The Fair Work Commission (FWC) has ruled that the approach for calculating how personal leave is accrued and taken, which was stipulated in Mondelez Australia Pty Ltd v AMWU & Ors (2020) (Mondelez), also applies to annual leave for national system employees.

What is the ‘Mondelez approach’?

On 13 August 2020, the High Court decided in Mondelez that an employee’s entitlement in the National Employment Standards (NES) of the Fair Work Act 2009 (Cth) to accrue 10 days of paid personal/carer’s leave for every year of service was equivalent to an employee’s ordinary hours of work in a week over a 2-week period, or 1/26 of the employee’s ordinary hours of work in a year. A ‘day’ for the purposes of the NES entitlement refers to a ‘notional day’, consisting of 1/10 of the equivalent of an employee’s ordinary hours of work in a 2-week period.

Since that decision, the question has arisen about how it affects the NES entitlement to annual leave. Mondelez was only concerned with interaction between personal leave provisions in an enterprise agreement and the NES.

Applying the ‘Mondelez approach’ to annual leave

Until last Friday, the FWC has largely followed the Full Bench ruling in RACV Road Service Pty Ltd v Australian Municipal, Administrative, Clerical and Services Union (2015). This meant that a week or day of annual leave entitled the employee to leave corresponding to the actual days or hours the employee would have worked. However, in AWU v Cleanaway Operations Pty Ltd (2020), the FWC treated the Mondelez decision as persuasive in finding that the same approach should be taken for annual leave.

The decision concerned a dispute about the operation of an enterprise agreement clause governing annual leave. The employees covered by the enterprise agreement work under a ‘4 on, 4 off’ roster pattern that operates over an 8-week cycle. The number of rostered hours each shift is 11.5 hours, which comprises 9.5 ordinary hours (including a 30-minute paid break) and 2 rostered overtime hours. In total, employees work 304 ordinary hours and 18 rostered overtime hours per cycle. This totals 322 hours per cycle, and is an average of 40.25 hours per week over the roster cycle.

The employer accrues 161 hours of annual leave for the employees per annum. It does this by calculating the average weekly hours rostered for employees and multiplying this by four (which represents the 4 weeks of annual leave prescribed by the enterprise agreement). When an employee takes a day of annual leave, the employer deducts from the employee’s accrued annual leave balance 11.5 hours, and pays the employee accordingly. This is the case even if the employee would have worked longer hours on that day.

The union disputed this approach, claiming it was inconsistent with the provisions of the annual leave NES. However, the FWC ruled that the employer’s approach was correct, following Mondelez.

The FWC ruled the annual leave entitlement of 162 hours per year currently provided by the employer does not fail to meet the NES entitlement to annual leave. Although the FWC declined to express a ruling to this effect, it was observed that the practical effect of this was that an employee must receive under the NES, for each year of service, the higher of 162 hours of annual leave, or 4 weeks of annual leave.

The key basis for the FWC’s decision was that it was concerned with enterprise agreement provisions that were nearly identical to the provisions in Mondelez, both of which adopted the NES provisions. The terms expressing ‘amount of leave’, ‘accrual of leave’ and ‘payment for’ each type of leave is expressed in identical terms by reference to the “base rate of pay for the employee’s ordinary hours of work in the period”.