[2015] FWCFB 3406

FAIR WORK COMMISSION

dECISION

Fair Work Act 2009

s.156—4 yearly review of modern awards

4 yearly review of modern awards—Annual leave

(AM2014/47)

Justice Ross, President SENIOR DEPUTY PRESIDENT HARRISON COMMISSIONER HAMPTON

MELBOURNE, 11 June 2015

4 yearly review of modern awards - annual leave common issue - excessive annual leave - cashing out of annual leave - close-down - granting leave in advance - payment of annual leave entitlements on termination - electronic funds transfer and paid annual leave - purchased leave.

 

CONTENTS

Chapters		Paragraph
1.	Introduction	[1]
2.	The Context	[11]
3.	The Evidence	[39]
4.	The Claims	[59]
	4.1       Excessive annual leave	[59]
	4.2       Cashing out of annual leave	[220]
	4.3       Annual Close-down	[336]
	4.4       Granting leave in advance	[384]
	4.5       Payment of annual leave entitlements on termination	[416]
	4.6       Electronic funds transfer and paid annual leave	[430]
5.	Purchased Leave	[458]
6.	Next Steps	[467]
Attachments
A	Employer Group Parties
B	Index of Material
C	Witness Statements
D	New Subclause for Excessive Annual Leave
E	Replacement Subclause for Excessive Annual Leave
F	Analysis of Excessive Annual Leave Provisions in Awards
G	New Subclause for Close-Down
H	New Subclause for Annual Leave in Advance
I	New Subclause for EFT Payment
J	Legislative Provisions relating to Annual Leave

ABBREVIATIONS

ABS	Australian Bureau of Statistics
ACCI	Australian Chamber of Commerce and Industry
Act	Fair Work Act 2009 (Cth)
ACTU	Australian Council of Trade Unions
AFPCS	Australian Fair Pay and Conditions Standard
Ai Group	Australian Industry Group
AIRC	Australian Industrial Relations Commission
AMWU	“Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union” known as the Australian Manufacturing Workers’ Union (AMWU)
AWALI 2010	Australian Work and Life Index 2010
2008 Award Modernisation decision	Award Modernisation decision of 19 December 2008 re making of priority modern awards
CFMEU	Construction, Forestry, Mining and Energy Union
Commission	Fair Work Commission
EFT	Electronic Funds Transfer
Employer Group	See Group of employers listed at Attachment A
FWC	Fair Work Commission
HILDA	Household, Income and Labour Dynamics in Australia survey
NAPSA	Notional Agreement Preserving State Award
NES	National Employment Standards
Review	4 yearly review of modern awards under s.156 of the Fair Work Act 2009
SDA	Shop, Distributive and Allied Employees Association
TAI 2002	The Australia Institute Survey, 2002
TCFUA	Textile, Clothing and Footwear Union of Australia
Transitional Review	Transitional (or 2 year) review of modern awards under Item 6 of Schedule 5 to the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009
Transitional Review—Annual Leave decision	Modern Awards Review 2012—Annual Leave decision
Work Choices Act	Workplace Relations Amendment (Work Choices) Act 2005 (Cth)
WR Act	Workplace Relations Act 1996 (Cth)

 

 

 

1.                Introduction

 

[1]               The Fair Work Act 2009 (Cth) (the Act) provides that the Fair Work Commission (the Commission) must ensure that modern awards together with the National Employment Standards (NES) provide a fair and relevant minimum safety net of terms and conditions. Modern awards and the NES interact in different ways. A modern award may include any terms that the award is expressly permitted to include by a provision of Part 2-2 of the Act (which deals with the NES). A modern award may also include terms that are ancillary or incidental to the operation of an entitlement of an employee under the NES or that supplement the NES. One of the minimum standards in the NES is paid annual leave. This decision is part of the 4 yearly review of modern awards and it deals with the variation of modern awards in relation to a number of issues regarding paid annual leave.[1]

 

Background

 

[2]               Section 156 of the Act provides that the Commission must conduct a 4 yearly review of modern awards (the Review) as soon as practicable after 1 January 2014.

 

[3]               As detailed in a statement issued on 6 February 2014,[2] the Review consists of an Initial stage, dealing with jurisdictional issues, a Common issues stage and an Award stage.

 

[4]               What constitutes a “common issue” was defined in a statement issued on 17 March 2014[3] in terms of a proposal for a significant variation or change across the award system, such as applications which seek to change a common or core provision in most, if not all, modern awards. A matter identified as a common issue will be referred to a Full Bench for determination in a “stand alone” proceeding, as distinct from having the issue determined on an award-by-award basis during the Award stage of the Review. After a consultation process the Commission determined the matters which would be dealt with as “common issues” during the Review; one of those matters was annual leave. [4]

 

[5]               The scope of the matters to be considered in the context of the annual leave common issue was published in a statement on 7 April 2014 as follows:

 

(i)         cashing out of annual leave;

(ii)        excessive annual leave;

(iii)       annual close-down;

(iv)       granting leave in advance;

(v)        purchased leave;

(vi)       payment of annual leave entitlements on termination; and

(vii)      electronic funds transfer (EFT) and paid annual leave. [5]

 

[6]               This decision deals with the above matters.

 

[7]               In relation to the issue of purchased leave, the Australian Industry Group (Ai Group) initially proposed a model clause to be inserted into each modern award that would allow employees additional annual leave in a year with a corresponding reduction in salary, either for the period of their annual leave (such as half pay for twice the standard annual leave period) or throughout the year.[6] This claim was not pressed further during these proceedings and we return to the matter later in this decision.

 

[8]               Interested parties were directed to file proposed variation determinations and a list of awards to which the proposed variations would apply. Directions were also issued regarding the filing of comprehensive written submissions and any evidence to be relied upon in support of the propositions advanced. Hearings took place on 20 and 21 August 2014, 16 October 2014 and 1 December 2014. Ai Group and the Australian Chamber of Commerce and Industry (ACCI) coordinated discussions with various employer groups (the Employer Group)[7] and presented a common position in respect of proposed variations relating to each of the matters addressed in this decision. The full list of organisations making up the Employer Group is at Attachment A.

 

[9]               A series of conciliation conferences took place in conjunction with the hearings outlined above, but ultimately a consent position could not be reached and all of the matters were contested.

 

[10]           We propose to deal with some contextual issues first, before turning to the particular claims before us.

 

2.                The Context

 

[11]           We begin by making some brief observations about the legislative context for the Review. We note that these issues are canvassed in more detail in the 4 yearly Review of Modern Awards: Preliminary Jurisdictional Issues decision[8] and we adopt and apply that decision.

 

[12]           The Act provides that the Commission must conduct a 4 yearly review of modern awards (s.156(1)). Section 156(2) deals with what has to be done in a Review:

 

“(2)        In a 4 yearly review of modern awards, the FWC:

 

(a)        must review all modern awards; and

 

(b)        may make:

 

(i)         one or more determinations varying modern awards; and

 

(ii)        one or more modern awards; and

 

(iii)       one or more determinations revoking modern awards; and

 

(c)        must not review, or make a determination to vary, a default fund term of a modern award.

 

Note 1:   Special criteria apply to changing coverage of modern awards or revoking modern awards (see sections 163 and 164).

 

Note 2:   For reviews of default fund terms of modern awards, see Division 4A.”

 

[13]           Subsections 156(3) and (4) deal with the variation of modern award minimum wages in a Review and are not relevant for present purposes.

 

[14]           Section 156(5) provides that in a review each modern award is reviewed in its own right, however, this does not prevent the Commission from reviewing two or more modern awards at the same time.

 

[15]           The general provisions relating to the performance of the Commission’s functions apply to the Review. Sections 577 and 578 are particularly relevant in this regard. In conducting the Review the Commission is able to exercise its usual procedural powers, contained in Division 3 of Part 5-1 of the Act. Importantly, the Commission may inform itself in relation to the Review in such manner as it considers appropriate (s.590).

 

[16]           The modern awards objective is central to the Review. The modern awards objective applies to the performance or exercise of the Commission’s “modern award powers”, which are defined to include the Commission’s functions or powers under Part 2-3 of the Act. The Review function in s.156 is in Part 2-3 of the Act and so will involve the performance or exercise of the Commission’s “modern award powers”. It follows that the modern awards objective applies to the Review.

 

[17]           The modern awards objective is set out in s.134 of the Act, as follows:

 

“134       The modern awards objective

 

What is the modern awards objective?

 

(1)        The FWC must ensure that modern awards, together with the National Employment Standards, provide a fair and relevant minimum safety net of terms and conditions, taking into account:

 

(a)        relative living standards and the needs of the low paid; and

 

(b)        the need to encourage collective bargaining; and

 

(c)        the need to promote social inclusion through increased workforce participation; and

 

(d)        the need to promote flexible modern work practices and the efficient and productive performance of work; and

 

(da)      the need to provide additional remuneration for:

 

(i)         employees working overtime; or

 

(ii)        employees working unsocial, irregular or unpredictable hours; or

 

(iii)       employees working on weekends or public holidays; or

 

(iv)       employees working shifts; and

 

(e)        the principle of equal remuneration for work of equal or comparable value; and

 

(f)        the likely impact of any exercise of modern award powers on business, including on productivity, employment costs and the regulatory burden; and

 

(g)        the need to ensure a simple, easy to understand, stable and sustainable modern award system for Australia that avoids unnecessary overlap of modern awards; and

 

(h)        the likely impact of any exercise of modern award powers on employment growth, inflation and the sustainability, performance and competitiveness of the national economy.

 

This is the modern awards objective.

 

When does the modern awards objective apply?

 

(2)        The modern awards objective applies to the performance or exercise of the FWC’s modern award powers, which are:

 

(a)        the FWC’s functions or powers under this Part; and

 

(b)        the FWC’s functions or powers under Part 2–6, so far as they relate to modern award minimum wages.

 

Note:      The FWC must also take into account the objects of this Act and any other applicable provisions. For example, if the FWC is setting, varying or revoking modern award minimum wages, the minimum wages objective also applies (see section 284).”

 

[18]           The modern awards objective is directed at ensuring that modern awards, together with the NES, provide a “fair and relevant minimum safety net of terms and conditions” taking into account the particular considerations identified in paragraphs 134(1)(a) to (h). The objective is very broadly expressed.[9] The obligation to take into account the matters set out in paragraphs 134(1)(a) to (h) means that each of these matters must be treated as a matter of significance in the decision-making process.[10]

 

[19]           No particular primacy is attached to any of the s.134 considerations and not all of the matters identified will necessarily be relevant to a particular proposal to vary a modern award.

 

[20]           There is a degree of tension between some s.134 considerations. The Commission’s task is to balance the various considerations and ensure that modern awards, together with the NES, provide a fair and relevant minimum safety net of terms and conditions.

 

[21]           The modern awards objective requires the Commission to take into account, among other things, the need to ensure a “stable” modern award system (s.134(1)(g)). The need for a “stable” modern award system supports the proposition that a party seeking to vary a modern award in the context of the Review must advance a merit argument in support of the proposed variation. The extent of the merit argument required will depend on the variation sought. As the Full Bench observed in the 4 yearly Review of Modern Awards: Preliminary Jurisdictional Issues decision:

 

“Some proposed changes may be self evident and can be determined with little formality. However, where a significant change is proposed it must be supported by a submission which addresses the relevant legislative provisions and be accompanied by probative evidence properly directed to demonstrating the facts supporting the proposed variation.”[11]

 

[22]           The Review is broader in scope than the transitional (or 2 year) review (Transitional Review) of modern awards provided for in Item 6 of Schedule 5 to the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009, and is the first full opportunity to consider the content of modern awards. However, the broad scope of the Review does not obviate the need for a merit argument to be advanced in support of a proposed variation. As the Full Bench in Re Security Services Industry Award 2010 recently observed:

 

“[8] While this may be the first opportunity to seek significant changes to the terms of modern awards, a substantive case for change is nevertheless required. The more significant the change, in terms of impact or a lengthy history of particular award provisions, the more detailed the case must be. Variations to awards have rarely been made merely on the basis of bare requests or strongly contested submissions. In order to found a case for an award variation it is usually necessary to advance detailed evidence of the operation of the award, the impact of the current provisions on employers and employees covered by it and the likely impact of the proposed changes. Such evidence should be combined with sound and balanced reasoning supporting a change. Ultimately the Commission must assess the evidence and submissions against the statutory tests set out above, principally whether the award provides a fair and relevant minimum safety net of terms and conditions and whether the proposed variations are necessary to achieve the modern awards objective. These tests encompass many traditional merit considerations regarding proposed award variations.”[12]

 

[23]           In the Review the Commission will proceed on the basis that prima facie the modern award being reviewed achieved the modern awards objective at the time that it was made.[13] The proponent of a variation to a modern award must demonstrate that if the modern award is varied in the manner proposed then it would only include terms to the extent necessary to achieve the modern awards objective (see s.138). What is “necessary” in a particular case is a value judgment based on an assessment of the s.134 considerations having regard to the submissions and evidence directed to those considerations.[14]

 

[24]           In performing functions and exercising powers under a part of the Act (including Part 2-3—Modern Awards) the Commission must take into account the objects of the Act and any particular objects of the relevant part (see s.578(a)). The object of Part 2-3 is expressed in s.134 (the modern awards objective) to which we have already referred. The object of the Act is set out in s.3 as follows:

 

“3           Object of this Act

 

The object of this Act is to provide a balanced framework for cooperative and productive workplace relations that promotes national economic prosperity and social inclusion for all Australians by:

 

(a)        providing workplace relations laws that are fair to working Australians, are flexible for businesses, promote productivity and economic growth for Australia’s future economic prosperity and take into account Australia’s international labour obligations; and

 

(b)        ensuring a guaranteed safety net of fair, relevant and enforceable minimum terms and conditions through the National Employment Standards, modern awards and national minimum wage orders; and

 

(c)        ensuring that the guaranteed safety net of fair, relevant and enforceable minimum wages and conditions can no longer be undermined by the making of statutory individual employment agreements of any kind given that such agreements can never be part of a fair workplace relations system; and

 

(d)        assisting employees to balance their work and family responsibilities by providing for flexible working arrangements; and

 

(e)        enabling fairness and representation at work and the prevention of discrimination by recognising the right to freedom of association and the right to be represented, protecting against unfair treatment and discrimination, providing accessible and effective procedures to resolve grievances and disputes and providing effective compliance mechanisms; and

 

(f)        achieving productivity and fairness through an emphasis on enterprise-level collective bargaining underpinned by simple good faith bargaining obligations and clear rules governing industrial action; and

 

(g)        acknowledging the special circumstances of small and medium-sized businesses.”

 

[25]           We now turn to the provisions of the Act relating to annual leave.

 

[26]           As we have mentioned, the Act provides that modern awards, together with the NES, are intended to provide a fair and relevant minimum safety net of terms and conditions of employment. The NES are minimum standards that apply to the employment of national system employees. The NES are set out in Part 2-2 of the Act. Division 6 of Part 2-2 (ss.86–94) deals with annual leave.

 

[27]           Part 2-1 of the Act provides that the NES cannot be excluded by modern awards or enterprise agreements. Section 55 deals with the interaction between the NES and a modern award or enterprise agreement:

 

“55         Interaction between the National Employment Standards and a modern award or enterprise agreement

 

National Employment Standards must not be excluded

 

(1)        A modern award or enterprise agreement must not exclude the National Employment Standards or any provision of the National Employment Standards.

 

Terms expressly permitted by Part 2–2 or regulations may be included

 

(2)        A modern award or enterprise agreement may include any terms that the award or agreement is expressly permitted to include:

 

(a)        by a provision of Part 2–2 (which deals with the National Employment Standards); or

 

(b)        by regulations made for the purposes of section 127.

 

Note:      In determining what is permitted to be included in a modern award or enterprise agreement by a provision referred to in paragraph (a), any regulations made for the purpose of section 127 that expressly prohibit certain terms must be taken into account.

 

(3)        The National Employment Standards have effect subject to terms included in a modern award or enterprise agreement as referred to in subsection (2).

 

Note:      See also the note to section 63 (which deals with the effect of averaging arrangements).

 

Ancillary and supplementary terms may be included

 

(4)        A modern award or enterprise agreement may also include the following kinds of terms:

 

(a)        terms that are ancillary or incidental to the operation of an entitlement of an employee under the National Employment Standards;

 

(b)        terms that supplement the National Employment Standards;

 

but only to the extent that the effect of those terms is not detrimental to an employee in any respect, when compared to the National Employment Standards.

 

Note 1:   Ancillary or incidental terms permitted by paragraph (a) include (for example) terms:

 

(a) under which, instead of taking paid annual leave at the rate of pay required by section 90, an employee may take twice as much leave at half that rate of pay; or

 

(b) that specify when payment under section 90 for paid annual leave must be made.

 

Note 2:   Supplementary terms permitted by paragraph (b) include (for example) terms:

 

(a) that increase the amount of paid annual leave to which an employee is entitled beyond the number of weeks that applies under section 87; or

 

(b) that provide for an employee to be paid for taking a period of paid annual leave or paid/personal carer’s leave at a rate of pay that is higher than the employee’s base rate of pay (which is the rate required by sections 90 and 99).

 

Note 3:   Terms that would not be permitted by paragraph (a) or (b) include (for example) terms requiring an employee to give more notice of the taking of unpaid parental leave than is required by section 74.

 

Enterprise agreements may include terms that have the same effect as provisions of the National Employment Standards

 

(5)        An enterprise agreement may include terms that have the same (or substantially the same) effect as provisions of the National Employment Standards, whether or not ancillary or supplementary terms are included as referred to in subsection (4).

 

Effect of terms that give an employee the same entitlement as under the National Employment Standards

 

(6)        To avoid doubt, if a modern award includes terms permitted by subsection (4), or an enterprise agreement includes terms permitted by subsection (4) or (5), then, to the extent that the terms give an employee an entitlement (the award or agreement entitlement) that is the same as an entitlement (the NES entitlement) of the employee under the National Employment Standards:

 

(a)        those terms operate in parallel with the employee’s NES entitlement, but not so as to give the employee a double benefit; and

 

(b)        the provisions of the National Employment Standards relating to the NES entitlement apply, as a minimum standard, to the award or agreement entitlement.

 

Note:      For example, if the award or agreement entitlement is to 6 weeks of paid annual leave per year, the provisions of the National Employment Standards relating to the accrual and taking of paid annual leave will apply, as a minimum standard, to 4 weeks of that leave.

 

Terms permitted by subsection (4) or (5) do not contravene subsection (1)

 

(7)        To the extent that a term of a modern award or enterprise agreement is permitted by subsection (4) or (5), the term does not contravene subsection (1).

 

Note:      A term of a modern award has no effect to the extent that it contravenes this section (see section 56). An enterprise agreement that includes a term that contravenes this section must not be approved (see section 186) and a term of an enterprise agreement has no effect to the extent that it contravenes this section (see section 56).”

 

[28]           A term of a modern award or enterprise agreement has no effect to the extent that it contravenes s.55 of the Act.

 

[29]           Relevantly, for the purpose of s.55(2), Part 2-2 provides that a modern award is expressly permitted to include terms:

 

·  providing for the cashing out of annual leave (ss.93(1) and (2));

·  requiring an employee, or allowing for an employee to be required, to take paid annual leave in particular circumstances, but only if the requirement is reasonable (s.93(3)); and

·  otherwise dealing with the taking of paid annual leave (s.93(4)).

 

[30]           We deal with these provisions later.

 

[31]           A modern award may also include terms that are incidental or ancillary to the operation of NES entitlements and terms that supplement the NES, provided that the effect of those terms is not detrimental to an employee in any respect when compared to the NES (s.55(4)).

 

[32]           In dealing with matters arising in the Review, the Commission will have regard to the relevant historical context and will take into account previous decisions relevant to any contested issue. The particular context in which those decisions were made will also be considered.

 

[33]           The annual leave provisions in modern awards have been the subject of consideration by the Commission and its predecessors over many years. On 30 May 2014, the Commission released a background paper[15] which sets out the legislative basis of the annual leave provisions in modern awards and the history of annual leave entitlements in awards.

 

[34]           During the award modernisation process conducted by the Australian Industrial Relations Commission (AIRC) under Part 10A of the Workplace Relations Act 1996 (WR Act) a number of employer organisations sought to have cashing out provisions included in modern awards. The Award Modernisation Full Bench deemed that cashing out provisions would “undermine the purpose of annual leave and give rise to questions about the amount of annual leave to be prescribed”.[16]

 

[35]           The substance of a number of the matters before us were also the subject of claims during the Transitional Review.

 

[36]           In the Modern Awards Review 2012—Annual Leave decision (Transitional Review—Annual Leave decision)[17] the Full Bench, by majority, rejected a range of applications to vary the annual leave provisions in various modern awards. The majority’s decision turned on the limited nature of the Commission’s task in the Transitional Review. The scope of the Transitional Review was the subject of detailed consideration by a five member Full Bench in the Modern Awards Review 2012 decision.[18] The Full Bench said:

 

“To summarise, we reject the proposition that the Review involves a fresh assessment of modern awards unencumbered by previous Tribunal authority. It seems to us that the Review is intended to be narrower in scope than the 4 yearly reviews provided in s.156 of the FW Act. In the context of this Review the Tribunal is unlikely to revisit issues considered as part of the Part 10A award modernisation process unless there are cogent reasons for doing so, such as a significant change in circumstances which warrants a different outcome. Having said that we do not propose to adopt a “high threshold” for the making of variation determinations in the Review, as proposed by the Australian Government and others.”[19]

 

[37]           In the Transitional Review—Annual Leave decision the majority applied the above statement and dismissed the applications.[20]

 

[38]           Of course, as we have mentioned, this Review is broader in scope than the Transitional Review and provides the first full opportunity to consider the content of modern awards.

