Published 3 March 2015
The Federal Court has found that when an employee’s employment is terminated, their accrued annual leave must be paid out at the same rate they would have received had they taken it whilst still employed.
Centennial Northern Mining Services Pty Ltd (Centennial) operates an underground mine and employs its employees under an enterprise agreement, which relevantly states:
“On termination of employment an employee is paid for accrued but untaken annual leave at their hourly rate of pay applicable to their ordinary weekly rate of pay… plus average bonus.”
The CFMEU, whose members were employed by Centennial, argued that this clause of the enterprise agreement contravened section 90(2) of the Fair Work Act which provides 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.”
The CFMEU argued that once employment is terminated, an employee should receive annual leave, a component for rostered overtime, shift allowance or weekend penalty rates or a guaranteed 20% loading which employees would have received if they had taken the leave whilst still employed. Centennial argued that upon termination, employees were entitled to nothing more than their base rate of pay plus average bonus.
The CFMEU also alleged that a clause of the enterprise agreement relating to employees over the age of 60 was discriminatory. The clause provided that when employees over the age of 60 were made redundant, they would receive no redundancy payment, no matter what their length of service. The basis of this clause was that the mining industry formerly had a compulsory retirement age of 60 and it was deemed that an employee should not receive a redundancy payment which would be more favourable to them than if they had remained in employment until the age of 60.
The Court found that section 90(2) meant that:
“an employee should not suffer a reduction in the value of unpaid annual leave if employment comes to an end while paid annual leave remains untaken.”
Therefore, the enterprise agreement was contrary to the Fair Work Act and employees must be paid the amount that they would have received had they taken annual leave during employment, including overtime, shift allowance, penalty rates or a guaranteed 20% loading. The Court also found that the clause of the enterprise agreement which sought to limit redundancy payments to employees over the age of 60 was discriminatory and therefore unlawful. Employees over the age of 60 should receive the same redundancy payment as those under the age of 60.