A client of ours was recently approached by one of its employees, who had been on paid workers’ compensation benefits for several years and asked to be paid his accrued annual leave entitlements. After all, he had not taken annual leave at any stage during his recuperation from injury and understood that he had accrued a significant entitlement. Our client had simply assumed that because the employee was not working, was not on paid personal leave, and was receiving compensation payments, he was not continuing to accrue entitlements. They were wrong.
In this client alert we look at the definition of continuous service and the ramifications it has on a number of entitlements, including annual leave, long service leave, notice, redundancy, and unfair dismissal.
Continuous Service where an Employee is on Workers Compensation
Section 130 of the Fair Work Act (“FW Act”) restricts an employee from taking or accruing leave whilst receiving workers’ compensation; however, this restriction does not apply where taking and accruing leave during a compensation period is permitted by a compensation law. Whilst we do not intend to traverse the regulatory minefield of workers’ compensation legislation, it is worth noting that each State and Territory, and indeed the Commonwealth, have their own schemes when it comes to managing workers who are injured in the workplace. For example, in New South Wales, section 49 and section 50 of the Workers Compensation Act 1987 (NSW) expressly permits annual leave or personal leave to continue to accrue and allows an employee to use annual leave entitlements concurrently whilst they are on workers’ compensation. Similar permissions are granted under the respective compensation laws of Queensland, Western Australia and Victoria.
In our aforementioned client’s case, their employee had been injured in a Victorian workplace and had fallen into the category of ‘out of sight, out of mind’ whilst on compensation. As such, when our client terminated the employment of the employee concerned, it was compelled to pay a significant sum for the accrued annual leave entitlement to its employee.
Where the relevant State or Territory laws expressly prohibit the taking and accruing leave during a compensation period, or is otherwise silent on the topic, section 130 of the FW Act applies and leave entitlements will not accrue, or be permitted to be taken whilst an employee is on workers compensation. This is the case in the Australian Capital Territory, the Northern Territory and under the Commonwealth scheme (Comcare).
Relevantly, where service is deemed continuous for the purposes of accrual of entitlements, it can create liabilities for employers who have employees in receipt of long-term workers’ compensation. It can also create other issues with respect to redundancy entitlement and access to the unfair dismissal jurisdiction under the FW Act.
So, how do these inconsistencies in State and Commonwealth compensation legislation assist in answering the question of what is continuous service? Section 22 of the FW Act examines what constitutes an excluded period of service for the purposes of calculating “continuous service”. An excluded period does not break an employee’s continuous service; however, it does not count towards the length of the employee’s continuous service. Examples of an excluded period include:
- any period of unauthorised absence;
- periods of industrial action engaged in by employees;
- unpaid parental leave;
- unpaid leave or unpaid authorised absence; and
- absences where an employee is paid under income protection insurance.
For example, in Webster v Toni and Guy Port Melbourne Pty Ltd T/A Toni and Guy Port Melbourne  FWA 4540 the employee had been on authorised leave during his employment due to a motor accident injury. The employee had just commenced employment with his employer and did not have enough accrued personal leave to take whilst recuperating, he did not receive payment from his employer during this period but was in receipt of payments from the Transport Accident Commission. As such, it was held that this period was an excluded period because it was ‘unpaid leave’.
In the case of L.M. v Standard & Poor’s (Australia) Pty Ltd  FWA 9634, an employee was absent from work for about 5 weeks because of illness and was paid income protection insurance payments by a private insurer through his superannuation fund. It was held that because the employer was under no legal obligation to provide income protection insurance, the employee was again on ‘unpaid authorised leave’.
However, in the decision of the Full Bench of Fair Work Australia (as it was then known) in Workpac Pty Ltd v Bambach  FWAFB 3206, a truck driver was only employed by Workpac for two and a half months before he suffered a workplace injury and was unable to work again for over 14 months. The worker was subsequently terminated by Workpac and sought to bring an unfair dismissal claim.
In this case, Workpac argued that the employee was not protected by the unfair dismissal laws because he had not completed the minimum qualifying period of six months “continuous service”. Workpac contended that the employee had only completed two and a half months continuous service from the time of employment to the date of injury. Workpac further argued that the period in which the employee was receiving workers’ compensation benefits should not be included as continuous service.