 

3.                The Evidence

 

[39]           Ai Group, ACCI and other employer bodies conducted a joint employer survey in May 2014 about matters relating to annual leave (the Employer Survey).[21]

 

[40]           The Ai Group’s submission notes that the scope of the Employer Survey was limited to Ai Group, ACCI and affiliate organisation members.[22] The survey instrument was distributed by the employer organisations to their membership lists together with a covering email which, in neutral terms, requested employers to complete the survey.[23] Some 4137 employers responded to the survey, consisting of 3713 full responses and 424 incomplete responses. Responses varied according to the survey question, with partial responses for certain questions.[24] The number of responses to the Employer Survey was significantly larger than other employer surveys, such as the ACCI Small Business Survey, which only had around 1500 responses.[25]

 

[41]           The Australian Council of Trade Unions (ACTU) and a number of individual unions advanced a number of criticisms of the Employer Survey, including:

 

·  it lacked methodological rigour;

·  the Employer Survey was not sent to a random, stratified population of employers and so cannot be said to be representative of employers as a whole;

·  some of the questions were leading, in the sense that they suggested answers; and

·  on analysis, the responses to the Employer Survey did not support the contentions advanced by the Employer Group.[26]

 

[42]           The ACTU submitted that the Employer Survey should be given no weight in the Commission’s consideration of the Employer Group’s claims.[27]

 

[43]           There is some force to a number of the criticisms made of the Employer Survey.

 

[44]           The Employer Survey is not a stratified random sample of the Australian business population,[28] nor does it purport to be.[29] However, the Employer Survey was said to be broadly representative of the population of employers in each state and territory.[30] At least one of the survey questions (Question 8) may be regarded as leading, but we do not regard this as a substantive criticism. The questions predominantly allowed for objective responses and, where a question appeared to assume a particular state of affairs, that was explained by the sequencing of the questions. For example, Questions 5 and 6 asked:

 

“Since 1 January 2010, have any of your organisation’s employees asked to cash out a portion of their annual leave? Choose one of the following answers.

 

·  Yes

·  No

·  Unsure”

 

“If yes, how many requests have you received?

 

·  1

·  2–5

·  5–20

·  20+”

 

[45]           The Employer Survey was completed online and Question 6 was only asked if there was an affirmative response to Question 5.[31]

 

[46]           Some difficulty arises from the fact that the Employer Survey did not ask businesses whether their workforce comprised employees to whom modern awards apply (or the extent of use of modern award application in that workplace). As a consequence, it is difficult to determine whether a response recorded by a business was in reference to an employee’s modern award or enterprise agreement. For example, Question 8 of the Employer Survey asked “... what has been the reason or reasons giving rise to the refusal [of a request to cash out a portion of an employee’s annual leave]?” The respondent had four responses to consider, with one response being “we were unable to agree because our award or agreement does not permit ...” This response does not make clear whether a business was referring to a modern award or enterprise agreement.

 

[47]           Taking account of all these issues we are satisfied that the Employer Survey provides a valuable insight into the practical issues facing employers in the management of the existing annual leave arrangements and we will take the Employer Survey responses into account. The Employer Survey utilised the available databases in order to maximise the number of responses. A substantial number of responses were received (relative to other employment surveys) and the respondents were reasonably representative of the population of employers in each state and territory. The methodological limitations with the survey (i.e. it was not a random stratified sample) mean that the results cannot be extrapolated such that they can be said to be representative of all employers.

 

[48]           In addition to the Employer Survey, various employer bodies and the “Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union” known as the Australian Manufacturing Workers’ Union (AMWU) tendered witness statements during the course of the proceedings:

 

Ai Group	Ms Kristina Flynn Mr Ben Waugh
ACCI	Ms Fiona Corbett Mr Julian Frederick Arndt
Ai Group and ACCI	Mr Eugene Kalenjuk
Accommodation Association of Australia	Mr Stuart Lamont Ms Nicki Passanisi Ms Joyce Lawson
Restaurant & Catering Australia	Mr David Murrie Mr Antonio D’Arienzo
Master Builders Australia Limited	Mr Geoffrey Charles Thomas
Housing Industry Association	Ms Melissa Adler
AMWU	Mr Warren Butler

 

[49]           We propose to make some general observations about some of this evidence now and we refer to it in more detail in our consideration of the particular claims.

 

[50]           ACCI and Ai Group filed a joint expert accounting report by Mr Eugene Kalenjuk, a partner at PricewaterhouseCoopers, which dealt with the financial impact of employees accruing substantial leave balances.

 

[51]           The evidence of Mr Ben Waugh related to the Employer Survey and the evidence of Ms Kristina Flynn, Ms Fiona Corbett and Ms Melissa Adler dealt with issues raised by employer members of their respective organisations.

 

[52]           The statements of Mr Stuart Lamont, Ms Nicki Passanisi, Ms Joyce Lawson, Mr David Murrie and Mr Antonio D’Arienzo (tendered by the Accommodation Association of Australia and Restaurant & Catering Australia) were in the form of a common template and all asserted that:

 

·  annual leave liability and excessive accrual of leave is an ongoing issue for their respective companies;

·  they believe that the cashing out of annual leave would be beneficial for their companies and employees; and

·  they support the applications by their respective organisations.

 

[53]           Evidence of this character is of very little assistance. It is plainly in a template form and expresses the witnesses’ belief as to the benefits of a cashing out provision, but not the factual basis for that belief. Statements by five employers that they support the claims made by their association on their behalf adds nothing to the substance of the arguments advanced in support of the employer claims.

 

[54]           A similar observation may be made about much of Mr Geoffrey Charles Thomas’ statement. Mr Thomas’ statement was largely in the form of a submission in support of the claims sought by the Employer Group. He expressed a range of opinions said to be based on his “experience as outlined in paragraph 1” of his statement, as follows:

 

“I make this statement based on my experience as an industrial relations practitioner in the Departments of Navy (1973 to 1975) and Defence (1975 to 1985), the Australian Nuclear Science and Technology Organisation (1988 to 1996) and the Master Builders Association of New South Wales (1998 to 2013).”[32]

 

[55]           This statement does not qualify Mr Thomas as an expert, in the sense of qualifying him to give opinion evidence.

 

[56]           The AMWU (Vehicle Division) filed two witness statements from Mr Warren Butler. The majority of Mr Butler’s evidence related to close-down provisions and the manufacturing and vehicle repair, service and retail industries.

 

[57]           In addition to the Employer Survey and the witness evidence, the submissions referred to other research relevant to the determination of the claims. We deal with this material later in our consideration of the specific claims before us. We also note that during the course of oral submissions a number of parties made a range of factual assertions from the bar table,[33] which were challenged by other parties.[34] We have not had regard to any of the challenged assertions.

 

[58]           We now turn to deal with each of the specific claims before us.

 

4.                The Claims

 

4.1     Excessive annual leave

 

[59]           The Employer Group sought to insert the following clause into 70 modern awards:

 

“Excessive Annual Leave

 

Despite anything else in this clause, an employer may direct an employee to take paid annual leave if:

 

(a)        the employee has accrued at least six (6) weeks of annual leave;

 

(b)        the employer gives the employee four (4) weeks’ notice to take the annual leave; and

 

(c)        the employee retains at least four (4) weeks of accrued annual leave after the direction is given by the employer.”[35]

 

[60]           The ACCI and Ai Group submissions advanced a number of arguments in support of their proposal. It is convenient to deal first with the propositions which relate to the various matters the Commission must take into account pursuant to s.134(1) of the Act.

 

Promoting the efficient and productive performance of work (s.134(1)(d))

 

[61]           ACCI relied on a number of research reports[36] in support of the proposition that taking annual leave is critical to preventing burnout and poor health[37] and that such leave assists in maintaining job safety and satisfaction.[38] In addition to the academic research, ACCI relied on a number of arbitral decisions which have accepted that the actual taking of leave increases productivity as a result of a more balanced and rested workforce. It is contended that allowing employers to direct the taking of annual leave “should ensure a more balanced, rested and (accordingly) productive workforce”[39] and that such an outcome advances the objectives of s.134(1)(d).

 

The likely impact on business, including on productivity, employment costs and the regulatory burden (s.134(1)(f))

 

[62]           Ai Group and ACCI submitted that excessive leave accruals create substantial contingent liabilities for businesses and give rise to cash flow problems when accrued annual leave is paid upon the termination of employment. ACCI submitted that:

 

“ By allowing employers to direct employees to reduce excessive leave accruals, the model clause reduces the regulatory burden on employers. It allows employers to positively manage their finances, allowing for investment in other profit-generating aspects of a business.”[40]

 

[63]           It was contended that allowing employers to direct employees to reduce excessive leave accruals by taking leave advances the objectives of s.134(1)(f).

 

A simple, easy to understand, stable and sustainable modern award system (s.134(1)(g))

 

[64]           ACCI submitted that prior to 2006 (when the responsibility for annual leave broadly shifted to the federal jurisdiction) employers had the ability to direct employees to take annual leave, subject to adequate notice (said to be “typically but not invariably two weeks”).[41] On this basis ACCI advanced the following submission:

 

“7.26 There is no indication on the face of the FW Act or elsewhere that Parliament intended to depart from this prevailing position. Rather, and as discussed at section 4 above, it should be understood from the structure of Division 6 of Part 2-2 of the FW Act that Parliament expected the Commission to establish industry-specific machinery in awards to allow for the continued directing of annual leave by employers (particularly where agreement cannot be reached for the taking of leave).

 

7.27 The history that has allowed employers to direct employees to take excessive annual leave suggests that the Australian population generally has an appreciation and understanding of this machinery within industrial regulation. It is not a concept that would be confusing or difficult for the population to adapt to. Rather, it has been in existence for the majority of recent history.

 

7.28 In such circumstances, allowing employers to direct employees to take excessive annual leave does not conflict with section 134(1)(g) and, in many ways, advances the objectives of the section.”[42]

 

[65]           It was also submitted that granting the Employer Group’s claim would reduce the potential for disputes about the taking of annual leave.

 

Employment growth and the sustainability, performance and competitiveness of the national economy (s.134(1)(h))

 

[66]           ACCI submitted that granting the Employer Group’s claim would advance the objectives of s.134(1)(h) by reducing the regulatory burden on employers and through the positive impact the increased taking of leave will have on the Australian tourism industry:

 

“7.29 For the reasons already outlined at paragraphs 7.16 to 7.23, the model clause will reduce the regulatory burden on businesses and allow them to divert funds currently set aside for excessive leave accruals to profit generating investments.

 

7.30 Additionally, however, compelling employees to take leave is directly supportive of a major industry within the economy – Australian tourism. If employees take leave, one of the most likely outcomes is that such employees will travel on holidays. Although some travel may occur overseas, one of the key beneficiaries of employee travel will likely be the Australian tourism industry. It is for this reason that Tourism Australia is currently running a campaign, ‘No Leave No Life’, encouraging employees to take their annual leave. Campaign materials have been filed as ACCI Exhibit D.”[43]

 

[67]           In addition to the submissions set out above, Ai Group pointed to the fact that the Act places no restriction on the time period during which accrued annual leave entitlements must be taken:

 

“This means that, absent an award provision, many employees may simply elect to perpetually accrue their annual leave and only ever receive the benefits of the entitlement as a payment on termination.”[44]

 

[68]           Ai Group submitted that granting the Employer Group’s claim would encourage employees to take their accrued leave consistent with the traditional justification for annual leave entitlements:

 

“It is trite to observe that taking a break through a period of annual leave will have benefits for employees and for their families. However, it will also have positive effects for businesses such as increased productivity and workforce morale, and reduced work health and safety risks.”[45]

 

[69]           The ACTU accepted that it was desirable that employees take, rather than excessively accrue, their entitlement to paid annual leave:

 

“We strongly agree that employees should be taking leave for their rest and recreation and also for occupational health and safety reasons ... It is clear that employees should be taking leave: it is beneficial for them personally but also it makes them more productive employees and reduces the risk of workplace illness.”[46]

 

[70]           However, the ACTU opposed the Employer Group’s claim—both at a conceptual level and in relation to the elements of the model term proposed.

 

[71]           At a conceptual level, the ACTU submitted that the problem of excessive annual leave accruals “substantially lies not with employees seeking to hoard annual leave, but rather that despite section 88 of the FW Act, employers are unwilling to grant annual leave at times that suit the employee”.[47] The ACTU submitted that employers should not have “the ultimate or default say in when annual leave is taken”[48] and that the Employer Group’s model term was unlikely to achieve its objectives:

 

“The proposed clause is unlikely to achieve the benefits espoused by the employer groups because it fails to provide an employee with any autonomy as to when they take their annual leave. The proposal fails to foster any positive interaction between the employer and employee; rather, it simply provides an employer with the ability to dictate to an employee who has accrued six weeks’ annual leave to take it with four weeks’ notice.”[49]

 

[72]           While the ACTU criticised the model advanced by the Employer Group it did not advance any viable alternative means of addressing the problem of excessive accruals of paid annual leave. The ACTU did, however, propose a number of “additional safeguards” in the event that the Commission was minded to adopt an excessive leave term.[50] We have had regard to these submissions, and the employer submissions in reply, in framing a proposed model clause.

 

[73]           As to the particular elements of the Employer Group’s model clause, the ACTU advanced the following criticisms:

 

·   the proposed model clause fails to include any obligation on an employer to first seek to reach agreement with an employee before directing that a period of accrued leave be taken;[51]

 

·   six weeks’ annual leave is not an excessive accrual[52], and two years of accrued leave was proposed as a definition of “excessive” accrued leave[53]; and

 

·   four weeks’ notice is inadequate for an employee to get his or her affairs in order to take a period of paid annual leave[54] and at least eight weeks’ notice is required.[55]

 

[74]           While there is some force in the ACTU’s criticisms, they ultimately go to the content of any model term rather than mounting a persuasive case that it is not appropriate to make any variations to modern awards to address the problem of excessive accruals of paid annual leave.

 

[75]           We propose to deal with the relevant historical and legislative context first before turning to the merits of the claim.

 

[76]           Prior to the commencement of the NES and modern awards, federal and state legislation and awards commonly provided employers with a right to direct employees to take annual leave.

 

[77]           For example, the pre-modern Metal, Engineering and Associated Industries Award 1998 provided:

 

“7.1.9     Time of taking leave

 

7.1.9(a)                        Annual leave shall be given at a time fixed by the employer within a period not exceeding six months from the date when the right to leave accrued.

 

7.1.9(b)                        An employer can require an employee to take annual leave by giving not less than four weeks’ notice of the time when such leave is to be taken.

 

7.1.9(c)                        By agreement between an employer and an employee, annual leave may be taken at any time provided it is done within two years from the date when the right to leave accrued.”

 

[78]           In New South Wales, s.3 of the Annual Holidays Act 1944 (NSW) provides:

 

“(4) The annual holiday shall be given by the employer and shall be taken by the worker before the expiration of a period of six months after the date upon which the right to such holiday accrues: Provided that the giving and taking of the whole or any separate period of such annual holiday may, with the consent in writing of the Industrial Registrar, or Deputy Industrial Registrar appointed under the Industrial Relations Act 1996, be postponed for a period to be specified by such Registrar in any case where he or she is of opinion that circumstances render such postponement necessary or desirable. ...

 

(6)(a)    The employer shall give each worker at least one month’s notice of the date from which the worker’s annual holiday shall be taken.”

 

[79]           The capacity to postpone a period of annual leave by application to the Industrial Registrar, envisaged by s.3(4) of the Annual Holidays Act 1944 (NSW), is rarely utilised.[56]

 

[80]           Section 12 of the Queensland Industrial Relations Act 1999 deals with taking of annual leave:

 

“12         Taking annual leave

 

(1)        An employee and employer may agree when the employee is to take annual leave.

 

(2)        If the employee and employer cannot agree, the employer —

 

(a)        may decide when the employee is to take leave; and

 

(b)        must give the employee at least 14 days written notice of the starting date of the leave.”

 

[81]           A joint Ai Group, ACCI and ACTU document setting out the legislative provisions relating to annual leave in the WR Act and relevant state and territory legislation is at Attachment J (the Joint Exhibit).[57]

 

[82]           The Workplace Relations Amendment (Work Choices) Act 2005 (Work Choices Act) shifted the vast majority of the workforce[58] to the federal system and introduced a statutory set of minimum conditions, the Australian Fair Pay and Conditions Standard (the AFPCS), which applied to all federal system employees. The Work Choices Act also inserted s.16(1) into the WR Act which, relevantly for present purposes, had the effect of excluding any state or territory law which dealt with annual leave. Section 16(1) had the effect of creating an “exclusion zone”[59] for federal system employers and employees from the operation of state and territory annual leave laws.

 

[83]           The AFPCS is a legislative antecedent to what is now the NES. Section 236 of the WR Act dealt with the taking of leave, as follows:

 

“236       Rules about taking annual leave

 

General rules

 

(1)        Subject to this section and section 233, an employee is entitled to take an amount of annual leave during a particular period if:

 

(a)        at least that amount of annual leave is credited to the employee; and

 

(b)        the employee’s employer has authorised the employee to take the annual leave during that period.

 

(2)        To avoid doubt, there is no maximum or minimum limit on the amount of annual leave that an employer may authorise an employee to take.

 

(3)        Any authorisation given by an employer enabling an employee to take annual leave during a particular period is subject to the operational requirements of the workplace or enterprise in respect of which the employee is employed.

 

(4)        An employer must not unreasonably:

 

(a)        refuse to authorise an employee to take an amount of annual leave that is credited to the employee; or

 

(b)        revoke an authorisation enabling an employee to take annual leave during a particular period.

 

Shut downs

 

(5)        An employee must take an amount of annual leave during a particular period if:

 

(a)        the employee is directed to do so by the employee’s employer because, during that period, the employer shuts down the business, or any part of the business, in which the employee works; and

 

(b)        at least that amount of annual leave is credited to the employee.

 

Extensive accumulated annual leave

 

(6)        An employee must take an amount of annual leave during a particular period if:

 

(a)        the employee is directed to do so by his or her employer; and

 

(b)        at the time that the direction is given, the employee has annual leave credited to him or her of more than ¹/₁₃ of the number of nominal hours worked by the employee for the employer during the period of 104 weeks ending at the time that the direction is given; and

 

(c)        the amount of annual leave that the employee is directed to take is less than, or equal to, ¼ of the amount of credited annual leave of the employee at the time that the direction is given.”

 

[84]           The Explanatory Memorandum to the Workplace Relations Amendment (Work Choices) Bill 2005 states:

 

“533.      Section 92H(6) [which became s.236] would enable an employer to direct an employee to take a period of paid annual leave if the employee has an annual leave credit greater than ¹/₁₃ of the number of nominal hours worked over a two year period (an amount equivalent to 8 weeks for an employee working 38 hours per week over that period). In this situation, the employer may direct the employee to take up to ¼ of his or her annual leave credit. The intention of this provision is to ensure that:

 

·  employees regularly take periods of leave for rest and recreation, and

 

·  employers are not required to pay out excessive untaken leave accruals when an employee’s employment ends.

 

Illustrative Example

 

Lucas has been employed by Chocolates Galore Pty Ltd for four and a half years, working 38 nominal hours each week. In that time, he has accrued 684 hours (the equivalent of 90 days) of annual leave, of which he has taken 228 hours (the equivalent of 30 days), leaving a balance of 456 hours (or 60 days).

 

As Lucas enjoys his job he’s only ever taken a week or two of his annual leave each year to go surfing.

 

Lucas’s current balance of annual leave is more than 304 hours (or 40 days), which is what he would normally accrue over a 24 month period.

 

In this case, his employer could direct him to take up to one quarter (or 76 hours) of his accrued annual leave balance.”

 

[85]           Section 236(6) of the WR Act provided that an employer could direct an employee to take an amount of annual leave during a particular period if the employee had “extensive accumulated annual leave”. “Extensive accumulated annual leave” was defined by s.236(6)(b) and generally amounted to eight weeks’ accrued leave for full-time employees. There was no notice requirement for an employer directing an employee to take excessive leave, but there was a limit to the quantum of leave that the employee could be directed to take, being 25 per cent of the employee’s balance. So if an employee had eight weeks’ accrued leave the employee could be directed to take up to two weeks’ leave.

 

[86]           We now turn to the relevant provisions of the Act.

 

[87]           The Act does not require an employee to take their accrued paid annual leave within any particular timeframe. Section 88, which deals with the taking of annual leave, states:

 

“88         Taking paid annual leave

 

(1)        Paid annual leave may be taken for a period agreed between an employee and his or her employer.

 

(2)        The employer must not unreasonably refuse to agree to a request by the employee to take paid annual leave.”

 

[88]           Sections 93 and 139(1) are relevant insofar as they deal with the terms which may be included in a modern award.

 

[89]           Subsections 93(3) and (4) of the Act are relevant in the context of this claim and provide as follows:

 

“Terms about requirements to take paid annual leave

 

(3)        A modern award or enterprise agreement may include terms requiring an employee, or allowing for an employee to be required, to take paid annual leave in particular circumstances, but only if the requirement is reasonable.

 

Terms about taking paid annual leave

(4)        A modern award or enterprise agreement may include terms otherwise dealing with the taking of paid annual leave.” (emphasis added)

 

[90]           Section 139(1)(h) provides that a modern award may include terms about any of the following matters:

 

“(h)        leave, leave loadings and arrangements for taking leave.” (emphasis added)

 

[91]           Subject to the requirement to take leave being reasonable, it seems to us that a modern award term which provides that an employee can be required to take a period of annual leave to reduce the employee’s excessive level of accrued paid annual leave is a term of the type contemplated by s.93(3) of the Act. We are fortified in this conclusion by the terms of the Explanatory Memorandum to the Fair Work Bill 2008 which states:

 

“381. Subclause 93(3) permits terms to be included in an award or agreement that require an employee, or that enable an employer to require or direct an employee, to take paid annual leave in particular circumstances, but only if the requirement is reasonable. This may include the employer requiring an employee to take a period of annual leave to reduce the employee’s excessive level of accrual or if the employer decides to shut down the workplace over the Christmas/New Year period.

 

382. In assessing the reasonableness of a requirement or direction under this subclause it is envisaged that the following are all relevant considerations:

 

·   the needs of both the employee and the employer’s business;

 

·   any agreed arrangement with the employee;

 

·   the custom and practice in the business;

 

·   the timing of the requirement or direction to take leave; and

 

·   the reasonableness of the period of notice given to the employee to take leave.”

 

[92]           As to s.93(4), the words “otherwise dealing with the taking of annual leave” (emphasis added) is a reference to a term for dealing with the taking of annual leave other than a term of the type contemplated by s.93(3). The relevant extract from the Explanatory Memorandum provides as follows:

 

“Subclause 93(4) enables an award or agreement to include other terms about the taking of paid annual leave – e.g., the taking of paid annual leave in advance of accrual.”[60]

 

[93]           We also note that different arrangements apply in relation to award/agreement free employees. Subsections 94(5) and (6) provide as follows:

 

“Requirements to take paid annual leave

 

(5)        An employer may require an award/agreement free employee to take a period of paid annual leave, but only if the requirement is reasonable.

