to certain modern awards.

The Full Bench has also indicated its preliminary view to include a standard clause across all modern awards in relation to excessive annual leave and the granting of leave in advance.

(Source – Athena Koelmeyer, Workplace Law)

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