Yesterday, employers welcomed the High Court’s decision to preserve long-standing practice regarding personal leave accruals in a significant judgement that has potentially saved them a massive back pay bill.

Section 96 of the Fair Work Act entitles an employee to 10 days of paid personal leave per year.  This entitlement accrues progressively during the year according to the employee’s ordinary hours of work.  It is one of the entitlements that make up the National Employment Standards (the NES).

Most businesses convert employee leave entitlements into an hourly rate (eg 2.923 hours per fortnightly pay cycle).  This accrual occurs regardless of whether the employee works 7.6 hours per day or 10 hours per day.  So a full-time worker over the course of a year accrues 76 hours of personal leave per year.

Mondelez was a case about a chocolate factory in Tasmania.  Mondelez sought approval of its Enterprise Agreement.  That Agreement provided 96 hours of personal leave to workers each year (the NES entitlement is 76 hours).  So at first blush it seemed generous.

But staff at the chocolate factory work 12 hour shifts so that would give them only 8 paid days’ leave if all 12 hours were paid each day.  Enterprise Agreements cannot provide conditions less favourable than the NES.

The Federal Court thought this was a problem because Australian workers are entitled to a minimum of 10 paid days of leave; if you are rostered to work 12 hour shifts then that’s 120 hours’ worth of personal leave per year. This would have been a huge issue for employers of shift workers.

But the High Court has now said that the expression ’10 days’ in the NES means an amount of paid personal leave accruing for every year of service equivalent to an employee’s ordinary hours of work over a fortnightly period, or 1/26 of the employee’s ordinary hours of work in a year.  A ‘day’ for the purposes of section 96 refers to a ‘notional day’, consisting of one-tenth of the equivalent of an employee’s ordinary hours of work in a fortnightly period.

Phew, payroll calculations can remain ‘as is’.  That’s one less problem to solve in the midst of a challenging year.