 

Note:      A requirement to take paid annual leave may be reasonable if, for example:

 

(a)           the employee has accrued an excessive amount of paid annual leave; or

 

(b)            the employer’s enterprise is being shut down for a period (for example, between Christmas and New Year).

 

Agreements about taking paid annual leave

 

(6)          An employer and an award/agreement free employee may agree on when and how paid annual leave may be taken by the employee.

 

Note:       Matters that could be agreed include, for example, the following:

 

(a)            that paid annual leave may be taken in advance of accrual;

(b)           that paid annual leave must be taken within a fixed period of time after it is accrued;

(c)            the form of application for paid annual leave;

(d)           that a specified period of notice must be given before taking paid annual leave.”

 

[94]           The award modernisation process conducted by the AIRC under Part 10A of the WR Act also provides part of the historical context. The process took place from April 2008 to December 2009 and was conducted in accordance with a written request (the award modernisation request) made by the Minister for Employment and Workplace Relations to the President of the AIRC. The award modernisation process was completed in four stages, each stage focussing on different industries and occupations. All stakeholders and interested parties were invited to make submissions on what should be included in modern awards for a particular industry or occupation. Separate processes, including the provision of submissions, hearings and release of draft awards, were undertaken in respect of the creation of each modern award to ensure parties were able to make submissions and raise matters of concern in relation to particular awards. By the end of 2009 the AIRC had reviewed more than 1500 state and federal awards and created 122 industry- and occupation-based modern awards.

 

[95]           In its 19 December 2008 Award Modernisation decision (2008 Award Modernisation decision), the Award Modernisation Full Bench made some observations about the right of an employer to direct an employee to take accrued leave, as set out below:

 

“[95] As we noted in our statement of 12 September 2008, it has not been possible to develop a single model clause for annual leave. While some parties have sought greater uniformity in the area, there is a wide range of differing provisions in the awards and NAPSAs that we are dealing with. In many cases the provisions are more generous to employees than the provisions of the NES. Areas in which this can be observed are the quantum of holiday pay, leave loading and the definition of shift worker. In considering what should be included in the modern award on each of these matters we have attempted to identify or formulate a standard entitlement in the area covered by the modern award rather than preserving a range of differing entitlements. This involves a degree of rationalisation at the award level only and will not result in standard provisions across all awards.

 

[96] There are also some issues concerning the time of taking leave. The time of taking leave is referred to in para.33 of the consolidated request and s.36(1)(b) of the NES. Section 36(1)(b) reads:

 

‘36       Modern awards may include certain kinds of provisions

 

(1)        A modern award may include provisions of any of the following kinds:

 

…

 

(b)        provisions requiring an employee (or allowing for an employee to be required) to take paid annual leave in particular circumstances;

 

...’

 

[98] One issue that has arisen repeatedly, and is provided for in the NES, is the right of an employer to require that an employee take arrears of annual leave. We think that an employer should have the ability to reduce annual leave liability by compelling employees to take annual leave provided appropriate notice is given. While there may be different approaches to this question, in each of the awards there will be some provision which will give the employer the ability to take action to reduce arrears.”[61]

 

[96]           In 2010, the Award Modernisation Full Bench considered seven applications to vary the General Retail Industry Award 2010.[62] In relation to excessive leave, it considered an application by the Shop, Distributive and Allied Employees Association (SDA) which sought to limit the ability of an employer to compel an employee to take leave where more than eight weeks’ leave had accrued.[63] The Full Bench dismissed the application stating that the SDA had not made an appropriate case to support the application.[64]

 

[97]           The Full Bench also considered three applications to vary the Fast Food Industry Award 2010.[65] One application, which was jointly filed by the National Retail Association Ltd and Ai Group, sought to include a provision permitting an employer to direct an employee to take annual leave where more than eight weeks’ leave was accrued. The SDA opposed the variation.[66] The Full Bench denied the application to vary the award to include a provision in relation to excessive leave on the grounds that no history of such provisions had been established and the variation was opposed.[67]

 

[98]           At present, 79 modern awards contain excessive leave provisions.[68] We deal with these provisions and the awards that the Employer Group is seeking to vary later in our decision.

 

[99]           We now turn to the merits of the Employer Group’s claim. We deal first with the extent to which employees do not utilise their full paid leave entitlement and the issues associated with the accrual of “excessive leave”.

 

[100]       The evidence clearly establishes that most employees accrue a portion of their paid annual leave entitlement and that a significant proportion of employees have six weeks or more of such accrued leave.

 

[101]       A paper by Skinner and Pocock examined, among other things, the utilisation of paid leave and the reasons why employees did not utilise their full paid entitlement.[69] It presents data which is a subset of the Australian Work and Life Index 2010 (AWALI 2010) survey. The AWALI 2010 survey is a national stratified random survey of 2803 Australian workers conducted using computer assisted telephone interviews over four weekends in March and April 2010. The survey asked questions about the use of paid annual leave in 2009. The authors’ study replicates and extends a study conducted by The Australia Institute in 2002 (TAI 2002) on Australian’s uptake of paid leave.[70]

 

[102]       Skinner and Pocock found that in 2009, only 40.3 per cent of full-time employees used all of their paid leave, leaving about 60 per cent who had not taken some portion of their leave. Similar results were obtained in the TAI 2002 survey (only 38.8 per cent of employees used all their paid leave).

 

[103]       As shown in Table 1, women and men reported that they utilised their full leave entitlement at similar levels. As to the uptake of leave by reference to employee circumstances, Skinner and Pocock noted:

 

“Uptake of leave, or the lack thereof, is consistent across family type, life stage and household income, although there are some differences in the rate of leave uptake, with more of those who are older, single parents and middle-income earners using all of their leave (data available upon request). It is interesting to note that the presence of children under 18 is not associated with a higher rate of leave use.”[71]

 

Table 1:          Used all paid leave by gender, age and parenting status, AWALI 2010 and TAI 2002

 

 

Notes: *Estimates unreliable due to insufficient sample size; **Estimate not provided due to inadequate sample size “-” data not available. TAI data only included those aged 25–59 years.

Source: Skinner N and Pocock B (2013), ‘Paid annual leave in Australia: Who gets it, who takes it and implications for work-life interference’, Journal of Industrial Relations 55(5), p.686.

 

[104]       The Skinner and Pocock findings are consistent with three other research papers[72] and the results from the Employer Survey.

 

[105]       Wooden and Warren reported on the extent of usage of paid annual leave in Australia using new data collected in Wave 5 of the Household, Income and Labour Dynamics in Australia (HILDA) survey, and concluded that the majority of employees do not take their full annual leave entitlement each year.[73]

 

[106]       The HILDA survey is a household panel survey that began in 2001, with a large nationally representative sample of Australian households. All members of responding households from Wave 1 form the basis of the panel to be followed over time, though interviews are only conducted with persons aged 15 years or older. The data on annual leave comes from responses to two questions. The first identifies whether a respondent has spent any time on paid annual leave during the 12 months preceding the interview. All persons answering in the affirmative are then asked how many days (or weeks) they spent on paid annual leave during that 12 month period. These questions were included for the first time in Wave 5 and so we only have information about patterns of leave usage over a single one year period.

 

[107]       Table 2 presents summary statistics on both the proportion of workers taking any paid annual leave and the average number of days taken by persons employed at the date of interview. The table shows that just over half of all employed persons took at least one day of paid annual leave during the one year reference period and on average, just nine days of annual leave were taken.

 

Table 2:          Paid annual leave by current employment status, HILDA survey Wave 5

 

 

Source: Wooden M and Warren D (2008), ‘Paid Annual Leave and Working Hours: Evidence from the HILDA Survey’, Journal of Industrial Relations 50(4), p.666.

 

[108]       Table 2 shows that a large proportion of employees did not take any paid annual leave in the one year reference period, and that average leave usage was only half of the entitlement of most full-time employees (i.e. four weeks). But, as Wooden and Warren noted, the data presented in the above table does not provide a good guide to how usage of leave compares with entitlements.[74] There are a number of reasons for this, including that: over one-quarter of the employee workforce are employed on a casual basis and so do not have any annual leave entitlements; part-time employees will typically be entitled to less than 20 days’ paid annual leave; and some workers covered by the data in Table 2 will have been employed with their current employer for less than one year and so will not have accrued four weeks’ leave.

 

[109]       A better guide to the extent to which leave entitlements are being used is provided by focusing on the sub-sample of employees who state that their employer provides them with paid annual leave, they have been employed with their current employer for at least one year, and report usual weekly working hours of 35 or more. Wooden and Warren stated that almost 90 per cent of this group reported taking at least one day of paid annual leave during the year, with the mean leave taken being 16.1 days. Further information on the pattern of leave usage for this group is provided in Chart 1, which reveals a wide distribution around the mean.

 

Chart 1:          Distribution of paid annual leave days—Full-time employees with leave entitlements and at least one year’s service

 

 

Source: Wooden M and Warren D (2008), ‘Paid Annual Leave and Working Hours: Evidence from the HILDA Survey’, Journal of Industrial Relations 50(4), pp.667.

 

[110]       On the basis of the data set out in Chart 1, Wooden and Warren concluded as follows:

 

“While 20 days (or 4 weeks) is the most common response, the majority (63%) reported taking less than 20 annual leave days during the year.”[75]

 

[111]       Cameron and Denniss report on the results of a survey conducted by the Australian Institute and beyondblue. The relevant aspects of their findings and conclusions are set out below:

 

“Over half of the respondents (52 per cent), equating to six million workers, did not take all their leave in 2012. Higher earners, with incomes over $80,000, are less likely to take all their leave and those in large workplaces (with more than 100 employees) are less likely to take their full annual leave: 69 per cent of respondents working in organisations of 100–200 employees and 59 per cent in organisations with more than 200 employees, compared to an average 48 per cent of respondents across all other workplaces. It is worth noting, however, that half of respondents in all workplaces with up to 100 employees reported that they did not take all their annual leave entitlement in 2012.”[76]

 

[112]       ACCI also tendered material produced by Tourism Australia for the “No leave, No life” campaign. This material included research findings—about annual leave accrual in Australia. For the purpose of this research, “leave stockpilers” were defined as employees with 25 days or more of accrued annual leave. The “Key Facts” reported from the research are set out below:

 

“Key Facts

 

1.         Australia has 129 million days of accrued annual leave by full-time employees. This equates to $33.3 billion in wages as of September 2011 (Roy Morgan Research)

 

2.         Annual leave accrual by full-time employees has grown by 11% from December 2006 to December 2008 (Roy Morgan Research)

 

3.         Annual leave accrual is endemic across all sizes of business and industries. No business is too big or small to feel the impact of accrued leave. Annual leave stockpiling has become entrenched workplace behaviour potentially affecting every business regardless of size or type

 

4.         1 in 4 of Australian full-time employees are leave stockpilers (Roy Morgan Research)

 

5.         73% of stockpilers consider work/life balance (WLB) an important aspect of their life

·         Female stockpilers place greater importance on WLB [80%] compared to males [69%]

 

6.         70% of stockpilers agree that annual leave positively impacts work/life balance (WLB)

·         Stronger amongst females (78%) than males (67%)

 

7.         Only 56% of stockpilers believe that their employer is generally supportive of leave taking

·         Highest amongst government employees [60%] and lowest amongst SME (49%)

·         Stockpilers who believe their employer is supportive of leave-taking have higher intention to take an Australian holiday [64%) than those who do not (51%)

 

8.         80% of stockpilers cite personal barriers to leave-taking

·         Availability of funds is the biggest concern (40%)

·         Fitting around partner’s availability is also difficult (28%)

·         Deliberate accrual for emergencies (26%) or big trip (24%) is third most common reason

 

9.         57% of stockpilers consider work related barriers prevent them from taking leave compared to 48% of non stockpilers

·         Concern about workload before and after leave is the main barrier (30%)

·         Lack of resources for cover is second (26%)

·         Difficulty of scheduling leave when desired [21%] or around projects (21%) rank third

 

10.       Stockpilers’ strongest perceived benefits of annual leave are passive in nature

·         Relaxation (75%)

·         Quality time with family and friends (73%)

·         Long term health (69%)

 

11.       Females are more likely to have sole responsibility for decisions about leave taking (47%) compared to males (34%)

 

12.       Whilst over half of leave stockpilers are employed in private industry, employees in the public sector are more likely to accrue leave than their private sector counterparts.”

 

[113]       The Tourism Australia material tendered provides little information about the methodology used and for that reason we do not place much weight on the above findings, other than to note that they are consistent with the other research.

 

[114]       The data from the Employer Survey show similar results to that in the research to which we have referred. Questions 11–14 of the Employer Survey are directed at the issue of excessive leave accrual. We deal with Questions 12–14 later; Question 11 was as follows:

 

“11. What percentage of your employees have annual leave balances of 6 or more weeks:

·       none

·       1–20%

·       21–50%

·       51–70%

·       70%+

·       Unsure”

 

[115]       Some 2552 employers (about 68 per cent of all responses) had at least one employee with an accrued paid annual leave balance of six weeks or more. Of these employers, 683 reported that over 20 per cent of their employees had accrued paid annual leave balances of six weeks or more.[77]

 

[116]       The evidence canvassed above (at paragraphs [99]– [115]) supports the following findings:

 

(i)         most employees do not use their full paid annual leave entitlement (the NES provides that non-casual employees are entitled to four weeks’ paid annual leave (shiftworkers as referred to in s.87(1) are entitled to five weeks)); and

 

(ii)        the lack of annual leave utilisation is broadly consistent across family type, life stage and household income; and

 

(iii)       a significant proportion of employees have six weeks or more accrued annual leave.

 

[117]       As we have mentioned, the purpose of annual leave is to provide employees with a period of rest and recreation. A corollary of excessive accrual of annual leave is that employees are not receiving the benefit for which the leave was intended. In the proceedings before us it was generally accepted that not taking a reasonable portion of leave can give rise to a serious threat to the health and safety of the employees concerned. This consensus is reflected in the academic research.

 

[118]       Skinner and Pocock cite existing research which suggests that not taking paid leave represents a serious risk to the health and wellbeing of the employees concerned and they summarised the relevant research in the following terms:

 

“There is also a physiological and psychological need for opportunities for rest and recovery from periods of sustained daily and weekly effort at work (Van Hooff et al., 2007).

 

The issue of paid annual leave is less frequently discussed in working time research and in wider public policy discourse. Longer breaks from work in the form of paid leave are a crucial aspect of working time that have significant implications for health and well-being. Breaks from work of more than a day or two provide the opportunity for more substantial rest and recovery from work demands than a lunch break, evening at home or weekend can provide (Trenberth and Dewe, 2002). This is especially the case in typically busy dual-earner or sole-parent/-worker households, in which weekdays and weekends are often busy and tightly scheduled, and especially so for parents.

 

Not taking paid leave is a serious threat to health. Middle-aged men at risk of cardiovascular disease significantly reduce their risk of death from this disease and other causes when they take more annual vacations (Gump and Matthews, 2000). In a large longitudinal cohort study of healthy women, it was found that infrequent vacations and tension increase the risk of both heart attack and coronary death (Eaker et al., 1992). Paid leave often provides greater opportunities to engage in enjoyable and meaningful leisure activities, which have been shown to be an effective therapy for depression, anxiety and burnout.”[78]

 

[119]       The adverse impact of not taking annual leave is canvassed by Cameron and Denniss who state that the results of the survey they conducted indicate a strong correlation between work-related stress and anxiety and not taking leave breaks:

 

“... respondents who did not take all their annual leave in 2012 were markedly more likely to report having negative feelings about work than those who did take all their leave entitlement.”[79]

 

[120]       Chart 2 shows that of the group who did not take their full leave entitlement, 39 per cent felt stressed about work; 28 per cent felt anxious; 24 per cent were worried and 21 per cent were overwhelmed by their work. By comparison, of those who did take their full annual leave, 29 per cent were stressed; 24 per cent were anxious; 17 per cent were worried and 14 per cent felt overwhelmed by their work.

 

Chart 2:          Taking full annual leave and feelings about work

 

Source: Cameron P and Denniss R (2013), ‘Hard to get a break? Hours, leave and barriers to re-entering the Australian workforce’, The Australia Institute, Institute Paper No. 13, November 2013 at p. 27.

 

[121]       Cairncross and Waller surveyed the implications of employees working longer hours and not taking their full annual leave entitlements. The authors expressed some tentative conclusions and identified a need for further research:

 

“In light of the data pertaining to the impost on the Australian economy of workplace accidents and occupational stress, it is currently guesswork to surmise what the benefits may be of holidays in terms of increased productivity and decreased accident and illness costs in Australia. However, it is reasonable to assume given the value of a holiday to the tourism and hospitality industry (Bureau of Tourism Research), and the physical (Dennis 2003) and psychological costs of long working hours (Bent 1998) together with the value of a holiday in reducing stress (Etzion 2003), there is value in further research establishing the true economic value of taking full annual leave entitlement each year. ...

 

The examination of the literature suggests that in-depth research is required into the psychological and economic reasons for Australians not taking their holidays Etzion (2003), for example, has established that people who take their leave are more productive and exhibit fewer symptoms of workplace stress. The potential social and physical cost to individuals and the potential cost to the economy of the current low uptake of annual leave makes it imperative to see if a lower workplace accident rate can be obtained by those employees who do have a reasonable holiday break each year. If this is the case then it may be that there is some value in compulsory leave clauses being negotiated into employment instruments.”[80]

 

[122]       There is little doubt that not taking annual leave gives rise to a risk of fatigue at work. Safe Work Australia describes fatigue as “a state of mental and/or physical exhaustion which reduces a person’s ability to perform work safely and effectively”. Fatigue can adversely affect health and safety at the workplace—it reduces alertness which may lead to errors and an increase in incidents and injuries.[81] Safe Work Australia observed that the best way to control the health and safety risks arising from fatigue is to eliminate the factors causing fatigue at the source. One of the control measures for fatigue risks which Safe Work Australia suggests can be built into a work schedule is:

 

“ ... implementing processes to manage accrued leave balances and requests for leave, for example setting maximum limits of leave accrual to encourage workers to use it.”[82]

 

[123]       The accumulation of leave is also a significant issue for employers.

 

[124]       As mentioned earlier, ACCI and Ai Group filed a joint expert accounting report by Mr Eugene Kalenjuk, a partner at PricewaterhouseCoopers. No objection was taken to this evidence and no party sought to cross-examine Mr Kalenjuk.

 

[125]       In the course of his statement Mr Kalenjuk expressed the following opinion about the commercial implications that arise for employers where employees accrue substantial annual leave balances (i.e. balances in excess of six weeks). Mr Kalenjuk provided a series of examples (which we need not set out) to support the following opinions:

 

“In general terms, the financial impact of an employee accruing a substantial annual leave balance is that there is a reduction in the reported profitability of the employers business (all else being equal) where an employee’s annual leave accrual increases. The other side of the entry is to increase the liability thereby decreasing the net assets of the business.”[83]

 

[126]       The Employer Survey also highlighted some of the difficulties associated with accrued leave. Questions 12 and 13 from the Employer Survey provided as follows:

 

“12. Does your organisation have a view about employees accruing more than 6 weeks of annual leave?

 

·       No particular view

·       It is not really an issue in our organisation

·       We do not like employees accruing more than 6 weeks of leave

 

13. If you answered that your organisation does not like employees accruing more than 6 weeks’ annual leave, why does it not?

 

Please specify: _________________________”

 

[127]       As to Question 12, some 2031 employers (over half of those who responded to this question) stated that they “do not like employees accruing more than 6 weeks of leave”. Some 948 employers stated that employees accruing more than six weeks’ paid annual leave was “not really an issue” in their organisation, and 781 employer responses had “no particular view” on the issue.[84]

 

[128]       Question 13 was set up to receive an open field response from the respondent. This means that the respondent was invited to type in their answer to the question rather than selecting between specified options. Question 13 was conditional on the respondent having answered the previous question by indicating that their organisation did not like employees accruing more than six weeks’ leave.

 

[129]       There were a significant number of responses to Question 13. The raw data is extracted in Attachment F to ACCI’s written submission of 20 June 2014. It represents the responses of 2026 respondents and constitutes approximately 44 000 words. Table 3 summarises the prevalence of certain commonly raised terms contained in the raw data to the question:

 

Table 3:          Summary of terms used in response to survey Question 13

 

Search term	Number of hits
Cost	353
Cashflow/cash flow	153
Liability	434
Balance sheet	83
Budget	41
Life balance	77
Health	153
Fatigue	18
Cover (i.e. cover employee while on leave)	143
Small business	176

 

[130]       The Employer Survey also canvassed whether employers sought the right to direct employees to take accrued leave. Question 14 provided as follows:

 

“14. Does your organisation wish to have the right to direct employees who have accrued more than 6 weeks to take annual leave?

 

·       Yes

·       No

·       No view”

 

[131]       In response to Question 14, 2859 employers (about 76 per cent of those who responded to this question) said that their organisation wanted to have the right to direct employees who have accrued more than six weeks’ paid annual leave to take annual leave. Some 413 employers did not seek such a right and 487 answered “unsure”.

