Earlier this week we commented on trends & sleeper issues for 2016. Hot on the tail of this, the Fair Work Commission has issued an important ruling in relation to leave during notice periods. This is super important for all employers generally, and in this blog we provide our thoughts on the decision and discuss the potential implications.
In an important decision for all employers with respect to notice of termination during a period of approved leave, the Fair Work Commission has found that the employer is not able to count that leave (which in this cases was unpaid “rest and recreation” time at the end of a FIFO roster) as part of any payment in lieu of notice.
- At the Ichthys LNG project in Darwin, employees work a “4 and 1” roster – that being 4 weeks of work up at the project, followed by 1 week of unpaid “rest and recreation” time back at home (R&R).
- In accordance with usual industry practice, Kentz began winding down its workforce upon the completion of its scope of work by providing notice of termination to employees on the project just as they were about to commence their R&R.
- In terminating the employees’ employment, Kentz did not pay employees part of their notice in lieu because R&R is unpaid and the period of notice, had the employees worked it, would have included a period of R&R (ie. in accordance with Kentz’ understanding of the enterprise agremeent for pay in lieu of notice, an employer need only pay the employee for what they would have worked during the notice period – and because R&R is unpaid then no payment in lieu of notice is therefore owed).
- The CEPU sought arbitration of the issue in the Fair Work Commission by way of the dispute settling provisions of the enterprise agreement, arguing that the employees were entitled to full payment for their notice in lieu.
Decision of Commissioner Bissett
Commissioner Bissett found that Kentz had not complied with the Agreement. She found that:
- R&R was effectively a form of authorised leave – which is a separate entitlement from notice of termination because both have different purposes (ie. R&R is for rest and recreation, while notice of termination is to enable someone to look for another job); and
- in reliance on some recent Federal Circuit Court and single-member Fair Work Commission authority that notice of termination cannot be paid in lieu across a period of paid annual or unpaid parental leave (because that would enable the employer to avoid entitlements), the benefit of notice of termination must be paid and would be lost without compensation if unpaid R&R could override it.
In the alternative, she also found that, because the agreement provided that R&R could only be provided to an employee if there was more than two weeks’ work for the employee on the project, if at the time of being given notice the employee had two weeks or less of work remaining on the project then the employee could not commence R&R, and as a consequence had they worked the notice period they would have been paid for the entire notice period.
What does this mean for employers?
For what it is worth, we have great difficulty with the decision (and the authorities preceding it on at least the issue so far as it concerns unpaid leave) because the words of the NES specifically say that an employer must only pay the amount that the employer would have been liable to pay the employee (at the full rate) “for the hours that the employee would have worked had the employment continued until the end of the minimum notice period”.
That said, the current state of the law is the law and this is a very significant decision for all employers generally because, alongside parallel Federal Circuit Court authority, it extends the law to require payment for notice of termination separately and in full in circumstances where employees are on any form of approved leave (irrespective of whether that leave is paid or unpaid) – eg. if an employee is on unpaid parental leave, the employer must still provide full pay for notice in lieu even if the employee would not have worked and received pay during that notice period because of their unpaid parental leave.
For employers in the resources sector, this is especially problematic because it has been longstanding industry practice for termination to occur at the end of the working time on the project, and for payment in lieu not to be made because employees would otherwise be on unpaid R&R.
Given that this is an issue of such significance to the resources sector, we fully anticipate an appeal, however in the meantime and as a matter of prudence, it seems to us that you should consider:
- in the immediate term, reviewing your practices as a matter of priority to understand at a minimum if or where there are circumstances where payment in lieu of notice is withheld in your business for reasons of paid or unpaid leave during the expected period of the notice – and where practicable or possible see if you can vary those practices for the time being to accommodate this decision;
- in the short to medium term, changes to your enterprise agreements and contracts to stipulate whether unpaid R&R in particular could be specifically re- characterised as something other than a form of leave or approved absence; and
- otherwise sit tight and watch this space closely for the outcome of any appeals!
We trust this helps – but if in the meantime you would like to shoot the breeze on the decision’s potential implications further, as always please definitely just pick up the phone!
Chris, Claire and the Team