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Annual leave: Centennial Northern Mining Services Pty Ltd v Construction, Forestry, Mining and Energy Union [2015] FCAFC 100

 The Full Court of the Federal Court has confirmed an earlier decision, finding that annual leave is to be paid out at termination at the same rate the employee would have received had they taken it whilst they were still employed. 

Earlier this year, the Federal Court found that when an employee’s employment is terminated, their accrued but untaken annual leave must be paid out at the same rate they would have received had they taken it whilst still employed.

The decision clarified the meaning of section 90(2) of the Fair Work Act 2009 (Cth) which states that:

If, when the employment of the employee ends, the employee has a period of untaken paid annual leave, the employer must pay the employee the amount that would have been payable to the employee had the employee taken that period of leave.”

Centennial Northern Mining Services Pty Ltd (Centennial) had attempted to argue that upon termination, an employee was entitled to receive untaken annual leave calculated at their base rate of pay plus average bonus, which was consistent with Centennial’s Enterprise Agreement. The CFMEU argued that the Enterprise Agreement contravened s 90(2) of the Act and upon termination, annual leave should be calculated in accordance with the employee’s rostered overtime, shift allowances, weekend penalty rates and a guaranteed 20% loading which employees would have received if they had taken the leave whilst still employed.

The Court agreed with the CFMEU’s interpretation and found that upon termination, an employee should receive untaken annual leave, calculated in accordance with any loadings, penalty rates or overtime that they would have received had they taken the annual leave whilst still employed.

Centennial appealed the decision to the Full Court of the Federal Court.

Decision

The Full Court upheld the decision, finding that:

Section 90(1) creates the minimum standard: payment at the base rate for ordinary hours worked. The effect of s 90(2) is that if that is the rate at which the employee is paid when he or she takes annual leave, then that is the minimum amount that must be paid for any accrued untaken annual leave. If, on the other hand, there is a modern award or enterprise agreement which provides for payment at a higher rate for annual leave that is taken, then s 90(2) stipulates that that is the rate which is payable where annual leave has accrued but has not been taken. This is the natural way to read the section and there is nothing in the legislative context which would require a different interpretation.”

The Court rejected Centennial’s argument that the Federal Court’s interpretation would lead to uncertainty as it required employers to incorporate variable entitlements, including rostered overtime, shift allowances, weekend penalty rates and bonuses as these vary from time to time, finding:

In our view, this argument is a furphy. The intention of the legislation is that untaken annual leave is payable at the rate at which it would have been paid had the employee taken it at the time the employee was eligible for it.”

Read the full decision here

* PCC Lawyers are a team of employment practitioners based in Sydney, with many years of combined knowledge and experience in workplace law, industrial relations, workplace investigations and training.  They provide a high standard of excellence and an exceptional level of personal service to a variety of clients in the Sydney metropolitan area, Central Coast, regional NSW and interstate.