 

[132]       Consistent with the survey responses to Question 13, Skinner and Pocock also noted that the accumulation of leave is “a significant issue for employers as unused leave represents a significant financial liability and tax disadvantage, for paid leave cannot be claimed as a tax deduction until it is paid out”.[85] Skinner and Pocock also explored the implications of their research for policy and practice, and in that context made the following observation:

 

“Unused leave also represents a significant financial liability for enterprises; hence, there are substantial benefits to employers for ensuring uptake of paid leave. Organisational policies related to the management of paid leave, including monitoring paid leave uptake and ensuring that a minimum number of paid leave days are taken over 12 to 24 months, would also appear beneficial.”[86]

 

[133]       As well as the financial cost associated with leave accruals, ACCI submitted that providing a mechanism to reduce excessive leave accruals “should ensure a more balanced, rested and (accordingly) productive workforce”.[87]

 

[134]       Historically, industrial tribunals have accepted that taking annual leave can give rise to an increase in productivity. ACCI referred to two decisions in support of this proposition. In Re Professional and Shopworkers No.2 Award,[88] Heydon J dealt with an appeal concerning the jurisdiction of a wages board (the Professional and Shopkeepers’ Group No. 2 Board) to grant a claim for “three weeks holiday on full pay”. The claim was not opposed by the employers but the Board held that it had no power to grant the claim. In upholding the appeal Heydon J made the following observation about benefits of a provision of the type sought:

 

“... the result of investigations by expert students into the whole question of rest for workers of all classes indicated that it is assuming enormous importance, and it has been shown in occupations of the most varied character that a diminution of the time worked by granting longer and more frequent intervals of rest has resulted in greater and better production of work.”[89]

 

[135]       The judgment of Dethridge CJ (of the Commonwealth Court of Conciliation and Arbitration) in The Printing and Allied Trades Employers Federation of Australia & Anor v The Printing Industry Employees Union of Australia & Ors[90] was one of the earliest arbitrated decisions to grant a period of annual leave. In awarding one week’s paid leave, his Honour made the following observation:

 

“Unless an industry is finding difficulty in maintaining itself, in my opinion the institution of paid annual leave is a very desirable boon for employers. Although at first it might cause some increase in labour cost, this probably would not be commensurate with the shortening of the working year and ultimately might be virtually balanced by increased vigour and zeal of employees. The publication already referred to (International Labour Office (1935) ‘Holidays with Pay at p 82) has the following passage ‘It would undoubtedly be a fallacy, even from a purely economic point of view, to regard paid holidays as a burden to the employer for which he receives no return. On the contrary, he obtains a very real return by finding his employees fresh and eager for work when they return from their holidays. He reaps an advantage in higher output, fewer spoilt goods, less absence, less sickness and fewer accidents.’” [91]

 

[136]       The evidence on whether paid leave improves productivity appears to be somewhat mixed and inconclusive.[92] However, there is evidence that absenteeism is reduced after a period of paid annual leave. Westman and Etzion,[93] found that absenteeism for non-health reasons “remained lower than before vacation even six weeks after returning from vacation”. Westman and Etzion also reported other benefits associated with taking vacations:

 

“... vacation relief decreases psychological and behavioural strains caused by job stress ...

 

The vacation alleviated perceived job stress and thus also the experience of burnout as predicted, replicating findings that a respite from work has the effect of lessening strain ...

 

Measuring job stress and burnout three times enabled us to discover that vacation has an abrupt, positive impact that fades gradually.”[94]

 

[137]       A subsequent study included a control group of comparable employees who did not experience a vacation and concluded that:

 

“Taking a vacation was found to affect stress and burnout. Upon return from vacation there was a significant drop in stress compared with the initial pre-vacation level. However, approximately three weeks after the return to work, the level of stress had reverted to its initial pre-vacation level. Among the comparison group members, no change in levels of stress occurred over time. The level of burnout also fell significantly after the vacation, and had still retained its low level 3 weeks after returning to work ...

 

Employees who took long vacations reported lower levels of stress than those who took short vacations ... and the length of the vacation tended to moderate the relationship between satisfaction with the vacation and stress and burnout ...

 

It seems that the effects of taking a vacation are also positive when the employees are able to determine its dates and duration voluntarily. Employees return from their vacation less stressed and burned out, and — it may be reasonably assumed, although we have no direct proof — their productivity increases, at least for the short term.”[95]

 

[138]       The evidence canvassed above (at paragraphs [118]– [137]) supports the following findings:

 

(i)         Not taking a reasonable portion of leave can give rise to a serious threat to the health and safety of the employees concerned.

 

(ii)        Excessive annual leave accruals are a significant issue for employers. Such accruals represent a significant financial liability and can give rise to cash flow problems (particularly for small businesses) when paid out on termination.

 

(iii)       The taking of accrued paid annual leave can have mutual benefits for employees and employers:

 

(a)        Taking paid annual leave provides employees with a period of rest and recovery from work and has significant positive implications for employee health and wellbeing. As well as providing an opportunity for rest and recovery, taking paid annual leave also provides employees with the time and opportunity to attend to their family and other commitments and to engage in social, community and personal interests.

 

(b)        While the evidence on whether taking paid leave improves productivity appears to be somewhat mixed and inconclusive, there is evidence that absenteeism is reduced after a period of leave and of a strong correlation between workplace stress and anxiety and not taking leave breaks. A period of paid leave is also likely to reduce fatigue at work and improve workplace health and safety.

 

[139]       Based on the material before us and the findings set out at paragraphs [116] and [138], we are persuaded that modern awards should include a mechanism for dealing with “excessive leave”. We now turn to the form and content of that mechanism.

 

[140]       In considering an appropriate response to the issue of ‘excessive’ paid annual leave accruals it is important to consider the reasons why employees do not fully utilise their accrued paid leave. We propose to consider this issue first before turning to the Employer Group claim.

 

Reasons for excessive annual leave accruals

 

[141]       As shown in Table 4 below, Skinner and Pocock found that the most common reason given by employees for not taking their full leave entitlement was ‘saving it for a future holiday’. This reason was indicated by 41 per cent of all workers in both 2002 and 2010. However, 30 per cent of employees said they were too busy at work to take all of their leave. This was very close to the proportion who provided this response in the 2002 survey (29.1 per cent). A larger proportion of women said that they were too busy to take leave in 2009 than in 2002, while there was no change for men. A total of 13 per cent of employees in 2010 said that they could not get the time off that suited them, and a similar proportion (12.5 per cent) provided such a response in 2002. That is, they could not reach agreement with their employer to take leave at a time of their choosing.[96]

 

[142]       These were also the dominant reasons, in the above order, among parents and those without children. Younger workers were more likely to say that they were saving their leave for a future holiday, while older workers were more likely to say that they were too busy to take leave.[97]

 

Table 4:          Reasons for not taking full leave entitlement—AWALI 2010 and TAI 2002

 

	AWALI 2010			TAI 2002
	Men (%)	Women (%)	All (%)	Men (%)	Women (%)	All (%)
Saving leave for future holiday	41.8	39.5	41.0	39.5	37.3	38.8
Could not get time off that suited you	13.1	13.5	13.2	11.3	15.1	12.5
Too busy at work	29.1	33.8	30.7	29.4	28.2	29.1
Rather have the money than extra holidays	8.1	5.4*	7.2	3.9	3.2	3.7
Preferred to work rather than take holidays	10.0	6.8	8.9	8.1	5.7	7.4
Leave paid out when changed jobs	6.4	4.0*	5.6	8.3	2.7	6.6
Other reason	17.2	15.6	16.6	2.2*	7.3	3.7

 

Note: *Estimate unreliable due to insufficient sample size.

Source: Skinner, N and Pocock, B (2013) Paid Annual Leave in Australia: Who gets it, who takes it and implications for work-life balance, Journal of Industrial Relations, 21 August 2013, Vol. 55 at p. 688.

 

[143]       Table 5 shows workers’ reasons for not taking their full leave entitlement by various employment characteristics. Those working long hours (45 or more) were much more likely than those working 35–44 hours to say that they were too busy to take leave. They were also less likely to say that they were saving their leave for a future holiday. Skinner and Pocock suggested that “it appears that those working long hours struggle to take paid leave in the face of work demands” and that “those working long hours are affected by a compounding work–life disadvantage: their long hours are associated with much worse work–life interference compared to other workers ... as is their lower rate of annual leave-taking”.[98]

 

Table 5:          Reasons for not taking full leave entitlement by work hours, employment contract and occupation—AWALI 2010

 

 

Source : (Skinner & Pocock 2013, p. 689)

Notes: *Estimate unreliable due to insufficient sample size; **Estimate not provided due to inadequate sample size. Multiple responses were allowed on this item.

 

[144]       The above data suggest that a significant barrier to the use of leave entitlements by employees is work pressures, with 43.9 per cent of employees in the AWALI survey being either too busy at work (30.7 per cent) or unable to take leave at a time that suited them (13.2 per cent). This suggests that employers are not creating workplaces that allow for employees to use their entitlements.

 

[145]       Skinner and Pocock argued that these findings create a case for “renovating” Australia’s annual leave system to ensure that more Australians have access to paid leave, including:

 

“[T]o address the barriers that appear to affect taking leave in the year in which it is accumulated. Work pressures are clearly a significant factor affecting almost a third of full-timers. Although the Fair Work Act 2009 states that employers must not unreasonably refuse to grant an employee’s request for paid leave, this has not prevented a widespread problem of reluctant leave deferral. It seems that managerial and cultural barriers to the uptake of paid leave, such as intense and demanding work, now affect many workers.”[99]

 

[146]       We now turn to the Employer Group’s claim.

 

The Employer Group’s claim

 

[147]       The Employer Group seek to insert a standard “excessive annual leave” model term in 70 modern awards (see paragraph [59]).

 

[148]       We now deal with the content of such a model term and whether all modern awards should be varied to insert the model term. It is convenient to deal with the second issue first.

 

[149]       The Employer Group was not seeking to insert its model “excessive annual leave” clause into all modern awards. Rather it was proposed that the Employer Group’s model clause be inserted into 70 modern awards.[100] The proposed variations are split into two categories:

 

(i)    the 39 modern awards which do not currently contain any provisions allowing employers to direct employees to take excessive annual leave (see Attachment D); and

 

(ii)   the 31 modern awards which do currently contain provisions regarding excessive leave but those provisions do not provide the same ability to direct the taking of excessive leave as is proposed in the Employer Group’s claim (see Attachment E).

 

[150]       The Employer Group does not seek to vary the 52 modern awards that already contain provisions allowing employers to direct the taking of excessive leave in a manner similar to (or in some circumstances more flexible than) the model clause proposed. To understand the practical effect of the Employer Group’s claim we need to say something about those modern awards which already contain excessive leave provisions.

 

[151]       Some 79 modern awards already contain “excessive leave” provisions[101] and these can be summarised as follows:

 

·  52 awards (67 per cent) provide that the employer’s right to direct an employee to take annual leave is only enlivened once the employee has accrued eight weeks’ or more annual leave. A further 17 awards have the threshold at six weeks’ accrued leave.[102]

 

·  25 awards (32 per cent) provide that an employee can only be directed to take a period of annual leave after “the employer has genuinely tried to reach agreement with an employee as to the timing of taking annual leave”.

 

·  22 awards (28 per cent) provide that annual leave must be taken within a specified period after accrual. [103] Most of these awards (14) provide that annual leave must be taken “within 18 months of the entitlement accruing”[104] and four provide that leave must be taken within six months of accrual.

 

·  75 awards (95 per cent) provide that an employer must give at least four weeks’ notice of the time when such leave is to be taken; two of these awards provide for eight weeks’ notice.[105]

 

·  33 awards (42 per cent) limit the amount of accrued paid annual leave that an employer can direct an employee to take: 28 of these awards limit the amount to 25 per cent of the employee’s accrued paid annual leave balance and four awards provide that the employee must retain an entitlement to at least four weeks’ accrued paid leave after taking the leave as directed.

 

[152]       The practical effect of the Employer Group’s proposal, if granted, would be to provide some greater consistency in relation to the mechanisms in modern awards for dealing with excessive accruals of paid annual leave (70 awards would contain consistent provisions).

 

[153]       However, in many of the 31 modern awards which presently contain excessive leave provisions, and which the Employer Group sought to vary to insert its model term, such consistency would have the consequence of reducing the existing safeguards in those awards. Some 30 of the modern awards the Employer Group sought to vary presently limit an employer’s right to direct an employee to take paid annual leave to circumstances where the employee has at least eight weeks’ accrued paid annual leave. The Employer Group’s claim sought to reduce this threshold to six weeks’ accrued leave.

 

[154]       Further, if the Employer Group’s claim was granted, some 52 of the 122 modern awards would not contain the model term. In many of these modern awards there is an existing term which allows an employer to direct an employee to take all of their accrued annual leave, such that the employee does not have the right to retain a minimum amount of accrued paid leave. Under the Employer Group’s claim the employee would retain at least four weeks’ accrued annual leave after the direction is given by the employer.

 

[155]       We are not bound by either the terms of the relief sought by a party nor by the scope (i.e. the awards to be varied) of the variations proposed. Context is important in this regard.

 

[156]       These issues arise in the 4 yearly review of all modern awards. The Review is essentially a regulatory function and the Commission must ensure that modern awards, together with the NES, provide a fair and relevant minimum safety net of terms and conditions. The role of modern awards and the nature of the Review are quite different from the arbitral functions performed by the Commission in the past. In the Review context, the Commission is not creating an arbitral award in settlement of an inter partes industrial dispute—it is reviewing a regulatory instrument.

 

[157]       In considering whether a particular term should prima facie be consistently inserted into all modern awards it is important to consider the subject matter of the term itself.

 

[158]       Modern awards and the NES interact in different ways:

 

·  A modern award may include any terms that the award is expressly permitted to include by a provision of Part 2-2 (which deals with the NES) (s.55(2)).[106]

 

·  A modern award may include terms that:

 

(i)      are ancillary or incidental to the operation of an entitlement of an employee under the NES; or

 

(ii)     terms that supplement the NES (s.55(4)).

 

[159]       The statutory notes to s.55(4) provide examples. Note 1 states:

 

“Ancillary or incidental terms permitted by paragraph (a) include (for example) terms:

 

(a)     under which, instead of taking paid annual leave at the rate of pay required by section 90, an employee may take twice as much leave at half that rate of pay; or

 

(b)     that specify when payment under section 90 for paid annual leave must be made.”

 

[160]       Note 2 states:

 

“Supplementary terms permitted by paragraph (b) include (for example) terms:

 

(a)     that increase the amount of paid annual leave to which an employee is entitled beyond the number of weeks that applies under section 87; or

 

(b)     that provide for an employee to be paid for taking a period of paid annual leave or paid/personal carer’s leave at a rate of pay that is higher than the employee’s base rate of pay (which is the rate required by sections 90 and 99).”

 

[161]       Note 3 states:

 

“Terms that would not be permitted by paragraph (a) or (b) include (for example) terms requiring an employee to give more notice of the taking of unpaid parental leave than is required by section 74.”

 

[162]       Section 139(1)(h) is also relevant, it provides:

 

“A modern award may include terms about any of the following matters:

 

. . .(h)        leave, leave loadings and arrangements for taking leave.”

 

[163]       Annual leave is one of the minimum standards specified in the NES. The NES is intended to provide a consistent set of minimum standards that apply to the employment of national system employees. The NES annual leave provisions provide both a consistent set of substantive rights (e.g. quantum of leave; method of accrual; and payment for leave) as well as a degree of conditional flexibility.

 

[164]       Section 93(3) is an example of what we mean by conditional flexibility (see paragraph [89]). It provides, relevantly, that a modern award may include terms “requiring an employee ... to take paid annual leave in particular circumstances”. However, such flexibility is conditional; an employee can only be required to take leave “if the requirement is reasonable”.

 

[165]       A model term dealing with the taking of paid annual leave to address the excessive accrual of such leave is plainly a term of the type contemplated by ss.93(3) and (4). That is, the model term is a term that is expressly permitted to be included in a modern award. It seems to us that it will generally be desirable for greater consistency in respect of terms of this character. This is particularly so in circumstances where the regulatory boundary between the NES and modern awards is clearly delineated and the legislature has plainly contemplated (by permitting such terms) that the terms of a modern award may provide some conditional flexibility to the provisions of the NES.

 

[166]       This may be contrasted with terms which supplement the NES, for example by providing an additional period of paid leave. Ordinarily one would expect such supplementation to reflect the circumstances applicable to particular modern awards, with the desirability of consistency across modern awards a less important consideration.

 

[167]       In its 20 June 2014 submission, Ai Group highlighted the benefits of greater consistency in modern award provisions pertaining to annual leave:

 

“There is substantial merit in the Commission seeking to achieve a greater level of consistency in award provisions pertaining to annual leave. There is also merit in seeking to achieve a level of consistency in the rules governing the operation of annual leave entitlements for award covered and award/agreement free employees.

 

We do not suggest that it is necessarily appropriate for all awards to have exactly the same provisions (the Commission has always provided for deviations from model award clauses if industry-specific circumstances warrant this) but there is nonetheless scope for much greater consistency. The Employer proposals represent an important and timely step in the right direction ...

 

Achieving a level of consistency in award entitlements relating to annual leave is consistent with the obligation under the modern awards objective for the FWC to ensure modern awards, together with the NES, provide a fair and relevant safety net taking into account “… the need to ensure a simple, easy to understand, stable and sustainable modern award system for Australia …”. Achieving greater uniformity between individual awards will make the system simpler and easier to understand.

 

A reduction in variances between award entitlements will, in itself, reduce the regulatory burden on businesses that are required to apply multiple awards, consistent with paragraph 134(1)(g) of the modern awards objective. These benefits will be magnified where such amendments provide employers with greater flexibility or control in relation to the management of annual leave or where incompatible provisions relating to matters such as close-downs are addressed. There are obvious benefits that flow from enabling employers to adopt a uniform approach to the management of annual leave across their workforce, regardless of the award coverage of particular groups of workers.”[107]

 

[168]       We agree with these observations. It seems to us that the effectiveness of any safety net is substantially dependent upon those who are covered by it being able to know and understand their rights and obligations. Greater consistency in the provisions governing the taking of annual leave will make the safety net simpler and easier to understand.

 

[169]       It follows from the foregoing that our provisional view is that a model term dealing with the taking of annual leave should be consistently inserted in all modern awards. We accept, of course, that some modern awards have particular leave provisions necessitating a degree of “tailoring” to the model term. But, that said, our provisional view is that the model term should be inserted in all modern awards.

 

[170]       As to the issue of content, the Employer Group sought a term which provides that in certain circumstances an employer may direct an employee to take paid annual leave. Such a direction may only be made if:

 

(i)         the employee has accrued at least six weeks of annual leave;

 

(ii)        the employer gives the employee four weeks’ notice to take the annual leave; and

 

(iii)       the employee retains at least four weeks’ accrued leave after the direction is given by the employer.

 

[171]       Two general observations may be made about the model term sought.

 

[172]       The first observation relates to the “safeguards” (at (i), (ii) and (iii) above) which condition an employer’s power to direct an employee to take a period of paid annual leave. The Employer Group’s claim essentially characterised the accrual of six weeks’ paid annual leave as “excessive” thereby enlivening the power to direct the employee to take annual leave (subject to (ii) and (iii)). We are not persuaded that the adoption of a threshold of six weeks’ accrued annual leave is appropriate, for three reasons.

 

[173]       First, the adoption of a six week threshold ignores the fact that different annual leave entitlements accrue to different categories of employees. Specifically, shiftworkers (as referred to in s.87(1)(b) of the Act) are entitled to five weeks’ paid annual leave for each year of service, whereas employees other than shiftworkers are entitled to four weeks. Any definition of excessive accrued leave should take account of this difference.

 

[174]       Second, over two-thirds (52) of the 79 modern awards which presently contain excessive leave provisions provide that an employer’s right to direct an employee to take annual leave is only enlivened once the employee has accrued an entitlement to eight weeks’ or more paid annual leave.

 

[175]       Third, the adoption of a six week threshold unfairly limits the capacity for employees to accrue leave for a later, longer, holiday. It will be recalled that Skinner and Pocock found that the most common reason given by employees for not taking leave was saving it for a future holiday.

 

[176]       Later in this decision we return to the proposed safeguards dealing with notice (at (ii)) and the quantum of retained leave after a direction has been given and implemented (at (iii)).

 

[177]       We also observe that the Employer Group’s model term does not require an employer to enter into any dialogue with an employee before directing them to take part of their annual leave. In particular, the employer is under no obligation to discuss the issue of excessive annual leave accrual with the employee or to seek to reach an agreement with the employee about the time for taking such leave. It is plainly preferable if these matters can be resolved by agreement between the employer and employee, without the need for a direction. We note that about one-third (25) of the 79 modern awards which presently contain excessive leave provisions provide that an employee can only be directed to take a period of annual leave after the “employer has genuinely tried to reach agreement with an employee as to the timing of taking annual leave”.

 

[178]       We now turn to the second general observation about the Employer Group’s model term. This observation concerns the limited capacity of the model term to address the problem to which it is directed.

 

[179]       It will be recalled that s.88 of the Act deals with the taking of paid annual leave, as follows:

 

“Taking paid annual leave

 

(1)        Paid annual leave may be taken for a period agreed between an employee and his or her employer.

 

(2)        The employer must not unreasonably refuse to agree to a request by the employee to take paid annual leave.”

 

[180]       The Skinner and Pocock research suggests that the excessive accrual of paid annual leave is predominantly a consequence of:

 

(i)         employee choice (i.e. employees choosing to accrue leave, usually to save it for a future holiday);

 

(ii)        employees being too busy at work to take all of their leave; or

 

(iii)       employees not being able to take their leave at a time that suited them (i.e. they could not reach agreement with their employer to take leave at a time of their choosing).

 

[181]       The Employer Group’s model term only partially addresses the reasons for the accrual of excessive leave. It will provide a mechanism for dealing with the voluntary leave hoarder ((i) above) and may address circumstance (iii), by requiring employees to take leave at a time that may not suit them, but it does not address circumstance (ii).

 

[182]       Circumstance (ii) is, essentially, where work pressure prevents an employee from taking all of their paid annual leave. It is the reason nominated by 30 per cent of employees in the Skinner and Pocock survey for not taking all of their leave. It is a significant factor in the excessive accrual of annual leave and it was not addressed in the Employer Group’s model term.

 

[183]       The Employer Group’s claim, understandably enough, provided a mechanism to address employer concerns about the accumulation of leave—that is, it provides a means of reducing a significant financial liability.

 

[184]       But the Employer Group’s model term provided no avenue for an employee to exercise any control over the time at which their leave is to be taken.

 

[185]       In this context it is important to observe that the Employer Group’s claim simply sought to replicate (in form if not substance) previous legislative and award mechanisms to address excessive annual leave accruals. As we have mentioned, before the Work Choices Act amendments, some state and territory annual leave laws provided employers with a right to direct employees to take their annual leave. Further, some 79 modern awards also contain “excessive leave” provisions.

 

[186]       But, importantly, experience has shown that providing employers with a right to direct employees to take their annual leave has not provided a complete solution to the issue of excessive annual leave accruals.

 

[187]       Skinner and Pocock found that in 2009 only 40.3 per cent of full-time employees used all of their paid annual leave. Hence, about 60 per cent of full-time employees accrued a portion of their leave. Similar results were obtained in a 2002 survey (only 38.8 per cent of employees used all of their paid leave). As a result, most employees accrued annual leave despite the fact that employers had the right to direct them to take that leave.

