Fair Work Commission decision on how annual leave should be calculated

On 18 December 2020, in AWU v Cleanaway Operations Pty Ltd [2020] FWC 6907, the Fair Work Commission ruled on the correct manner of calculating annual leave under the National Employment Standards.

Commissioner Spencer held the approach adopted by the High Court in Mondalez, which concerned calculation of personal leave, should also be taken when calculating annual leave. 

In Mondalez, the High Court observed that:

1. An entitlement to paid personal/carer’s leave accrues progressively in the course of a year of service, for all employees, by reference to ordinary hours worked and not by reference to days or working patterns;
2. Employees working the same number of ordinary hours accrue paid personal/carer’s leave at the same rate and, after working the same number of ordinary hours, are entitled to be paid for the same number of ordinary hours, regardless of whether their ordinary hours over a two-week period are worked across ten, six or five days in that period; and
3. The purpose of paid/carer’s leave is to protect employees against loss of earnings, and it does that by reference to their ordinary hours of work. As a result, the amount of leave accrued does not vary according to their pattern of hours or work.

Given this reasoning, an employee’s entitlement to paid annual leave under section 87(1) of the Fair Work Act, be it “4 weeks or 5 weeks”:

• Progressively accrues for each year of service completed; and 
• Is equivalent to an employee’s ordinary hours of work in a week. 

Where ordinary hours for full-time employees are averaged over a period such as 2 or 4 weeks – an employee that takes a “week” of annual leave, should be paid for the equivalent of 38 hours’ at their base rate of pay.