Leave loading payable when employment ends

If your employees are entitled to leave loading when taking paid annual leave, that loading may be payable on termination if employees have untaken annual leave.

The minimum entitlement to annual leave is set out in the National Employment Standards of the Fair Work Act 2009.  They provide for leave to be paid at base rates of pay. 

Section 90(1) of the Fair Work Act states:

If, in accordance with this Division, an employee takes a period of paid annual leave, the employer must pay the employee at the employee’s base rate of pay for the employee’s ordinary hours of work in the period.

Modern awards and enterprise agreements may provide for paid annual leave to be calculated on a formula greater than the base rate of pay.

Section 90(2) of the Fair Work Act states:

If, when the employment of an 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.

Mr Ryan was a mining operator with Whitehaven Coal Mining Pty Ltd, who resigned his employment after two and a half years.  At that point he had untaken paid annual leave.

Clause 14.1 of the relevant enterprise agreement stated:

Employees are entitled to five weeks annual leave per year, accruing progressively.  For periods of annual leave, employees will be paid the greater of: - their ordinary time rate of pay and an annual leave loading of 20%; or -  the projected roster earnings. 

When Mr Ryan resigned Whitehaven paid Mr Ryan his accrued paid annual leave calculated at his base rate of pay.

He contested that decision in the Local Court of New South Wales.

He argued that on the plain meaning of the words in section 90(2) of the Fair Work Act he should have been paid the 20% loading (or the projected roster earnings).

In response Whitehaven argued that upon termination Mr Ryan should be paid his accrued but untaken annual leave at his base rate of pay relying on clause 14 of the enterprise agreement which said:

           Leave

Entitlements to leave are in accordance with the entitlements set out under the applicable FW Act provisions and the provisions of this agreement set out below.

It argued that this meant that an employee’s entitlement to payment of accrued but untaken annual leave upon termination was to be dealt with under the Fair Work Act and not the enterprise agreement applying to Mr Ryan.

The magistrate decided in favour of Mr Ryan agreeing that the plain meaning of section 90(2) of the Fair Work Act permitted his accrued entitlement to paid annual leave to be paid to him at greater than the base rate of pay because if he had remained with Whitehaven and taken the leave he would have been entitled to the greater of the 20% loading or the projected roster earnings.

The decision was handed down on 26 July 2013 and there is the prospect that Whitehaven will appeal it on a question of law to the Supreme Court of New South Wales.

In the meantime, however, it is clear that resigning or dismissed employees who have accrued and untaken paid annual leave, which is subject to a leave loading are to be paid that loading on termination of employment.

Anyone seeking advice about workplace laws should contact Nevett Ford Melbourne Lawyers on 03 9614 7111.