 

[188]       Ai Group described the Employer Group’s claim as “a modest step towards restoring employers” capacity to manage leave accruals’.[108] But the Employer Group’s claim sought to “restore” a right of direction which has only had, at best, limited success in the past in addressing the issues associated with excessive annual leave accruals.

 

[189]       We are not persuaded that the variation of modern awards to insert the Employer Group’s proposed model term is appropriate, nor will it be sufficient to address the problems of excessive accrued paid annual leave. We have redrafted the Employer Group’s proposed model term to provide a model term dealing with the taking of annual leave. The model term incorporates the employer’s right to direct—which is the central feature of the Employer Group’s claim—but also makes provision for the circumstance where an employee accrues excessive paid annual leave but no employer direction is made.

 

The model term—Excessive Annual Leave Accruals

 

1.         Excessive Annual Leave Accruals

 

This clause contains provisions additional to the NES about taking paid annual leave, to deal with excessive paid annual leave accruals.

 

1.1         Definitions

 

Shiftworker means [insert definition]

 

An employee has an excessive leave accrual if:

 

(a)   the employee is not a shiftworker and has accrued more than eight weeks’ paid annual leave; or

 

(b)   the employee is a shiftworker and has accrued more than 10 weeks’ paid annual leave.

 

1.2         Eliminating excessive leave accruals

 

(a)          Dealing with excessive leave accruals by agreement

 

Before an employer can direct that leave be taken under subclause 1.2(b) or an employee can give notice of leave to be granted under subclause 1.2(c), the employer or employee must request a meeting and must genuinely try to agree upon steps that will be taken to reduce or eliminate the employee’s excessive leave accrual.

 

(b)          Employer may direct that leave be taken

 

This subclause applies if an employee has an excessive leave accrual.

 

If agreement is not reached under subclause 1.2(a), the employer may give a written direction to the employee to take a period or periods of paid annual leave. The direction must state that it is a direction given under subclause 1.2(b) of this award.

 

Such a direction must not:

 

(i)      result in the employee’s remaining accrued entitlement to paid annual leave at any time being less than six weeks (taking into account all other paid annual leave that has been agreed, that the employee has been directed to take or that the employee has given notice of under subclause 1.2(c));

 

(ii)     require the employee to take any period of leave of less than one week;

 

(iii)    require the employee to take any period of leave commencing less than eight weeks after the day the direction is given to the employee;

 

(iv)    require the employee to take any period of leave commencing more than 12 months after the day the direction is given to the employee; or

 

(v)     be inconsistent with any leave arrangement agreed between the employer and employee.

 

An employee to whom a direction has been given under this subclause may make a request to take paid annual leave as if the direction had not been given. The employer is not to take the direction into account in deciding whether to agree to such a request.

 

Note: The NES state that the employer must not unreasonably refuse to agree to a request by the employee to take paid annual leave.

 

If leave is agreed after a direction is issued and the direction would then result in the employee’s remaining accrued entitlement to paid annual leave at any time being less than six weeks, the direction will be deemed to have been withdrawn.

 

The employee must take paid annual leave in accordance with a direction complying with this subclause.

 

(c)          Employee may require that leave be granted

 

This subclause applies if an employee has had an excessive leave accrual for more than six months and the employer has not given a direction under subclause 1.2(b) that will eliminate the employee’s excessive leave accrual.

 

If agreement is not reached under subclause 1.2(a), the employee may give a written notice to the employer that the employee wishes to take a period or periods of paid annual leave. The notice must state that it is a notice given under subclause 1.2(c) of this award.

 

Such a notice must not:

 

(i)      result in the employee’s remaining accrued entitlement to paid annual leave at any time being less than six weeks (taking into account all other paid annual leave that has been agreed, that the employee has been directed to take or that the employee has given notice of under this subclause);

 

(ii)     provide for the employee to take any period of leave of less than one week;

 

(iii)    provide for the employee to take any period of leave commencing less than eight weeks after the day the notice is given to the employer;

 

(iv)    provide for the employee to take any period of leave commencing more than 12 months after the day the notice is given to the employer; or

 

(v)     be inconsistent with any leave arrangement agreed between the employer and employee.

 

The employer must grant the employee paid annual leave in accordance with a notice complying with this subclause.

 

(d)          Dispute resolution

 

Without limiting the dispute resolution clause of this award, an employer or an employee may refer the following matters to the Fair Work Commission under the dispute resolution clause:

 

(i)      a dispute about whether the employer or employee has requested a meeting and genuinely tried to reach agreement under subclause 1.2(a);

 

(ii)     a dispute about whether the employer has unreasonably refused to agree to a request by the employee to take paid annual leave; and

 

(iii)    a dispute about whether a direction to take leave complies with subclause 1.2(b) or whether a notice requiring leave to be granted complies with subclause 1.2(c).

 

[190]       The model term 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. It incorporates both terms requiring an employee to take leave in particular circumstances (s.93(3)) and terms otherwise dealing with the taking of paid annual leave (s.93(4)).

 

[191]       Subclause 1.1 defines “excessive leave accrual” as more than eight weeks’ paid annual leave, or 10 weeks’ paid annual leave in the case of a “shiftworker” (as defined in the modern award for the purposes of the additional week of annual leave provided for in the NES). This threshold of eight weeks is consistent with s.236(6) of the former WR Act and with the majority of current modern award clauses which contain excessive leave provisions (see further the discussion at paragraphs [172]–[175] above). As with paid annual leave entitlements under the NES generally, the eight or 10 week threshold is based upon an employee’s ordinary weekly hours of work (see s.87(2) of the Act).

 

[192]       Where an employee has an excessive leave accrual, the model term requires the employer or employee firstly to request a meeting to try to resolve the matter by agreement. If agreement cannot be reached, the model term provides for the employer to issue a direction that certain leave be taken and/or for the employee to give the employer a written notice requiring that certain leave be granted.

 

[193]       Subclause 1.2(a) provides that, before an employer can issue such a direction or an employee can give such a notice, the employer or employee must:

 

·  request a meeting; and

·  genuinely try to agree upon steps that will be taken to reduce or eliminate the employee’s excessive leave accrual.

 

[194]       An excessive leave accrual would be eliminated if, immediately after all of the agreed steps had been taken, the employee’s accrued leave entitlement would be less than eight weeks for a non-shiftworker or 10 weeks for a shiftworker. This might be achieved in a number of stages, through the employee taking a number of agreed periods of annual leave. The employee might also choose to cash out some annual leave in accordance with the award’s cashing out provisions.

 

Example

 

Brendan is a part-time employee not working shifts whose ordinary hours of work are 19 per week. Brendan usually takes four weeks’ annual leave at Christmas (76 hours), but for the past three years has taken only one week and at the start of the year has an accrued entitlement to nine weeks’ paid annual leave.

 

Brendan and his supervisor meet to discuss Brendan’s excessive leave accrual. Brendan explains that he is hoping to take six weeks’ annual leave to travel overseas in the middle of the year and then to resume taking four weeks’ leave at Christmas. This leave can be readily accommodated by the employer, but Brendan’s supervisor requests that Brendan take an additional week’s leave on top of the six weeks and again at Christmas so as to reduce his leave accrual at the start of the following year to one week. Brendan and his supervisor agree to these arrangements and no direction to take leave is issued by the employer.

 

[195]       Subclause 1.2(a) requires the employer or employee to genuinely try to reach an agreement. The notion of genuinely trying to reach agreement appears in a number of contexts in the Act, including: determining whether there is pattern bargaining (ss.412(2)–(5)); industrial action being protected (s.413(3)); suspension or termination of protected industrial action (s.423(4)(f)); and an application for a protected action ballot order (s.443(1)(b)).

 

[196]       Where an employer and employee are unable to agree on steps to eliminate the employee’s excessive leave accrual, subclause 1.2(b) provides for the employer to give the employee a written direction to take a specified period or specified periods of paid annual leave. The employee must take paid annual leave in accordance with an employer direction that complies with the requirements of this subclause.

 

[197]       As a procedural safeguard, the direction must be in writing, and must state that it is given under subclause 1.2(b) of the modern award. This will assist in ensuring that the employee is aware of his or her obligation to comply with the direction and of the limitations on such a direction. These limitations are intended to ensure that a requirement to take leave under the model term is “reasonable” in terms of s.93(3) of the Act. The Full Bench in Australian Federation of Air Pilots v HNZ Australia Pty Ltd recently observed that in assessing the reasonableness of such a requirement, “all relevant considerations needed to be taken into account including those which are set out in paragraph [382] of the Explanatory Memorandum to the Fair Work Bill 2008”[109] (see paragraph [89] above).

 

[198]       Paragraphs (i) to (iv) of subclause 1.2(b) set out limitations on the period or periods of leave that may be required under the direction.

 

[199]       Paragraph 1.2(b)(i) limits the amount of leave that the employee may be directed to take, by requiring that the direction must not result in the employee’s remaining accrued leave entitlement at any time being less than six weeks.

 

[200]       Maintenance of a six week minimum is consistent with s.236(6) of the former WR Act and with the majority of current modern award clauses which limit the amount of accrued paid annual leave that an employer can direct an employee to take. It also accommodates the circumstance of an employee seeking to accrue leave so that he or she can take a reasonable extended holiday. The minimum is applied by considering the effect on the employee’s leave accrual of the directed leave being taken, taking into account all previously agreed paid annual leave, any previous directions to take leave and any previous notices given by the employee under subclause 1.2(c).

 

[201]       Paragraph 1.2(b)(ii) requires the minimum length of any period of directed leave to be one week. This is to avoid an employee being required to take leave in a series of single days or clusters of a small number of days.

 

[202]       Paragraph 1.2(b)(iii) requires that the employee be given at least eight weeks’ notice of the commencement of the directed leave. This is intended to ensure that the employee has a reasonable amount of time to make arrangements for activities during the leave period and/or to coordinate his or her leave with family members. The same notice period applies in circumstances where an employee gives written notice to the employer, pursuant to subclause 1.2(c).

 

[203]       Paragraph 1.2(b)(iv) requires that the directed leave commence in not more than 12 months. This is intended to ensure that the excessive leave accrual is dealt with reasonably promptly, but still allow sufficient scope for the leave to occur at a time that is suitable to both the employer and the employee.

 

[204]       Paragraph 1.2(b)(v) requires that the direction not be inconsistent with any leave arrangement agreed to by the employer and employee. For example, general arrangements for taking leave might have been agreed in the employee’s contract of employment, or there may have been a one-off agreement between the employer and employee that the employee could accrue excessive leave for a particular purpose.

 

[205]       A further limitation intended to ensure that a requirement to take leave under the model clause is reasonable is that a direction under subclause 1.2(b) operates subject to s.88(2) of the Act. Subclause 1.2(b) provides that an employee given a direction to take leave may make a request to take paid annual leave as if the direction had not been given. Under the NES (s.88(2)) the employer must not unreasonably refuse such a request. Further, the giving of the direction will not be a relevant factor in determining whether refusal of such a subsequent leave request is unreasonable. If leave is agreed after a direction is issued and the direction in combination with the agreed leave would then result in the employee’s leave accrual at any time being reduced below six weeks, the direction will be deemed to have been withdrawn.

 

[206]       In effect, this limitation means that the employee retains his or her entitlement under s.88 of the Act to take accrued paid annual leave, notwithstanding a direction to take leave under subclause 1.2(b). For example, the employee might request to take some or all of the directed leave at a time or times that better suit the needs of the employee and if such a request is made it cannot be unreasonably refused by the employer.

 

[207]       This limitation has been provided to make clear how this arrangement enables the particular circumstances of the employee and employer at the time (including matters personal to the employee) to be taken into account. (See Australian Federation of Air Pilots v HNZ Australia Pty Ltd.)[110]

 

[208]       The note regarding the NES in subclause 1.2(b) is an incidental term within the meaning of s.142 of the Act and/or an ancillary or incidental term within the meaning of s.55(4), and will assist in ensuring that the operation of the modern award clause is easy to understand in terms of s.134(1)(g).

 

Example

 

Sam is a full-time shiftworker who has not taken any annual leave in the three years she has worked for her employer and so has an accrued entitlement to 15 weeks’ leave after three years. Sam’s employer encourages its employees to take their full five weeks of annual leave each year in two periods—one during the middle of the year and one towards the end of the year.

 

Sam’s supervisor meets with her to propose that she take seven weeks’ leave at midyear and a further seven weeks towards the end of the year, so as to reduce her leave accrual to six weeks by the end of the fourth year. However, the only leave that Sam will agree to is one period of five weeks before the middle of the year and no agreement is reached. Sam’s supervisor issues a direction that she is to take the two leave periods the supervisor had proposed.

 

After the direction is issued, Sam applies to take five weeks’ leave before the middle of the year. While this is not the most convenient time for the employer, it can accommodate this leave period without significant additional cost or disruption to its business. As the employer is aware that it must not unreasonably refuse the requested leave, and that the issuing of the direction is not a relevant factor to take into account, the employer approves the leave.

 

As the direction would require Sam to take a further 14 weeks’ leave and this would reduce her accrued entitlement at the end of the year to one week, the direction is deemed to be withdrawn. However, as Sam will not agree to take any further leave even though she has been granted the leave she requested, the employer issues a new direction requiring her to take a further five week leave period during the middle of the year and a further four week period towards the end of the year. This will leave Sam with at least six weeks’ accrued leave at the end of the fourth year, after she has taken the agreed leave and the two directed periods of leave.

 

[209]       Subclause 1.2(c) provides for an employee to give a written notice to the employer that the employee wishes to take paid annual leave. This is intended to address circumstances such as where an employee’s requests to take his or her full leave accrual have repeatedly been refused by the employer, or the employee has repeatedly been dissuaded from applying to take his or her full leave accrual. The proposed subclause provides that the employer must grant the employee paid annual leave in accordance with a notice complying with this subclause. While subclause 1.2(c) may be characterised as supplementing the NES (within the meaning of s.55(4)), we acknowledge that there may be some tension between the proposed subclause and s.88. These issues can be canvassed in the opportunity provided to make further submissions (see paragraph [219]).

 

[210]       Such a notice can only be given by the employee if the employee has had an excessive leave accrual for at least six months. This provides the employer with a reasonable opportunity to deal with the employee’s excessive leave accrual before the employee is able to require that leave to be granted. If the employer has already given the employee a direction complying with subclause 1.2(b) to take leave and the directed leave will eliminate the employee’s excessive leave accrual, then the employee cannot issue any notice. If a direction has been given but after the directed leave is taken the employee will still have an excessive leave accrual, the employee could issue a notice under this subclause.

 

[211]       Similarly to an employer direction to take leave, the model term requires the employee first to request a meeting and to genuinely try to resolve the employee’s excessive leave accrual by agreement.

 

[212]       The procedural safeguards and limitations on the period or periods of leave that can be specified in a notice under subclause 1.2(c) mirror those that apply to an employer direction to take leave under paragraphs (i) to (v) of subclause 1.2(b), as outlined above.

 

Example

 

Ramesh is a full-time employee not working shifts in a busy, small workplace. Ramesh has sought to take his full leave entitlement to spend time with his family each year for the previous four years, but his employer has granted him only one week’s leave each year, on the basis that the business is too busy to cover a longer absence.

 

Ramesh has an accrued entitlement to 12 weeks’ leave and wishes to take at least four weeks’ leave in six months time. Ramesh meets with his employer and requests the leave, but the employer will only agree to him taking one week’s leave at the usual time.

 

As Ramesh has had an excessive leave accrual for over six months and has not been given a direction by the employer that would eliminate his excessive leave accrual, Ramesh may issue a notice to his employer requiring the employer to grant the four week leave period he wishes to take.

 

[213]       Subclause 1.2(d) of the model term draws attention to the capacity of the employer or the employee to refer a dispute about a matter arising under the model term to the Commission. As subclause 1.2(a) requires discussion between the employer and employee, it is not necessary for there to be further discussions under the terms of the dispute resolution clause before the dispute can be referred to the Commission.

 

[214]       Our provisional view is that the variation of modern awards to incorporate the model term is necessary to ensure that each modern award provides a fair and relevant minimum safety net, taking into account the s.134 considerations (insofar as they are relevant) and would also be consistent with the objects of the Act. This is so because of the various safeguards provided within the term itself and because it facilitates the making of mutually beneficial arrangements between an employer and employee.

 

[215]       When leave is taken so as to reduce or eliminate excessive leave accruals, employees will benefit from a period of rest and recovery from work, which has significant positive implications for employee health and wellbeing. Reducing fatigue at work and improving workplace health and safety is also of benefit to employers, and the evidence indicates that absenteeism is also reduced after a period of leave. In addition, there is employer evidence that excessive leave accruals represent a significant financial liability and can give rise to cash flow problems (particularly for small businesses) when paid out on termination. Employers therefore benefit from a mechanism to reduce their contingent liabilities.

 

[216]       Section 134(1)(d) of the modern awards objective requires the Commission to take into account the need to promote flexible modern work practices and the efficient and productive performance of work, and under s.134(1)(f) the Commission must also take into account the likely impact of any exercise of modern award powers on business, including on productivity, employment costs and the regulatory burden.

 

[217]       The issue of excessive leave accruals and untaken annual leave is of significance to both employers and employees. For the reasons outlined above, the insertion of the model term would assist in ensuring that modern awards are relevant to the needs of the modern workplace, and would assist businesses.

 

[218]       Finally, the insertion of the model term into modern awards is also consistent with the objects of the Act by: providing workplace relations laws that are fair to working Australians and are flexible for businesses (s.3(a)); ensuring a guaranteed safety net of fair, relevant and enforceable minimum terms and conditions through the NES and modern awards (s.3(b)); assisting employees to balance their work and family responsibilities by providing for flexible working arrangements (s.3(d)); and acknowledging the special circumstances of small and medium-sized businesses (s.3(g)). In respect of s.3(g), as relatively few employees employed in small businesses are covered by a collective agreement, a modern award variation of the type proposed would ensure that all such businesses have capacity to deal with excessive leave accruals.

 

[219]       The model term outlined only reflects our provisional view as to the type of provision which may be suitable for insertion into modern awards. We propose to provide interested parties with an opportunity to make further submissions—directed at both the model term and the proposition that all modern awards be varied to insert the model term. Submissions should also address the modern awards objective. The process for filing further submissions is dealt with in Chapter 6 of this decision. We will only reach a concluded view in respect of these issues after considering all of the further submissions filed.

 

4.2     Cashing out of annual leave

 

[220]       The claim advanced by the Employer Group sought to insert the following clause into 120 modern awards:

 

“Cashing out of annual leave

 

With the agreement of the employer, an employee may cash out an amount of accrued paid annual leave provided that:

 

(a)        the employee retains at least four (4) weeks of accrued annual leave immediately after the agreed amount is cashed out;

 

(b)        each cashing out of a particular amount of accrued paid annual leave must be agreed by a separate agreement in writing; and

 

(c)        the employee must be paid the full amount that would have been payable had the employee taken the leave at the time that it is cashed out.”[111]

 

[221]       We propose to deal with the relevant historical and legislative context before turning to the merits of the claim advanced.

 

[222]       Under previous legislative regimes, predecessor bodies to the Commission consistently rejected proposals for the cashing out of annual leave on the basis that such provisions undermined the purpose of annual leave, namely, “to provide a reasonable period of physical and mental respite from work”.[112] Enterprise agreement provisions providing for the cashing out of annual leave were regarded as being contrary to the public interest as they constituted a reduction in a “well established and accepted community standard”.[113]

 

[223]       The Work Choices Act amended the WR Act to provide that employees could cash out their annual leave in certain circumstances. The Work Choices Act inserted s.233 into the WR Act, which provided that an employee could “cash out” an accrued annual leave entitlement by written election and, with the agreement of their employer, provided that the workplace agreement binding upon the employee and his or her employer made provision for the cashing out of annual leave. The quantum of accrued annual leave that could be cashed out in any 12 month period was limited by s.233(2), which was in the following terms:

 

“(2)        However, during each 12 month period, an employee is not entitled to forgo an amount of accrued leave credited to the employee by an employer that is equal to more than 1/26 of the nominal hours worked by the employee for the employer during the period.”

 

[224]       The practical effect of s.233(2) of the WR Act was that most full-time employees could only cash out two weeks’ accrued annual leave in each 12 month period. Section 233(3) provided additional safeguards, as follows:

 

“(3)        An employer must not:

 

(a)        require an employee to forgo an entitlement to take an amount of annual leave; or

 

(b)        exert undue influence or undue pressure on an employee in relation to the making of a decision by the employee whether or not to forgo an entitlement to take an amount of annual leave.”

 

[225]       We have earlier described the award modernisation process which marked the transition from the WR Act to the Act (see paragraph [94]).

 

[226]       During the award modernisation process a number of employer organisations sought to have provisions for cashing out annual leave included in modern awards. In its 2008 Award Modernisation decision, the Award Modernisation Full Bench rejected these submissions on the following basis:

 

“[99] A number of employer interests sought provisions for cashing out of annual leave by agreement. Such arrangements are apparently included in many Australian Workplace Agreements (AWAs) and workplace agreements. Should cashing out of annual leave become widespread it would undermine the purpose of annual leave and give rise to questions about the amount of annual leave to be prescribed. We think some caution is appropriate when dealing with this issue at the safety net level. We do not intend to adopt a model provision. Consistent with our approach to annual leave provisions generally we shall be influenced mainly by prevailing industry standards, and the views of the parties, in addressing this issue.

 

[100] It has also been suggested that if awards do not provide for cashing out of annual leave it will not be legally permissible to make workplace agreements which provide for cashing out. In our opinion cashing out arrangements are an appropriate matter for bargaining. If, when the legislative regime is settled, it is apparent that workplace agreements cannot provide for cashing out of annual leave unless there is a relevant provision in a modern award it may be necessary to revisit the question.”[114]

 

[227]       It is important that the above observation be placed in the context of the sequence of the various iterations of the award modernisation request. The original request was made by the Minister on 28 March 2008. On 16 June 2008 the request was varied to include the following paragraph:

 

“33. The NES provides that particular types of provisions are able to be included in modern awards even though they might otherwise be inconsistent with the NES. The Commission may include provisions dealing with these issues in a modern award. The NES allows, but does not require, modern awards to deal with, among other things:

 

·  provision for loadings to be paid to school-based trainees and school-based apprentices in lieu of certain entitlements;

·  averaging of hours of work;

·  cashing out of paid annual leave – provided that modern awards contain a prohibition on undue influence or undue pressure and require payment of cashed out leave at full value;

·  the taking of paid annual leave;

·  particular circumstances in which an employee may be required to take paid annual leave;

·  cashing out of paid personal/carer's leave – provided that modern awards contain a prohibition on undue influence or undue pressure and require payment of cashed out leave at full value;

·  the kind of evidence required to be provided by an employee when taking paid personal/carer's leave, unpaid carer's leave or compassionate leave;

·  substitution of public holidays; and

·  the amount of notice an employee may be required to provide when terminating their employment.”

