FWC to provide award right to cash-out annual leave

A FWC full bench today acceded to employer requests to change annual leave provisions in modern awards to enable cashing-out of up to two weeks a year and give employers a qualified power to require employees to take "excessive" accruals.

In a ruling handed down this morning as part of the Commission's consideration of "common issues" in the four-yearly review of modern awards, the President, Justice Iain Ross, Senior Deputy President Anne Harrison and Commissioner Peter Hampton also granted new award powers to make electronic payments under employers' usual pay cycles rather than in advance and to enable employers to grant annual leave in advance of it accruing.

The bench in granting the cashing-out provisions said that while the FWC's predecessor bodies consistently rejected such proposals, there is now a specific provision for it at sections 92 to 94 of the Fair Work Act and cashing-out is a "relatively common" feature of agreements.

The bench added four "safeguards", which will:

  1. Require a maximum of two weeks cashing-out in any 12 months;
  2. Mandate keeping of specific records;
  3. Necessitate a signature from parents for under-18 employees; and
  4. Draw attention to general protections provisions at Part 3-1 of the Fair Work Act "against undue employer influence and misrepresentation in relations to rights under the clause".
The bench rejected the union argument that cashing-out provisions would undermine the NES entitlement to leave and wouldn't encourage bargaining.

The bench acknowledged that the purpose of annual leave is to provide rest and recovery from work, but said s93 is "a clear legislative statement" that including a cashing out provision in a modern award is consistent with the NES.

Employers win right to direct employees to reduce "excessive" accruals

The bench said its model clause on excessive annual leave accruals "incorporates the employer's right to direct" but "also makes provision for the circumstance where an employee accrues excessive paid annual leave but no employer direction is made."

The model clause defines excessive leave accruals as eight weeks for non-shiftworkers and 10 weeks for shiftworkers.

It provides that employers can't make a direction that results in the employee's accrual dropping below six weeks.

The model requires that before an employer can make a direction, it must seek a meeting with the employee and genuinely try to agree to steps to reduce or eliminate the excessive accrual.

The bench said the model clause "is intended to establish mechanisms to assist both employers and
employees to reduce or eliminate 'excessive leave accruals' consistent with the statutory framework and subject to appropriate safeguards."

The decision provides an example of "Brian", a part-time non-shiftworker who has accrued nine weeks leave after only taking three weeks in each of the three previous years.

Brian and his employer agree that he will use seven weeks of holidays in the middle of the year for an overseas trip and an extra week at Christmas to reduce his accrual, obviating any need for the employer to direct him.

Bench removes requirement to pay in advance

The bench agreed to vary 51 modern awards to permit employers to pay employees by electronic funds transfer under their "usual pay cycle" while on annual leave.

It removes requirements to pay employees upfront for their annual leave.

However, the new provision doesn't apply where the employer's usual practice is to pay by cheque or cash.

The bench noted that a survey conducted by the employer proponents indicated that 85% of employers pay employees electronically.

Employers win right to provide leave in advance

Employers will be able to grant annual leave in advance of it accruing and deduct amounts for any unaccrued leave from termination payments, the bench ruled.

It would only be available where employee and employer have agreed to taking leave in advance, the bench said.

The employers only sought the change in 48 awards, but the bench expressed the "provisional view" that "it is necessary to vary all modern awards to insert the model term in order to achieve the modern awards objective".

Leave loading bid adjourned

The bench adjourned the ACTU's application to vary 118 modern awards to ensure that on termination of employment, workers are paid leave loadings and other entitlements on untaken annual leave.

The bench said that with a bill before Parliament seeking to change the law on the matter there "is plainly a degree of uncertainty surrounding the statutory provision at the centre of this issue" and noted that the "proper construction of s.90(2)" is expected to be considered by a full Federal Court this year.

FWC to release discussion paper on purchased leave

The AiG didn't press its original proposal for purchased leave, but the bench said there is "a level of interest" in the matter and that "a facilitative provision. . . is worthy of consideration".

It said it "appears" the Fair Work Act permits such a provision in modern awards and that "consideration may need to be given as to whether a purchased leave arrangement constitutes a "permitted deduction" within the meaning of s.324."

The bench said it would "shortly" publish a discussion paper on purchased leave and a further hearing would be held on Tuesday, July 28.

The bench rejected a bid for provisions to enable employers to schedule annual shutdowns and require employees to take annual leave, saying this needed to be approached on an award-by-award basis.

4 yearly review of modern awards—Annual leave [2015] FWCFB 3406 (11 June 2015)

Summary of decision