CHANGES TO ANNUAL LEAVE CLAUSES IN MODERN AWARDS
AS PART OF ITS 4 YEARLY REVIEW OF MODERN AWARDS, THE FAIR WORK COMMISSION (FWC) HAS MADE SOME IMPORTANT CHANGES TO THE ANNUAL LEAVE PROVISIONS IN MANY MODERN AWARDS THAT ARE CURRENTLY OPERATING.
ISSUE
The main changes made by the FWC relate to three central issues in relation to employees covered by a modern award, specifically:
- The ability of employees to cash out annual leave.
- The ability of employees to take annual leave in advance of it being accrued.
- The ability of employers to manage employees with large or excessive amounts of annual leave.
It is important to note that different rules apply to employees who are not covered by an award or enterprise agreement. This Legal Update considers the issues principally in relation to award-covered employees.
Employers should carefully check the new clauses inserted into the relevant modern awards which apply to them.
OUTCOME
Cashing Out Annual Leave
It is now permitted that annual leave can be “cashed out” rather than an employee taking the leave as holiday when:
- It is agreed to in writing by the employer and employee. (The awards contain a sample agreement for cashing out of annual leave but there is no requirement to use the form of agreement contained in the relevant award.)
- The agreement specifies the amount of leave being cashed out and the amount being paid.
- At least 4 weeks of annual leave will remain after the cash out.
- No more than 2 weeks annual leave may be cashed out every 12 months.
Annual Leave in Advance
Taking of annual leave in advance of it being accrued is now permitted under a variety of awards where:
- It is agreed to in writing between the employer and employee.
- How much leave being taken is specified.
- The start date of the leave is specified.
Excessive Annual Leave
The new annual leave terms have adjusted the way in which excessive amounts of accrued annual leave can be dealt with. The modern awards define excessive accrued annual leave as being 8 weeks of annual leave or 10 weeks where the employee is a shift worker. Where such an amount of annual leave has been accrued, if no agreement can be reached with the employee about taking annual leave, an employer may direct an employee to take this leave where notice is given in writing and the employer gives no less than 8 weeks and no more than 12 months’ notice of the leave start date. There are some additional requirements including that the period of required leave must be at least 1 week and the employee must have at least 6 weeks accrued leave after the required leave is taken.
Similar changes to modern awards will allow for employees to give notice of annual leave to their employers when they have an excessive amount accrued and they have been unable to agree with their employer about when annual leave should be taken. However these changes will not be effective until 29 July 2017.
IMPACT
Cashing Out Annual Leave
Employers should be aware that with the inclusion of the provision relating to cashing out of annual leave, employers must avoid pressuring or forcing employees to cash out annual leave. Doing so could constitute a breach of the annual leave clauses in the relevant modern award as the agreement would not be genuine as required and could give rise to further liability under the Fair Work Act 2009 (Cth).
Annual Leave in Advance
Employers are able to allow award-covered employees to take annual leave in advance if they choose to do so, by written agreement. Where an employer agrees to do so these changes to awards make it clear that the employer may deduct an amount equal to what was paid to the employee in relation to annual leave on termination of employment if the employee has not accrued sufficient leave at this time.
Excessive Annual Leave
While previously employers did not have the ability to direct that leave be taken to minimise excessive annual leave, these new provisions now grant the ability for employers in relation to award employees. Award-covered employees will also themselves ultimately have a right to direct that leave be taken where no agreement can be reached. (Employers should also be aware that award and enterprise agreement free employees can also be directed to take annual leave where such a requirement is “reasonable”.)
End of Employment
Employers should also consider the impact of termination of employment on annual leave entitlements. Where an employee’s employment is terminated, they are entitled to be paid the amount that they would have been paid if the annual leave had been taken ordinarily. As such, any loading rates or other allowances which would be given when leave was taken must be paid to the employee when their employment ends. As was made clear by a Full Court of the Federal Court in Centennial Northern Mining Services Pty Ltd v Construction, Forestry, Mining and Energy Union [2015] FCAFC 100, the payment of simply the base rate of pay when more would have otherwise been given to the employee if the leave had been taken is not sufficient.
CONTACT
Whitehall Workplace Law
Level 14, 330 Collins Street, Melbourne, VIC 3000