 

[228]       On 18 December 2008, a further variation was made which replaced the above with the following:

 

“33. The NES provides that particular types of provisions are able to be included in modern awards even though they might otherwise be inconsistent with the NES. The Commission may include provisions dealing with these issues in a modern award. The NES allows, but does not require, modern awards to include terms that:

 

·     provide for loadings to be paid to school-based trainees and school-based apprentices in lieu of certain entitlements;

 

·     enable the averaging of hours of work over a specified period;

 

·     provide for the cashing out of paid annual leave by an employee, provided that such terms require:

 

-      the retention of a minimum balance of 4 weeks’ leave after the leave is cashed out;

 

-      the cashing out of each amount be by separate agreement in writing; and

 

-      payment of cashed out leave be at at least the full amount that would have been payable to the employee had the employee taken the leave that the employee has forgone;

 

·     require employees, or allow employees to be required, to take paid annual leave, but only if the requirement is reasonable;

 

·     otherwise deal with the taking of paid annual leave;

 

·     provide for the cashing out of paid personal/carer’s leave, provided that such terms require:

 

-      the retention of a minimum balance of 15 days’ leave after the leave is cashed out;

 

-      the cashing out of each particular amount be by separate agreement in writing; and

 

-      the payment of cashed out leave be at least at the full amount that would have been payable to the employee had the employee taken the leave that the employee has forgone;

 

·  relate to the kind of evidence required to be provided by an employee when taking paid personal/carer’s leave, unpaid carer’s leave or compassionate leave;

 

·  provide for the substitution of public holidays by agreement between an employer and employee; and

 

·  specify the period of notice an employee may be required to give when terminating their employment.”

 

[229]       It is apparent from a subsequent statement on 23 January 2009 and a decision on 3 April 2009, that the 18 December 2008 variation to the award modernisation request was not taken into account in the Full Bench’s 2008 Award Modernisation decision of 19 December 2008. In a statement issued on 23 January 2009[115] the Award Modernisation Full Bench said:

 

“[3] The Commission made 17 modern awards in the priority stage of award modernisation on 19 December 2008. Some matters were not finally dealt with in those awards and some matters have arisen since which require further consideration in conjunction with Stage 2 of the process.

 

Coverage, award flexibility and annual leave

 

[4] The award modernisation process was initiated by a request signed by the Minister for Employment and Workplace Relations (the Minister) on 28 March 2008 pursuant to s.576C(1) of the Workplace Relations Act 1996 (the Act). The Minister varied the request on 16 June 2008 and 18 December 2008 pursuant to s.576C(4) of the Act. We shall refer to the request as amended as the consolidated request. The variations to the consolidated request made on 16 June 2008 were taken into account in the proceedings leading to the making of the priority modern awards and do not require any further comment at this stage. The variations to the consolidated request made on 18 December 2008, however, have not been considered in the award modernisation process so far. They have the potential to affect a number of terms of the priority modern awards which the Commission made on 19 December 2008. Those terms are, at least, the coverage clause, the award flexibility clause and the annual leave clause. ...

 

[8] Clause 33 of the amended request provides that modern awards may require employees, or allow employees to be required, to take paid annual leave but only if the requirement is reasonable. The requirement for reasonableness was not part of cl.33 prior to the variations on 18 December 2008. Similarly, it was not taken into account in the making of the priority modern awards.

 

[9] We intend to deal with these variations to the consolidated request, and any others that might be relevant, in making the Stage 2 awards, provided it is practical to do so. We encourage interested parties to bring forward proposals and submissions as to how these new requirements should be reflected in the coverage, award flexibility and annual leave clauses. The Stage 2 exposure drafts do not attempt to take account of the 18 December variations.”

 

[230]       We note that while the above statement referred to variations to the consolidated request made on 18 December 2008, no specific reference was made to the cashing out of annual leave.

 

[231]       The following observation was made in the Award Modernisation Full Bench decision of 3 April 2009:

 

“The award modernisation process is governed by the provisions in Part 10A of the Workplace Relations Act 1996 (the Act) and a request made by the Minister for Employment and Workplace Relations (the Minister) pursuant to s.576C(4) of the Act. The Minister’s request was made on 28 March 2008 and subsequently amended on 16 June and 18 December 2008. We shall refer to the request as amended as the consolidated request. The priority modern awards were made by the Commission on 19 December 2008. Because of the timing there was no opportunity to take the amendment to the request made on 18 December 2008 into account before publishing the priority modern awards. In its statement of 23 January 2009 the Commission sought views on how the amendment might affect the terms of modern awards. It appears that there are three main areas in which the 18 December amendment might have effect. Those areas are: coverage, award flexibility and annual leave. We deal first with coverage.”[116] (emphasis added)

 

[232]       In a number of subsequent decisions the Award Modernisation Full Bench rejected proposals to insert cashing out provisions in modern awards, consistent with the views it had expressed in its 2008 Award Modernisation decision.[117] The Award Modernisation Full Bench did not give any detailed consideration to that part of the 18 December 2008 variation to the award modernisation request which dealt with the NES provisions in respect of the cashing out of annual leave.

 

[233]       The Seafood Processing Award 2010 is the only modern award made in the award modernisation process that contains a provision for cashing out annual leave.^[118] The clause was contained in draft awards provided by the Seafood Processors and Exporters Council and others.^[119] The clause was not opposed by the relevant unions and was not the subject of any particular comment in the Full Bench decision which made the award.

 

[234]       The Act now makes specific provision for the cashing out of annual leave. Section 92 provides that paid annual leave “must not be cashed out”, except in accordance with the cashing out terms included in a modern award or enterprise agreement pursuant to s.93, or an agreement between an employer and an award/agreement free employee under s.94(1).

 

[235]       Section 93 of the Act provides as follows:

 

“93         Modern awards and enterprise agreements may include terms relating to cashing out and taking paid annual leave

 

Terms about cashing out paid annual leave

 

(1)        A modern award or enterprise agreement may include terms providing for the cashing out of paid annual leave by an employee.

 

(2)        The terms must require that:

 

(a)        paid annual leave must not be cashed out if the cashing out would result in the employee’s remaining accrued entitlement to paid annual leave being less than 4 weeks; and

 

(b)        each cashing out of a particular amount of paid annual leave must be by a separate agreement in writing between the employer and the employee; and

 

(c)        the employee must be paid at least the full amount that would have been payable to the employee had the employee taken the leave that the employee has forgone.

...”

 

[236]       The model clause proposed by the Employer Group meets the requirements of s.93(2) of the Act.

 

[237]       Three particular observations may be made about s.93. The first is that it is evident from the terms of s.93(1) that it was within the contemplation of the legislature that the Commission may include in modern awards a term providing for the cashing out of paid annual leave, subject to the inclusion of the prescribed safeguards. In our view the legislative determination of appropriate safeguards is significant because it represents an important contextual consideration which was not present when cashing out provisions were considered during the award modernisation process.

 

[238]       The second observation we would make is that any term providing for the cashing out of paid annual leave must include the safeguards set out in s.93(2), as a minimum, but a modern award may also include terms that supplement the NES (see s.55(4)(b)). Accordingly, if we were persuaded to include a term in modern awards providing for the cashing out of paid annual leave by an employee, then we could prescribe additional safeguards that are in addition to the requirements of s.93(2).

 

[239]       The final observation we would make about s.93 is that, subject to the requirements of s.93(2), an enterprise agreement can include terms providing for the cashing out of paid annual leave by an employee. The inclusion of such a term in enterprise agreements was considered by a Full Bench in Armacell Australia Pty Ltd and others.[120] The Full Bench dealt with three appeals against decisions refusing applications for approval of an enterprise agreement. Each agreement contained terms dealing with the cashing out of annual leave. At first instance the Commission decided, in each case, that the cashing out of leave provision was an obstacle to the approval of the agreement. The Commission reasoned that although the provisions were consistent with s.93, their operation was a matter to be considered when applying the better off overall test (see ss.186(2)(d) and 193) and, on a proper application of that test, the cashing out of annual leave was such a significant disadvantage that the agreement did not meet the better off overall test. The Full Bench held that the Commission made an error in concluding that the terms of the agreement which met the requirements of s.93 and did not contravene s.55, nevertheless resulted in the agreement failing to pass the better off overall test. In short, the Full Bench held that there was no basis for concluding that the agreement failed the better off overall test because of the annual leave cashing out provisions. The Full Bench stated that:

 

“[13] ...While an enterprise agreement may include terms providing for the cashing out of paid annual leave, the matters in s.93(2) are in the nature of protections for employees and could be described as safeguards. Annual leave cannot be cashed out if the leave balance would be less than four weeks, each cashing out must be the subject of a written agreement and there must be no discounting of the payment. It seems clear, as a matter of interpretation, that the legislature considered the question of safeguards and that it intended the ones specified in s.93(2) to be sufficient. It would be inconsistent with that intention to hold that the safeguards are inadequate and that more or other safeguards should be applied.

 

[14] The Commissioner was concerned that although the relevant term complied with s.93(2), situations could occur in which employees might not take annual leave and the purpose of annual leave might be frustrated. This was an error. Whether the Commissioner’s concern is a valid one is beside the point. The legislation makes it plain that an enterprise agreement may include a term for cashing out providing it complies with s.93.”[121]

 

[240]       It needs to be borne in mind that the above observations were made in the context of an appeal from a decision refusing to approve an enterprise agreement. The Act contains significant procedural and substantive safeguards to facilitate the making of a democratic and informed decision on whether an enterprise agreement should be made.[122] The question of whether to insert a cashing out term into modern awards, and if so the features of such a term, give rise to different considerations. The safeguards provided in s.93(2) set out the minimum requirements of such a term, they do not constitute a code, and modern awards may also include terms that supplement the NES. In our view these differences warrant the imposition of additional safeguards in the modern award context.

 

[241]       We also note that award/agreement free employees are able to enter into arrangements to cash out their accrued annual leave consistent with s.94 of the Act. Section 94 is in the following terms:

 

“94         Cashing out and taking paid annual leave for award/agreement free employees

 

Agreements to cash out paid annual leave

 

(1)        An employer and an award/agreement free employee may agree to the employee cashing out a particular amount of the employee’s accrued paid annual leave.

 

(2)        The employer and the employee must not agree to the employee cashing out an amount of paid annual leave if the agreement would result in the employee’s remaining accrued entitlement to paid annual leave being less than 4 weeks.

 

(3)        Each agreement to cash out a particular amount of paid annual leave must be a separate agreement in writing.

 

(4)        The employer must pay the employee at least the full amount that would have been payable to the employee had the employee taken the leave that the employee has forgone.

...”

 

[242]       Arrangements which facilitate the cashing out of accrued annual leave (pursuant to either s.93(1) or s.94(1)) appear to be a relatively common feature of employment conditions set by enterprise agreements or by individual agreement between an employer and an award/agreement free employee.

 

[243]       The Workplace Agreement Database contains information on the incidence and coverage of provisions dealing with the cashing out of annual leave. The Workplace Agreement Database is a census database compiled by the Department of Employment that contains information about federal enterprise agreements that have been certified or approved by the relevant statutory authority since the introduction of enterprise bargaining in 1991.^[123] On average about 8000 agreements are added by staff of the Department of Employment to the Workplace Agreement Database each year with around 200 separate data fields coded.

 

[244]       The Workplace Agreement Database shows that of the enterprise agreements approved between 1 March 2011 and 31 March 2014, about one-third (covering 62.9 per cent of employees covered by a federal agreement) contained provisions which permit the cashing out of paid annual leave.

 

[245]       On 21 November 2014, the Commission released a background paper which outlined the parties’ submissions in relation to the cashing out of annual leave and examined the extent to which such provisions currently exist in enterprise agreements approved by the Commission. Parties were invited to make submissions on the background paper and a number did so.[124] The background paper included the results of a review by the Commission of the types of cashing out of annual leave provisions currently found in enterprise agreements approved by the Commission in the six month period from 1 January to 30 June 2014. In this six month period, 2555 agreements were approved and over one-quarter of these agreements (26.6 per cent) contained cashing out provisions.

 

[246]       The cashing out provisions in these agreements have generally been drafted to include the minimum entitlements outlined in the NES, namely that:

 

·  each instance of cashing out of annual leave must be by mutual agreement between the parties and in writing;

·  the employee’s total accrued annual leave must not be reduced below four weeks as a result of the cashing out; and

·  the employee must be paid at least the full amount that would have been paid had the employee taken the leave.

 

[247]       However a significant proportion of the enterprise agreements which include a term permitting the cashing out of annual leave contain additional limitations. Of the 118 provisions identified within the March quarter of 2014, 28 (or 23.7 per cent) include safeguard provisions in excess of those prescribed in the NES. The most common supplementary safeguard (in 12.7 per cent of agreements) prevent employees from cashing out more than two weeks of accrued annual leave in any 12 month period, in addition to the NES requirement that employees maintain an accrued entitlement to four weeks’ leave after cashing out.

 

[248]       For example, the Joyce Foam Pty Ltd Trading as Joyce Foam Products, Moorebank Enterprise Agreement 2013[125] contains the following clause:

 

“5.5.2 Employees may request to cash out up to two weeks of their credited annual leave entitlement every twelve (12) months (or the pro-rata equivalent for part-time employees). Approval of such requests is at the discretion of the company ...”

 

[249]       Some agreements permit cashing out of annual leave contingent upon particular circumstances such as financial or personal hardship.[126] Some agreements only permit cashing out when an employee has reached a threshold duration period of employment.[127]

 

[250]       A further seven of the 118 agreements which provide for the cashing out of annual leave (5.9 per cent) provide that employees must use a minimum amount of annual leave before they can cash out any additional leave, or must take an equal amount of leave to that leave which is being cashed out.[128]

 

[251]       It is apparent that provisions permitting the cashing out of annual leave are a relatively common feature of enterprise agreements approved by the Commission. Further, while most of these terms simply reflect the minimum requirements in s.93, a significant proportion contain additional limitations, the most common being that employees cannot cash out more than two weeks’ accrued annual leave in any 12 month period.

 

[252]       The provisions in enterprise agreements show that there is some demand for provisions of this type and illustrate the range of safeguards which may be provided. However, we are conscious of the need to exercise care when assessing the provisions in enterprise agreements in the context of a review of modern awards. Enterprise agreements are negotiated by the parties and approved by the Commission against various statutory criteria. The legislative context relevant to the review of modern awards is quite different. As the Full Bench in the Modern Awards Review 2012—Penalty Rates decision observed:

 

“... in approving agreements the Commission is not making an assessment as to whether the instrument meets the modern awards objective or would be appropriate in circumstances other than those applying at the enterprise concerned.”[129]

 

[253]       The Employer Group contended that the inclusion of cashing out provisions in modern awards would:

 

·  create equity between award and non-award/agreement employees; and

·  promote workplace flexibility and the modern awards objective.

 

[254]       We note that the unions opposed the insertion of cashing out of annual leave provisions in modern awards and we will address their submissions later in this decision.

 

[255]       We are persuaded that the Employer Group’s claim should be granted, subject to some modifications. The model term will permit the cashing out of annual leave, subject to a number of safeguards as follows:

 

1.         Cashing Out of Annual Leave

 

1.1       Paid annual leave must not be cashed out except in accordance with this clause.

 

1.2       An employer and an employee may agree to the employee cashing out a particular amount of the employee’s accrued paid annual leave provided that the following requirements are met:

 

(a)   each cashing out of a particular amount of accrued paid annual leave must be by a separate agreement between the employer and the employee which must:

 

(i)    be in writing and retained as an employee record;

(ii)   state the amount of accrued leave to be cashed out and the payment to be made to the employee;

(iii)  state the date on which the payment is to be made, and

(iv)  be signed by the employer and employee and, if the employee is under 18 years of age, the employees’ parent or guardian;

 

(b)   the employee must be paid at least the full amount that would have been payable to the employee had the employee taken the leave at the time that it is cashed out;

 

(c)   paid annual leave must not be cashed out if the cashing out would result in the employee’s remaining accrued entitlement to paid annual leave being less than 4 weeks; and

 

(d)   employees may not cash out more than two weeks’ accrued annual leave in any 12 month period.

 

Note 1: Under s.344 of the Fair Work Act 2009, an employer must not exert undue influence or undue pressure on an employee to make an agreement to cash out paid annual leave under this award clause.

 

Note 2: Under s.345 of the Fair Work Act 2009, a person must not knowingly or recklessly make a false or misleading representation about an employee’s workplace rights under this award clause.

 

[256]       The model term meets the requirements of s.93(2) of the Act. A modern award may also include terms that supplement the NES (see s.55(4)(b)), and on that basis the model term incorporates four additional safeguards, that are in addition to the requirements of s.93(2).

 

[257]       First, a maximum of two weeks’ paid annual leave can be cashed out in any 12 month period. In the case of part-time employees, the two weeks’ leave is based on the employees’ weekly ordinary hours (see s.87(2) of the Act). As noted earlier, the most common supplementary safeguard in enterprise agreements which permit the cashing out of annual leave is a limitation upon the amount of leave which can be cashed out in any 12 month period. Such a limitation is directed at ensuring that employees take at least half of their accrued annual leave, as leave.

 

[258]       Second, there are requirements in the model term about the content of any agreement to cash out accrued annual leave (subclause 1.2(a)) and the employer’s obligation to keep such agreements as an employee record (subclause 1.2(a)(i)). These requirements are consistent with an employer’s existing obligations under Regulation 3.36(2) of the Fair Work Regulations 2009. Regulation 3.36(2) states:

 

“If an employer and employee agree to cash out an accrued amount of leave:

 

(a)   a copy of the agreement is a kind of employee record that the employer must make and keep; and

 

(b)   a kind of employee record that the employer must make and keep is a record that sets out:

 

(i)    the rate of payment for the amount of leave that was cashed out; and

 

(ii)   when the payment was made ...”

 

[259]       Third, if the employee is under 18 years of age the agreement to cash out a particular amount of accrued paid annual leave must be signed by the employees’ parent or guardian. A safeguard of this type was proposed by the ACTU and CFMEU. Ai Group and ACCI submitted that such a provision was unnecessary,[130] however, other employer representatives, from the hospitality sector, either had no objection to the inclusion of such a safeguard or endorsed it as an appropriate protection for young workers.[131] There is a similar safeguard in the model flexibility term in modern awards and it is appropriate that such a safeguard be included in the model term dealing with the cashing out of annual leave.

 

[260]       Finally, the two notes at the end of the model term draw attention to the general protections in Part 3-1 of the Act against undue employer influence and misrepresentation in relation to rights under the clause. As observed earlier, such notes can be considered incidental terms within the meaning of s.142 of the Act and/or terms that are ancillary or incidental within the meaning of s.55(4), and assist in ensuring that the operation of the modern award clause is easy to understand (s.134(1)(g)). As we have also observed earlier, it seems to us that the effectiveness of any safety net is substantially dependent upon those who are covered by it being able to know and understand their rights and obligations.

 

[261]       The general protections provisions apply to an agreement to cash out annual leave in accordance with a term of a modern award. In particular s.344 provides, relevantly:

 

“An employer must not exert undue influence or undue pressure on an employee in relation to a decision by the employee to:

 

... (b)    make, or not make, an agreement or arrangement under a term of a modern award...that is permitted to be included in the award...under subsection 55(2)...”

 

[262]       In addition, s.345 provides:

 

“(1)        A person must not knowingly or recklessly make a false or misleading representation about:

(a)        the workplace rights of another person; or

 

(b)        the exercise, or the effect of the exercise, of a workplace right by another person; or

...

(2)        Subsection (1) does not apply if the person to whom the representation was made would not be expected to rely upon it.”

 

[263]       Relevantly for present purposes, under s.341(1) of the Act, a person has a “workplace right” if the person is entitled to the benefit of, or has a role or responsibility under, a modern award.

 

[264]       Sections 344 and 345(1) are civil remedy provisions (see s.539).

 

[265]       The variation of modern awards to incorporate the model term will ensure that each modern award provides a fair and relevant minimum safety net. In so deciding we have taken into account the s.134 considerations, insofar as they are relevant, and we are satisfied that such a variation is necessary to achieve the modern awards objective. We are also satisfied that the model term is consistent with the objects of the Act. We propose to address the relevant statutory considerations before dealing with the submissions of those who opposed the Employer Group’s claim.

 

[266]       As we have mentioned, the insertion of the model term will ensure that each modern award provides a “fair and relevant minimum safety net”. The model term is “fair” because of the various safeguards provided within the term itself and because it facilitates the making of mutually beneficial agreements between an employee and his or her employer. Employees benefit by being able to exercise a preference they may have to receive cash rather than take leave and employers benefit by being able to reduce their contingent liabilities. The mutual benefits which may flow from such arrangements provide an explanation for why such provisions are a relatively common feature of enterprise agreements approved by the Commission. 

 

[267]       The insertion of the model term will ensure that modern awards are “relevant” to the needs of the modern workplace. The evidence indicates that there is a significant demand for a provision which facilitates the cashing out of accrued leave.

 

[268]       Questions 5–8 of the Employer Survey are directed at the cashing out of annual leave, as follows:

 

“Since 1 January 2010, have any of your organisation’s employees asked to cash out a portion of their annual leave? Choose one of the following answers.

 

·         Yes

·         No

·         Unsure

 

If yes, how many requests have you received?

 

·         1

·         2–4

·         5–20

·         20+

 

What percentage of these requests have been granted?

 

·         none

·         1–25%

·         26–50%

·         51–75%

·         75%+

·         Unsure

 

If requests have been refused, what has been the reason or reasons giving rise to the refusal? Tick each appropriate box:

 

·         The employee had less than 4 weeks of annual leave accrued.

·         We were unable to agree because of our award or agreement does not permit cashing out of leave.

·         The Company does not wish to allow employees to cash out annual leave.

·         Other. Please specify: _________________________”

 

[269]       Some 1863 employers (45 per cent of all responses) stated that since 1 January 2010 they had received at least one employee request to cash out a portion of their annual leave. Of those employers who had received at least one such request, over 1412 employers had received between 2 and 20 requests and 153 employers had received over 20 such requests.

 

[270]       A significant number of the requests to cash out annual leave were not granted.[132]

 

[271]       The responses to Question 8 of the Employer Survey are set out below:

 

If requests have been refused, what was the reason or reasons for the refusal?

 

	Count	%
The employee had less than 4 weeks of annual leave accrued	651	15.74
We were unable to agree because our award or agreement did not permit cashing out of leave	499	12.06
The Company does not wish to allow employees to cash out annual leave	160	3.87
Other	700	16.92

 

[272]       We have already mentioned the practical problem which arises in relation to the responses to Question 8 (see paragraph [46] above) but it is apparent that in a significant proportion of cases a request to cash out annual leave was refused because the relevant award or agreement did not expressly permit it. The evidence of Ms Kristina Flynn, Ms Fiona Corbett and Ms Melissa Adler dealt with issues raised by employer members of their respective organisations.

 

[273]       Ms Kristina Flynn is the National Manager of BIZassistInfoline, Ai Group’s national workplace relations telephone advisory service for Ai Group members. The BIZassistInfoline is operated by 15 workplace advisers who provide advice on all workplace related issues, including leave entitlements. The BIZassistInfoline has received about 199 740 calls since 1 January 2010. The details of each call are logged. A report of all calls to the BIZassistInfoline since 1 January 2010 showed that 5794 calls were about annual leave, of which 1058 were about the cashing out of annual leave. Approximately half (521) of the calls about the cashing out of annual leave concerned employees in circumstances where an award applied to their employment. In her evidence Ms Flynn stated:

 

“In my experience it is not uncommon for employers to call the BIZassistInfoline to ask whether they can agree to requests from employees, to whom a modern award applies, to cash out their annual leave.” [133]

 

[274]       Ms Fiona Corbett gave evidence about the operation of the Workplace Advice Unit operated by Australian Business Lawyers & Advisors Pty Ltd on behalf of Australian Business Industrial and the NSW Business Chamber. The Workplace Advice Unit performs essentially the same function as Ai Group’s BIZassistInfoline for the members of the employer organisations mentioned. In the 12 month period 1 June 2013 to 31 May 2014, the Workplace Advice Unit in Sydney took 511 calls relating to annual leave and of these 91 were about the cashing out of annual leave. The majority of such calls were about “whether an award covered employee was able to cash out their annual leave”. In her evidence Ms Corbett stated:

 

“Based on the enquiries that I have answered in relation to cashing out annual leave whilst working in the Workplace Advice Unit answering queries on numerous awards and from enquiries that the other advisors have received, I have found that:

 

(a)        most calls follow an employee’s request to cash out their annual leave;

in a large number of cases, the employee’s request is made as the result of a financial or personal hardship.”[134]

 

[275]       In terms of the particular matters referred to in the modern awards objective, we are persuaded that the model term meets the needs of the low paid (consistent with s.134(1)(a)).

 

[276]       As noted in the Annual Wage Review 2013–14 decision, a sizeable proportion of award-reliant workers are low paid and low-wage households typically report more financial stress than higher wage households.[135] The ability to cash out up to two weeks’ accrued annual leave each year will provide low-paid employees with some additional capacity to meet unexpected financial demands and may also provide the money to enable them to take a holiday.

 

[277]       In its submission of 27 November 2014 the ACTU contended that “concerns about award-dependent employees facing financial hardship could be easily addressed through an increase in the minimum wage and not by including cashing out provisions in modern awards”.[136] The adjustment of minimum wages is not as simple as the ACTU submission might suggest. The Act requires the Expert Panel to take into account a number of considerations in reviewing modern award minimum wages and the national minimum wage order. As the Expert Panel observed in the Annual Wage Review 2013–14 decision:

 

“It is important to appreciate that there is often a degree of tension between the economic, social and other considerations which the Panel must take into account. For example, a substantial wage increase may better address the needs of the low paid and improve the relative living standards of award-reliant employees, but it may (depending upon the prevailing economic circumstances) also reduce the capacity to employ the marginalised and hence reduce social cohesion. It is this complexity that has led the Panel to reject a mechanistic or decision rule approach to wage fixation, such as the adoption of real wage maintenance. The real wages of award-reliant employees are relevant to our task, but not determinative. The range of considerations we are required to take into account calls for the exercise of broad judgment rather than a mechanistic approach to fixing minimum wages.”[137] (references omitted)

 

[278]       We deal with the need to promote collective bargaining (s.134(1)(b)) later in addressing the submissions opposing the Employer Group’s claim.

 

[279]       We are also satisfied that the model term reflects flexible modern work practices and accordingly the insertion of such a term in modern awards will promote such practices, consistent with s.134(1)(d).

 

[280]       Section 134(1)(f) is also relevant. It provides that we must take into account:

 

“the likely impact of any exercise of modern award powers on business, including on productivity, employment costs and the regulatory burden ...”

 

[281]       As the model term will facilitate agreements to cash out accrued leave it will, when utilised, reduce the employer’s contingent liabilities. ACCI and others[138] submitted that a term which permits the cashing out of accrued leave will reduce employment costs and the regulatory burden on employers. We accept that the insertion of the model term in modern awards will have such an impact.

 

[282]       A number of parties supporting the Employer Group’s claim asserted that granting the claim would improve productivity. No merit argument was advanced in support of such assertions and the connection between an award provision permitting the cashing out of accrued annual leave and productivity is not obvious to us.

 

[283]       “Productivity” is not defined in the Act, but given the context in which the word appears it is clear that it is being used to signify an economic concept. It may be regarded as a technical word and hence evidence may be admitted to interpret its meaning.[139]

 

[284]       The legislative context is also important. The modern awards objective provides that the Commission must take into account the likely impact of any exercise of modern award powers on business, including on productivity, employment costs and the regulatory burden.[140] The reference to both “productivity” and “employment costs” within the same provision recognises that the cost of labour constitutes a separate and distinct statutory consideration to productivity.

 

[285]       As noted in the Annual Wage Review 2012–13 decision:

 

“... the term productivity, as used in the Act, is directed to the economic concept of the quantity of output relative to the quantity of inputs.[141] Considerations of the price of inputs, including the cost of labour, raise separate statutory considerations relating to the performance and competitiveness of the national economy and other economic considerations, such as inflation.”[142]

 

[286]       On the limited material before us we are not persuaded that either the Employer Group’s claim or the model term will have any positive impact on productivity.

 

[287]       The insertion of the model term into modern awards is also consistent with the objects of the Act. In particular the model term acknowledges “the special circumstances of small and medium-sized businesses” (s.3(g)). Absent the insertion of the model term, such businesses could only permit their modern award covered employees to cash out their accrued paid annual leave by entering into an enterprise agreement. In this context we acknowledge the force of ACCI’s submission that the reluctance of particular businesses to collectively bargain can arise from various factors including “small business employers lacking the expertise and resources to implement an enterprise agreement”.[143]

 

[288]       The ACTU rejected the proposition that small businesses encountered difficulties in engaging in collective bargaining and pointed to the extent of small businesses who utilised Australian Workplace Agreements (AWAs) introduced by the WR Act. In support of this submission the ACTU relied on a report by Mitchell and Fetter.

 

[289]       Mitchell and Fetter found that “most employers with AWAs were small and medium size businesses”.[144] However, as the authors note, this understates the importance big business is the utilisation of AWAs: ‘whilst big business constitutes only the smaller proportion of businesses with AWAs, they nevertheless cover the largest proportion of employees with AWA coverage’. It is also relevant to observe that the use of AWAs tended to be concentrated in particular sectors of the economy. As Mitchell and Fetter noted:

 

“Despite the increasing trend in the rate of approvals, AWAs statistically constitute only a very minor aspect of Australian industrial regulation, covering a tiny proportion of the workforce (1.9%). Whilst the uptake of AWAs has reached into most parts of the economy to some degree, they tend to be only of importance in terms of concentration (by employee) in communication services, government, mining cultural and recreational services, and electricity, gas and water. Key areas of industry such as construction retail, transport and manufacturing by contrast have relatively low levels of AWA penetration”.[145] (references omitted)

 

[290]       We are not persuaded that the Mitchell and Fetter report supports the ACTU’s contention. As the report states, key areas of the economy—including award reliant sectors—had low levels of AWA penetration. Further, there are significant differences between the legislative framework which applied to AWAs[146]  and Part 2-4 of the FW Act dealing with enterprise agreements.

 

[291]       During these proceedings the Commission produced an information note entitled ‘Bargaining by business size’. The note was available on the Review section of the Commission’s website and interested parties were able to comment on the note and its relevance to these proceedings. The note indicated that the Australian Bureau of Statistics (ABS) Employee Earnings and Hours publication collects information on a range of data including the number of employees by method of setting pay and in what sized business they are employed in Australia. The methods of pay collected are:

 

·  Award only;

·  Collective agreement;

·  Individual arrangement; and

·  Owner manager of incorporated enterprise.

 

[292]       The ABS definition of a “collective agreement” encompasses collective agreements registered at the state or federal level as well as unregistered written or verbal collective agreements.[147]

 

[293]       Employees are allocated to the collective agreement category if they had the main part of their pay set by a registered or unregistered collective agreement or enterprise award.[148]

 

[294]       The ABS definition of individual arrangements includes individual contracts, letters of offer and common law contracts (which also includes overaward payments).[149]

 

[295]       The ABS definition of an award-only arrangement is where a state or federal award is the predominate mechanism used to set the pay and/or conditions and where that employee is paid at exactly the rate of pay specified in the award.[150]

 

[296]       An “owner manager of incorporated enterprise” is defined as:

 

“A person who works in their own incorporated enterprise - that is, a business entity which is registered as a separate legal entity to its members or owners (also known as a limited liability company) ...”[151]

 

[297]       The ABS Employee Earnings and Hours publication collects business size data according to the following splits:

·  Under 20 employees;

·  20–49 employees;

·  50–99 employees;

·  100–999 employees; and

·  1000 and over employees.

 

[298]       The size splits collected reflect the ABS definition of a small business, which is a business that employs fewer than 20 persons.[152]

 

[299]       The most recent data show that, in May 2014, the majority of employees in small businesses were employed on individual arrangements, with a small proportion of employees on collective agreements (see Chart 3). The number of employees in small businesses on collective agreements and individual arrangements were 126 700 and 1 393 200 respectively.[153]

 

Chart 3:          Proportion of employees with their pay set by method of setting pay and business size—May 2014

 

Note: Data on method of setting pay by business size exclude owner managers of incorporated businesses.

Source: ABS, Employee Earnings and Hours, Australia, May 2014, Catalogue No. 6306.0.

 

[300]                  Chart 3 demonstrates that there is a positive correlation between business size and collective agreements, with an increase in business size associated with an increase in the proportion of employees on collective agreements.

 

[301]       Relatively few employees employed in small businesses are covered by a collective agreement. This supports our earlier observation about the practical impediments facing small businesses that wish to enter into such agreements. A modern award variation of the type we propose will ensure that all employees have access to cashing out arrangements.

 

[302]       It seems to us to be somewhat anomalous that award-free employees and agreement-covered employees can negotiate arrangements permitting the cashing out of accrued annual leave, but employees whose terms and conditions of employment are regulated by a modern award cannot. Some of the practical difficulties which may arise from this differential treatment are highlighted in BHP Billiton’s submission of 27 November 2014:[154]

 

“BHP Billiton has a large collective agreement-covered workforce who are entitled to have cashing out of annual leave terms included in enterprise agreements through bargaining. BHP Billiton also employs managerial, professional and administrative staff whose employment is generally not the subject of any collective agreement. These staff members may be covered by one or other modern award. They have no equivalent access to cashing out of annual leave in the absence of any modern award term dealing with the matter.

 

BHP Billiton submits that it was not Parliament’s intention for the type of industrial instrument governing an employee’s employment to dictate whether or not the employee can exercise a choice to cash out annual leave. It is anomalous that, within a workforce, an employer could offer one group of employees the ability to access this choice through enterprise bargaining but would not be able to offer the facility to another group, or even accept individual requests from within that group, because the modern award lacks a provision dealing with cashing out.”

 

[303]       In this context we note that the ACTU submitted that the major difference between award-covered employees and award-free or agreement-covered employees is that the latter typically have “significantly more industrial ‘power’ than their colleagues who are award reliant”; award/agreement free employees are “likely to have significantly more bargaining power due to their personal or individual status” which enables them to achieve positive industrial outcomes, and agreement covered employees “achieve their industrial ‘power’ through collective bargaining”. Therefore, the ACTU submitted that arguments based on providing parity or equity are “misconceived”.[155] We acknowledge that such a distinction can be made, but, even if this is so, that does not make the current situation any less anomalous, and we have addressed the difference in bargaining power by the additional safeguards provided in the model term.

 

[304]       The union parties opposed the claim advanced by the Employer Group on two broad bases:

 

·  if granted the claim would undermine the purpose of annual leave; and

 

·  granting the claim would be inconsistent with the encouragement of enterprise bargaining.

 

Undermining the purpose of annual leave

 

[305]       The ACTU’s fundamental objection to the insertion of any provision in modern awards which facilitates the cashing out of annual leave was that such a provision would undermine the NES minimum entitlement to annual leave by converting annual leave into “a financial figure, rather than an entitlement”. The essence of the ACTU’s submission is set out in its submission in reply:[156]

 

“Frustrating the purpose of a safety net entitlement such as annual leave in a modern award has the potential to do significant damage to the basic rights and entitlements of employees. Regardless of whether or not the safeguards in sections 92 and 93 are applied, the purpose of annual leave will be frustrated; it will become nothing more than a payment to employees and will lose its long established importance and benefit as a break from work ...

 

We submit that no matter which or how many safeguards apply, the cashing out of annual leave in the safety net will do significant damage to the entitlement.”

 

[306]       The AMWU also contended that cashing out eliminates annual leave taken for rest and recreation and does not address the underlying reasons for the accumulation of large leave balances.[157] The AMWU further submitted that the proposed Employer Group’s claim “can result in serial cashing out of annual leave, and thus eliminate the taking of leave altogether” and that:

 

“The employer group proposal gives only a safeguard of requiring a leave balance of four weeks, but would not stop an employee from cashing out all leave accrued thereafter. The possibility of such an outcome should be avoided. Any acceptable safety net must require that a minimum amount of leave has actually been granted by the employer and taken by the employee.”[158]

 

[307]       The Construction, Forestry, Mining and Energy Union (CFMEU)[159] and the Textile, Clothing and Footwear Union of Australia (TCFUA)[160] also raised concerns about the potential for serial cashing out in the event that the Employer Group’s claim was granted.

 

[308]       The ACTU’s submissions also addressed what it characterised as the “failings” of the Employer Group’s proposed clause. In particular:

 

·  the clause has no safeguard to ensure that employees ever actually take a period of rest and recreation;

·  there are no protections to ensure that employees are not pressured into cashing out annual leave; and

·  requiring a written agreement for each cashing out is a mere formality and offers no real protection against abuse.[161]

 

[309]       In relation to the last of the points made about the Employer Group’s proposed clause, the ACTU asserted that it is unlikely that a written agreement will actually be entered into on each occasion that leave is cashed out. In support of its contention that the Employer Group’s proposed clause could be abused, the ACTU relied on a single enquiry received by its Member Connect service sometime in 2012–13.[162]

 

[310]       We do not find these submissions persuasive.

 

[311]       We turn first now to the proposition that facilitating the cashing out of annual leave would undermine the NES entitlement to leave. In our view this submission is misconceived.

 

[312]       We acknowledge that the purpose of annual leave is to provide a period of rest and recovery from work and, from a work-life perspective, employees need the time and opportunity to attend to their family and other commitments and to engage in social, community and personal interests. We also agree with the proposition that it is important that employees take their accrued annual leave and we have dealt with measures to facilitate the taking of leave in the previous part of this decision. But it is important to appreciate that the relevant standard is set by the NES.

 

[313]       The NES provisions relating to annual leave (ss.86–94) set out the minimum entitlement to annual leave for employees (other than casual employees) and expressly permit the cashing out of such an entitlement in ss.93 and 94. As the ACTU correctly observed, the inclusion of such a facilitative provision in a modern award is permitted rather than mandated. But such a distinction misses the point. The enactment of s.93 is a clear legislative statement that a modern award term which permits the cashing out of accrued annual leave, and meets the minimum requirements of s.93(2), is consistent with the NES entitlement to annual leave. Far from frustrating the purpose of a safety net entitlement, as asserted by the ACTU, the legislature has clearly contemplated that a modern award provision such as the cashing out model term may be part of the safety net.

 

[314]       In support of its general proposition that a modern award provision which facilitates cashing out would undermine the NES, the ACTU relied on the observations of the Award Modernisation Full Bench in its 2008 Award Modernisation decision, when it decided not to adopt a model provision to permit the cashing out of annual leave.[163] As we have already observed, because of the timing of the 18 December 2008 variation to the award modernisation request (which set out the safeguards which now appear in s.93(2)), that variation was not taken into account in the 2008 Award Modernisation decision of 19 December 2008.

 

[315]       The ACTU also submitted that a subsequent decision by the Award Modernisation Full Bench to refuse to vary the Meat Industry Award 2010[164] (the Meat Award) to provide for cashing out of annual leave supports this proposition, as the Full Bench in that matter “had seen and/or considered the safeguards that are replicated in the provisions of the Act ...”.[165] An examination of the decision does not support this contention. After referring to the observations made in the 2008 Award Modernisation decision, the Full Bench dismissed an application by the Australian Meat Industry Council to vary the Meat Award to include a provision for cashing out of annual leave. The Full Bench’s reasons are encapsulated in the following passage from its decision:

 

“[11] We have consistently expressed misgivings about cashing out of annual leave being included in safety net awards. Those misgivings are heightened in circumstances where there is no argument advanced in support and opposition exists to its inclusion. No such provision is contained in any of the awards which were considered in the modernisation process. In all the circumstances we have decided not to grant the application.”[166]

 

[316]       The decision contains no reference to the safeguards now contained in s.93(2) and on that basis it cannot be assumed that they were the subject of any consideration by the Full Bench.

 

[317]       The decisions of the Award Modernisation Full Bench must be considered in context. When viewed in this way it is apparent that, for various reasons, the safeguards which are now set out in s.93(2) were not the subject of any particular consideration by that Full Bench.

 

[318]       That said, we acknowledge and agree with the observation of the Award Modernisation Full Bench that some caution is appropriate when dealing with this issue at the award safety net level. We accept the proposition that there are significant differences between the modern award context and enterprise bargaining. As noted earlier, the Act contains significant procedural and substantive safeguards to facilitate the making of a democratic and informed decision on whether an enterprise agreement should be made.[167] In our view these differences warrant the imposition of additional safeguards in the modern award context and that is the course we have adopted.

 

[319]        We acknowledge that the ACTU sought a number of further safeguards—that is in addition to the safeguards we have incorporated into the model term. In particular the ACTU proposed five further safeguards:

 

(i)         that any provision should have a “sunset date” of 31 December 2018 so that the provisions can be considered and reviewed during the next 4 yearly review of modern awards;

 

(ii)        there must only be the possibility of cashing out annual leave once every three years;

 

(iii)       an employee who elects to cash out annual leave must have taken annual leave of “at least four weeks, or five or six or another amount if the employee is a non-standard worker, in the 12 months prior to cashing out”;

 

(iv)       cashing out cannot be a condition of employment; and

 

(v)        cashing out provisions should not be inserted into modern awards which contain other mechanisms for reducing annual leave balances, such as excessive leave terms or close down provisions.[168]

 

[320]       We are not persuaded to adopt any of these proposals. The first and fourth proposed safeguards are unnecessary. Any interested party can seek to vary or revoke the cashing out model term in the context of the next 4 yearly review. Cashing out cannot be a ‘condition of employment’, as the model makes clear each cashing out of a particular amount must be the subject of a separate agreement.

 

[321]       The second and third proposed safeguards would place unwarranted restrictions on the ability to cash out paid annual leave and no persuasive merit argument was advanced in support of the restrictions proposed. We note that the model term we have determined includes a limitation on the amount of paid annual leave which can be cashed out in any 12 month period.

 

[322]       As to the final proposal, it proceeds on a false premise in that it assumes that the only purpose of inserting the model term is to reduce excessive leave balances—that is not the case. As we have mentioned, the model term facilitates the making of mutually beneficial agreements. While such agreements enable employers to reduce their contingent liabilities, employees obtain the benefit of being able to exercise a preference they may have to receive cash rather than take leave.

 

[323]       We now turn to the ACTU’s submissions about the “failings” of the Employer Group’s proposed clause (see paragraph [308] above).

 

[324]       It is convenient to deal with the ACTU’s last point first. The Member Connect enquiry does not support the ACTU’s contention. If the facts asserted are correct, and the employee concerned was a national system employee, then the employer concerned was clearly acting unlawfully. Paid annual leave can only be cashed out in accordance with the terms of a modern award or enterprise agreement, or by an agreement between an employer and an award/agreement free employee (s.92). Each cashing out of a particular amount of paid leave must be by a separate agreement in writing, between the employer and employee (see ss.93(2)(b), 94(1) and (3) and reg.3.36(2)). The insertion of the model term will not make such unlawful behaviour more prevalent. Indeed, by clearly spelling out the circumstances in which accrued annual leave may be cashed out, the model term is more likely to promote compliance with the statutory scheme rather than non-compliance.

 

[325]       Nor is there any evidentiary basis for the ACTU’s assertion that it is unlikely that a written agreement will actually be entered into. There was no suggestion of any non-compliance with the cashing out provisions in existing enterprise agreements or with the terms of s.94 in relation to award/agreement free employees. Nor did the ACTU point to any compliance problems in relation to the cashing out provisions under s.233 of the WR Act.

 

[326]       As to the other two asserted “failings” of the Employer Group’s proposed clause, these issues have been adequately addressed in the model term. The model term limits the amount of annual leave which may be cashed out in any 12 month period. For a full-time employee only two weeks’ may be cashed out every 12 months, and hence such an employee will either accrue or take at least two weeks’ paid annual leave every 12 months (clause 1.2(d)). This safeguard is directed at preventing what the AMWU and others described as the potential for serial cashing out. The model term does not compel employees to take a minimum period of paid annual leave each year, but neither does the NES.

 

[327]       The two notes at the end of the model term refer to the general protections in the Act which prevent employees from being pressured into cashing out their paid annual leave entitlements.

 

Incentive to bargain

 

[328]       The ACTU contended that inserting cashing out provisions into the modern awards will remove an incentive to bargain:

 

“[T]he provisions of the FW Act which provide for enterprise bargaining assume that certain flexibilities or conditions of employment are not appropriate for inclusion in the safety net ... Bargained outcomes should only be included in modern awards where this is necessary to achieve the MAO of providing a fair and relevant safety net and not simply because of the difficulties or perceived difficulties faced by parties engaged in collective bargaining.”[169]

 

[329]       The ACTU also submitted that inserting a cashing out provision in modern awards would undermine the objects of the Act (particularly s.3(f)) as it would act as a disincentive for an employer to engage in enterprise-level collective bargaining and that the safety net must be set at a level which encourages parties to collectively bargain to seek provisions which differ from the safety net. [170]

 

[330]       We acknowledge that one of the particular matters we are required to take into account is “the need to encourage collective bargaining” (s.134(1)(b)).

 

[331]       However, as we have mentioned, no particular primacy is attached to any of the matters the Commission is required to take into account in paragraphs 134(1)(a)–(h). The Commission’s task is to balance the various considerations and ensure that modern awards, together with the NES, provide a fair and relevant minimum safety net of terms and conditions. An award term of the type we propose will not necessarily discourage collective bargaining. The setting of an appropriate safety net provision may create an incentive to enter into an enterprise agreement in order to tailor the provision to better meet the needs of a particular enterprise, subject to meeting the minimum requirements set out in s.93(2). We acknowledge that the insertion of the model term in modern awards may impact upon the incentive to bargain about the cashing out of annual leave. This is a relevant consideration, and we have taken it into account, but it is not determinative. In our view the considerations in favour of inserting the model term into modern awards outweigh any potential reduction in the incentive to bargain about this issue.

 

[332]       For the reasons given we are satisfied that the variation of all modern awards to insert the model term is necessary to achieve the modern awards objective.

 

[333]       We note that the Employer Group’s claim sought to vary 120 of the 122 modern awards to insert a provision to facilitate the cashing out of annual leave. The Seafood Processing Award 2010 was not sought to be varied as it already contains a cashing out provision (it is the only modern award that does so). The Passenger Vehicle Transportation Award 2010 was also omitted from the Employer Group’s list of modern awards to be varied. This award does not currently contain a cashing out provision and no reason was provided for its omission. During the course of oral argument Ai Group were seeking to insert the model cashing out term in all modern awards except the Seafood Processing Award 2010.[171] We also note that the Australian Public Transport Industrial Association appeared in the proceedings and supported the position put by ACCI and Ai Group in respect of the ACTU claim regarding the payment of annual leave entitlements on termination.

 

[334]       During the course of these proceedings all parties were put on notice as to the Commission’s concerns regarding the adequacy of the safeguards in the Employer Group’s claim. Subject to the requirements of procedural fairness, we are not bound by either the terms of the relief sought by a party or by the scope of the variations proposed.

 

[335]       We see no reason for excluding the awards mentioned from the variations we propose. The cashing out provision in the Seafood Processing Award 2010 does not contain sufficient safeguards and a variation is necessary to meet the modern awards objective. On the material before us the omission of the Passenger Vehicle Transportation Award 2010 from the awards sought to be varied by the Employer Group was simply an error.

 

4.3     Annual close-down

 

[336]       The Employer Group sought to insert a model “close-down” clause into 65 modern awards (see Attachment G for the list of modern awards). The proposed model clause is in the following terms:

 

“Annual Leave Close-Down

 

(a)        An employer may close down (or reduce to a nucleus) an enterprise or a part of it for the purpose of allowing paid annual leave to all or a majority of employees in the enterprise or part of it, provided that:

 

(i)        the employer gives the employees at least four (4) weeks’ notice of its intention to close down;

 

(ii)       in the case of any employee employed after notice has been given, notice must be given to that employee on the date they are offered employment.

 

(b)        Where an employee has been given notice pursuant to clauses X.X(a)(i) or (ii) above and the employee has:

 

(i)         accrued sufficient annual leave to cover the full period of closing, the employee must take paid annual leave for the full period of closing;

 

(ii)        insufficient accrued annual leave to cover the full period of closing, the employee must take paid annual leave to the full amount accrued and leave without pay for the remaining period of the closing; or

 

(iii)       no accrued annual leave, the employee must take leave without pay for the full period of closing.

 

(c)        Public holidays that fall within the period of close down will not count as a day of annual leave or leave without pay. Employees will be paid for any absence on such days in accordance with the NES.” [172]

 

[337]       In relation to subclause (c) of the proposed clause, the Employer Group confirmed that this was not intended to reduce any existing entitlements concerning public holidays and it was conceded that the provision may need to be modified to achieve that end.[173]

 

[338]       The 65 modern awards sought to be varied are, in effect, split into two categories:

·  41 modern awards that do not presently contain any provisions allowing employers to implement an annual close-down;[174] and

·  24 modern awards that do contain provisions regarding an annual close-down, but the existing modern award provisions do not provide the same level of flexibility as the model clause.

 

[339]       The purpose of the proposed provision is said to be to enable businesses to shut down and require annual leave to be taken at the best time in terms of production or service delivery fluctuations. It is on that basis that it was submitted that the “close-down” proposal is not directed at the same issue being canvassed by the variations proposed to address excessive leave balances and should not be seen as an alternative to that claim.[175]

 

[340]       The 57 modern awards that are not subject of the proposed variations already contain provisions allowing employers to implement annual close-downs and no variations are proposed in those awards.

 

[341]       The ACTU and a number of individual unions opposed the Employer Group’s claim.

 

[342]       We propose to deal with the relevant historical and legislative context before turning to the merits of the claim.

 

[343]       An annual close-down provision (also referred to as a “shut down”) was introduced into the WR Act by the Work Choices Act in 2006. The AFPCS provided that an employer had a right to direct employees to take leave during a shut down for the whole, or part, of its business. Section 236(5) of the WR Act provided:

 

“Shut downs

 

(5)        An employee must take an amount of annual leave during a particular period if:

 

(a)        the employee is directed to do so by the employee’s employer because, during that period, the employer shuts down the business, or any part of the business, in which the employee works; and

 

(b)        at least that amount of annual leave is credited to the employee.”

 

[344]       Annual close-down provisions were also in some awards prior to the Work Choices Act amendments. For example the Metal Industry Award 1971 was varied in 1977 to include such a provision.^[176]

 

[345]       During the award modernisation process, the Award Modernisation Full Bench, in its 2008 Award Modernisation decision, stated that the “provisions in awards and NAPSAs governing annual close-downs vary significantly”.[177] The Full Bench went on to say it had “adopted the approach of attempting to identify an industry standard in each case” which is why there may be “some variation in the close-down provisions”.[178]

 

[346]       An example of how the Award Modernisation Full Bench decided to include a close-down provision is in the pest control industry. In making the Pest Control Industry Award 2010 the Full Bench decided to include an annual close-down provision.[179] Prior to the making of the modern award, three of the six pre-reform federal awards and NAPSAs in this industry contained close-down provisions. These included the South Australian and New South Wales NAPSAs and the Victorian pre-reform federal award. The South Australian NAPSA, the Pest Control Award, required an employer to give an employee six weeks’ notice before closing down for a period of time.[180] The modern award provision for annual close-down, however, reflects the Victorian pre-reform federal award and requires four weeks’ notice.

 

[347]       At present, 81 modern awards contain provisions for close-down and 41 modern awards do not.[181]

 

[348]       The Act does not contain a specific provision in relation to “shut downs” or “close-downs”, but s.93(3) provides that a close-down provision may be included in modern awards and enterprise agreements; it reads:

 

“Terms about requirements to take paid annual leave

 

(3)        A modern award or enterprise agreement may include terms requiring an employee, or allowing for an employee to be required, to take paid annual leave in particular circumstances, but only if the requirement is reasonable.”

 

[349]       The Explanatory Memorandum to the Fair Work Bill 2008 makes it clear that the subsection was intended to encompass close-down provisions. One of the examples provided in the Explanatory Memorandum was a term which enabled an employer to require an employee to take a period of leave in circumstances where the employer decided to “shut down the workplace over the Christmas/New Year period” (see paragraph [91] above). We return to s.93(3) shortly.

 

[350]       We also note that s.139(1)(h) provides that a modern award may include terms about “leave, leave loadings and arrangements for taking leave”.

 

[351]       We now turn to the submissions advanced in respect of the Employer Group’s claim.

 

[352]       The ACCI and Ai Group submissions advanced a number of arguments in support of the Employer Group’s claim. These submissions can be conveniently distilled into seven broad lines of argument.

 

[353]       First, it was contended that provisions similar to the proposed model close-down term are already contained in many modern awards, including the Asphalt Industry Award 2010, and were adopted by the Full Bench of the Commission during the Transitional Review in varying 18 awards.[182]

 

[354]       In relation to this point we would observe that the Transitional Review—Annual Leave decision did not endorse the close-down provision in the Asphalt Industry Award 2010 as an appropriate model term. The Full Bench simply dealt with an anomaly or technical problem arising from the Part 10A award modernisation process. The issue at the heart of the Full Bench decision was that the obligation under the NES to accrue annual leave progressively and make payment at the employee’s base rate of pay gave rise to an argument that the existing award provision provided for an additional payment over and above the amount that would otherwise be payable for an absence on annual leave. Such an additional payment was unintended and the variations made resolved this anomaly.[183]

 

[355]       Second, it was contended that prior to the Act, the right of an employer to direct employees to take annual leave during a close-down of the employer’s business was clearly recognised and provided through federal and state legislation and pre-modern award terms. In addition to the legislative changes introduced by the Work Choices Act (to which we have already referred) it was submitted that state legislation, such as the Annual Holidays Act 1944 (NSW) at s.4A, provided for the right of an employer to implement a close-down of its business, in whole or in part, and enabled an employer to direct an employee to take a period of unpaid leave to cover the close-down period, when the employee had insufficient leave accrued. It was submitted that these and other statutory arrangements applied to employees generally and, as such, the safety net provided by modern awards should also now reflect this position.[184] It was also submitted that unless there was good reason to do otherwise, a uniform approach should be adopted across all modern awards on the close-down provisions.

 

[356]       For our part, we note that a number of the earlier provisions to which reference was made by those supporting the Employer Group’s claim contained a range of limitations upon an employer’s right to direct an employee to take annual leave. For example:

 

·  the Annual Holidays Act 1944 (NSW) specifies that an employer can only give an employee notice of a close-down once annually; and

·  awards and agreements also set parameters around these provisions. For example the Clerks’ (South Australia) Award and the Retail Industry (South Australia) Award provided that there could be no more than two close-downs in any one year.

 

[357]       Third, it was submitted that the variation is supported by the fact that many employers close their operations, or part of them, over the Christmas/New Year period and/or at other times of the year. The inclusion of close-down provisions in the relevant modern award would ensure that an employer has the right to direct employees to take leave during a close-down.

 

[358]       Fourth, it was submitted that a close-down provision benefits both employees and employers. A close-down enables employees to take periods of annual leave for rest and recreation, particularly during holiday seasons where they can spend time with family and friends. It enables employees to take leave without employers having to secure replacement labour for the leave period.[185] An annual close-down also benefits employers by providing a mechanism through which employers may reduce leave liability and better manage staff absences.[186]

 

[359]       Fifth, it was submitted that many employers must observe different award provisions for different employees, in addition to observing the NES provisions governing the taking of leave during close-downs for award/agreement free employees.[187]

 

[360]       This is said to make the safety net confusing, burdensome, unfair for employers, and in some cases, unworkable where the employer has to deal with varying award provisions, or in some cases no close-down provisions within the same enterprise.[188]

 

[361]       Sixth, it was submitted that the results of the Employer Survey support the claim. Questions 9–10A of the Employer Survey are directed at the close-down issue, as follows:

 

“9.     Since 1 January 2010, has your organisation closed down all or part of its operations at any time during the year to allow employees to take leave? Choose one of the following answers.

·       Yes

·       No

·       Unsure

 

10.  If so, on how many occasions since December 2009 has your organisation closed down all or part of its operations?

·       1–2

·       3–4

·       5+”

 

[362]       Some 1928 employers (46.5 per cent of all responses) stated that since 1 January 2010 their organisation closed down all or part of its operations during the year to allow employees to take leave. As to the number of occasions since December 2009 the organisation had closed down all or part of its operations, the responses were as follows:

 

Answer	Count	%
1–2 occasions	477	23.8
3–4 occasions	1237	61.8
5+ occasions	215	10.7
No answer	72	3.6

 

Note: Percentages shown do not total 100 due to rounding.

 

[363]       We will deal with Question 10A from the Employer Survey shortly.

 

[364]       Finally, it was submitted that the modern awards to be varied do not meet the modern awards objective and that the variations proposed are necessary to achieve that objective.[189]

 

Promoting the efficient and productive performance of work (s.134(1)(d))

 

[365]       ACCI submitted that the model clause provides a mechanism whereby employers can ensure that employees actually take their leave and that such an outcome is beneficial to both employees and employers as it serves to:

 

(i)         reduce the prospects of employee “burnout” and poor health;

 

(ii)        assist in maintaining job safety and satisfaction; and

 

(iii)       ultimately help to ensure a more balanced, rested and (accordingly) productive workforce.[190]

 

The likely impact on business, including on productivity, employment costs and the regulatory burden (s.134(1)(g))

 

[366]       Allowing employers to close down their businesses on a periodic basis was said to allow an employer to reduce its annual leave liability thereby reducing the regulatory burden on employers.[191]

 

A simple easy to understand and sustainable modern award system (s.134(1)(g)

 

[367]       ACCI submitted that the practice of closing down all or part of a business’ operation is widespread and well known. It is not a new concept and, prior to the introduction of the Act, historically there had been a relatively uniform approach to annual close-down provisions. Allowing employers to close down their premises on a periodic basis advances the objectives of s.134(1)(g).[192]

 

Employment growth and the sustainability, performance and competitiveness of the national economy (s.134(1)(h))

 

[368]       It was contended that the model clause will reduce the regulatory burden on businesses and allow them to divert funds currently set aside for excessive leave accruals on profit generating investments. Compelling employees to take leave is also directly supportive of a major sector of the economy—tourism.[193]

 

[369]       The ACTU and a number of individual unions opposed the Employer Group’s claim and contended that the Commission cannot be satisfied that it is necessary to grant the claim in order to ensure that modern awards are meeting the modern awards objective. For reasons which will become apparent, it is not necessary to canvass these submissions in any detail.

 

[370]       We are not persuaded to grant the Employer Group’s claim for three reasons.

 

[371]       First, while we accept that a close-down provision may be included in modern awards, it is clear from the terms of s.93(3) that an award provision requiring an employee to take paid annual leave in such circumstances is only permitted “if the requirement is reasonable”. We are not satisfied that the model term proposed is “reasonable” in the sense contemplated by s.93(3).

 

[372]       The model term is very broadly expressed and is capable of being applied in a manner not contemplated in the type of annual close-down provisions traditionally provided in awards, in particular:

 

(i)    there is no restriction on the number of times a close-down can occur in a 12 month period; and

 

(ii)   there is no restriction on the duration of the close-down—it could be for a single day, a week or a number of weeks.

 

[373]       Further, given the breadth of the model term we are not persuaded that a four week notice period is reasonable.

 

[374]       Second, while we generally agree with the proposition that it is desirable that provisions dealing with the taking of annual leave be uniform across modern awards, it seems to us that close-down provisions are an exception to this general proposition and warrant consideration on an award-by-award basis.

 

[375]       Some 81 modern awards already contain close-down provisions and the nature of the provisions varies considerably. In its 2008 Award Modernisation decision, the Award Modernisation Full Bench considered a number of general issues and standard clauses in respect of modern awards. In respect of close-down related annual leave arrangements, the Full Bench said:

 

“[97] The provisions in awards and NAPSAs governing annual close-downs vary significantly. It is preferable that we do not alter provisions which have been specifically developed for particular industries. We have adopted the approach of attempting to identify an industry standard in each case. This means there may be some variation in the close-down provisions.” [194]

 

[376]       We have reviewed the existing range of modern award provisions and the basis upon which they were established in the Award Modernisation process and have considered the case put forward to establish a common provision. We are not persuaded that it is appropriate to adopt a common provision across the modern awards which are the subject of the Employer Group’s claim. The circumstances in the industries covered by modern awards and the need for such a provision vary considerably. Accordingly, claims to vary existing close-down provisions or to insert such a provision are more appropriately made and determined on an award-by-award basis.

 

[377]       In this context we also note that the Employer Survey does not support the proposition that there is a need for the variations proposed. The Employer Survey provided that if an organisation answered “no” to Question 9 (i.e. since 1 January 2010 has the organisation closed down all or part of its operations at any time during the year to allow employees to take leave) then they were directed to Question 10A, which was in the following terms:

 

“10A.     If you answered no to question 9, what was the reason for your organisation not closing down?

·  There was no operational reason for our business to close down.

·  We were unable to close down because it was not permitted by our award or agreement”

 

[378]       The responses to Question 10A were as follows:

 

Answer	Count	%
There was no operational reason for our business to close down	1642	87.3
We were unable to close down because it was not permitted by our award or agreement	67	3.6
No answer	172	9.1

 

[379]       It is notable that less than 4 per cent of those employers who answered this question responded that the reason why they had not closed down all or part of their operations since 1 January 2010 was that it was not permitted by their award or agreement. This does not suggest that the absence of a close-down provision in the 41 modern awards which do not presently have such a provision is creating particular difficulties for employers.

 

[380]       Third, in support of the Employer Group’s claim, Ai Group and ACCI pointed to the desirability of employees taking leave and that the proposed model term would provide a mechanism by which employers can reduce their leave liability. We have addressed these issues in the context of our consideration of the Employer Group’s “excessive leave” claim.

 

[381]       On the material before us, we are not satisfied that the variations proposed are necessary to ensure that the modern awards sought to be varied meet the modern awards objective. In short, the proponents of the claim have not established a merit case sufficient to warrant the granting of the claim.

 

[382]       We leave open the capacity for interested parties to seek a variation to a modern award to either vary an existing close-down provision or to insert an appropriate provision. Such applications should be made during the Award stage of the Review on an individual award basis. Any proposed variation will need to be supported by cogent evidence of industry circumstances requiring such a provision or variation.

 

[383]       We do accept that there may be potential difficulties created by circumstances where an enterprise has access to a modern award close-down provision for most of its employees but other applicable modern awards do not contain such a provision. The application of occupational awards may be particularly relevant in that context. It seems to us that such issues may be addressed by the insertion of a majority clause[195] in applicable occupational-based awards. We invite any interested party to make such applications and they will be dealt with as part of the Award stage of the Review.

 

4.4     Granting leave in advance

 

[384]       The Employer Group sought to vary 48 modern awards to include a provision allowing for the taking of annual leave in advance of an entitlement to such leave accruing.[196] The proposed clause is in the following terms:

 

“Annual Leave in Advance

 

By agreement between an employer and employee, a period of paid annual leave may be taken in advance of the entitlement accruing. However, if paid annual leave is taken in advance and the employee’s employment terminates before the employee has accrued the entitlement the employer may make a corresponding deduction from any money due to the employee on termination.” [197]

 

[385]       The ACTU and a number of individual unions opposed the Employer Group’s claim.[198]

 

[386]       We propose to deal with the relevant historical and legislative context before turning to the merits of the claim.

 

[387]       The issue of whether modern awards should contain provisions for granting leave in advance was not expressly addressed during the Part 10A award modernisation process. When dealing with the matter of annual leave generally, the Award Modernisation Full Bench indicated that it was not possible to develop a single model clause due to the wide range of provisions contained in pre-modern awards and NAPSAs.^[199] In considering the terms to include in modern awards, the Full Bench decided upon an appropriate entitlement for a particular modern award rather than attempting to preserve the many different entitlements which previously applied. The approach taken was described as involving a “degree of rationalisation at the award level only” and not the insertion of a standard annual leave provision across all awards.^[200] We note that some 74 modern awards contain a clause permitting the taking of annual leave in advance of the entitlement accruing.^[201]

 

[388]       The Joint Exhibit (referred to at paragraph [81] above) contained details of legislation, both federal and state, which deals with annual leave entitlements and related matters. It identified provisions which expressly deal with an employee taking annual leave in advance of an entitlement to that leave accruing. It appears that federal legislation has not expressly dealt with the issue but it has been dealt with in New South Wales, Queensland and Northern Territory legislation.[202] In this respect, we note that s.3(3) of the Annual Holidays Act 1944 (NSW) provides that, if an employee and employer agree, annual leave may be taken in advance of the employee becoming entitled to the leave. Section 12 of the Industrial Relations Act 1999 (Qld) and s.8 of the Annual Leave Act (NT) contain similar provisions.

 

[389]       We have earlier noted that s.139(1)(h) of the Act allows a modern award to contain provisions dealing with leave and “arrangements for taking leave”. Section 93(4) of the Act which is also relevant to this matter, is in the following terms:

 

“Terms about taking paid annual leave

 

(4)        A modern award or enterprise agreement may include terms otherwise dealing with the taking of paid annual leave.”

 

[390]       It is apparent from the Explanatory Memorandum to the Fair Work Bill 2008 that the proposed clause is a term of the type envisaged by s.93(4). The Explanatory Memorandum provides as follows:

 

“383. Subclause 93(4) enables an award or agreement to include other terms about the taking of paid annual leave – e.g., the taking of paid annual leave in advance of accrual.”

 

[391]       Section 94 of the Act deals with annual leave entitlements of award and agreement free employees and a note contained in s.94(6) refers to a similar issue to the matter before us. It provides:

 

“Agreements about taking paid annual leave

 

(6)        An employer and an award/agreement free employee may agree on when and how paid annual leave may be taken by the employee.

 

Note:  Matters that could be agreed include, for example, the following:

(a) that paid annual leave may be taken in advance of accrual;

(b) that paid annual leave must be taken within a fixed period of time after it is accrued;