The Full Bench held on appeal that the truck driver’s 14-month period off work on workers’ compensation was an “authorised absence” because it was “legally sanctioned” under workers’ compensation legislation. The consequence was that the benefits paid whilst on workers’ compensation were made pursuant to the employer’s legal obligation to do so with the result that the absence was an authorised paid absence from work. The Full Bench thus determined that the employee’s absence from work on workers’ compensation was, in fact, “continuous service”.
It is thus safe to assume that, for the purposes of section 22 of the FW Act, the decision in Workpac means that periods of workers’ compensation are not excluded periods and that the meaning of “continuous service” has been broadened for at least this issue of minimum qualifying period, to include a circumstance where an employee is receiving workers’ compensation benefits.
Ultimately, for the purposes of section 22 of the FW Act and the definition of “continuous service” it appears distinguishable that where an employee is on unpaid leave or is on leave and in receipt of payment from a source separate to the employer (such as was the case in Webster and Standard & Poor’s) the employee’s service is excluded and does not count towards continuous service, whereas in Workpac, where the employee was on workers’ compensation (and thus being paid benefit conferred on the employer by the obligations under compensation legislation) the service is not excluded and is counted as continuous service.
Redundancy Payment Exposure
Whilst it is yet to be tested in the Fair Work Commission (“FWC”), considering the decision in Workpac where service continues to be counted whilst on workers’ compensation, it is reasonable to suspect redundancy payments based on length of service will similarly be treated. As such, any claim for length of service for the purposes of calculating severance pay in the case of a genuine redundancy will include time served on workers’ compensation in line with the Workpac decision.
Whether the calculation is based on the scale under the National Employment Standards, under a relevant Modern Award, or under the typically more generous redundancy provisions found in Enterprise Bargaining Agreements, an employee who spends significant periods of time on workers’ compensation benefit, is likely accruing an increased quantum of severance pay should they, at some point, be made redundant.
Where an employee is on workers’ compensation during recuperation and an employer, in consultation with the employee’s treating practitioner, plans to implement a return to work plan, there is no great controversy in said employee’s continuous service potentially generating quantum in the event of a genuine redundancy. However, where an employee is on longer term workers’ compensation benefits, and whose role is marked for genuine redundancy, it behoves an employer to appropriately manage the employee as to whether they can return to work in some capacity, through the assessment of an independent medical examiner, or whether they should be terminated by way of being incapable of fulfilling the inherent requirements of their position.
What Should Employers Do?
Considering the relevant State, Territory and Commonwealth regulations regarding employees on workers’ compensation, and the FWC’s clear determination that time served whilst on workers’ compensation is “continuous service” when determining the minimum employment period for access to the unfair dismissal jurisdiction, employers should be mindful that an employee on workers’ compensation should not be an employee who is ‘out of sight, out of mind’.
It should always be the first intention of the diligent employer, in consultation with the treating medical practitioner, to be taking all reasonable steps to reintegrate the injured employee back into the workplace in a capacity where they can meaningfully contribute in an environment that safely accords with their condition and recovery. Should it be impractical, unsafe or ultimately unfruitful (when taking appropriate medical advice) to return the employee back to work, and where no suitable alternative position exists, the diligent employer should exercise lawful means to sever the employment relationship on the grounds that the employee is not, and will not, be fit for the inherent requirements of the position, or any other suitable position.
Otherwise, the employer will likely become liable for a range of accrued employee entitlements and/or exposure to legal remedy which could otherwise be avoided.
High Court Overrules the Decision in the Mondelez Personal Leave Case
On 21 August 2019, the Full Court of the Federal Court made a landmark decision in Mondelez v AMWU  FCAFC 138 whereby personal leave would be accrued and taken by reference to “days” rather than a notional number of average hours, meaning that an employee working three 12 hour shifts of ordinary hours per week would be entitled to be paid for 12 hours per day of personal leave taken. By way of a worked example, if an employee worked three 12 hours shifts per week (for a total of 36 hours per week), they would be entitled to 10 days personal leave per year paid at the rate of 12 hours per day taken.
What this meant in practice for a majority of employers, particularly those who did not utilise shift workers, was that part-time employees were entitled to the same 10 days of paid personal leave as enjoyed by full-time employees, regardless of the hours they worked.
Almost 12 months to the day of that Full Federal Court decision, the High Court of Australia overturned the appeal court’s decision and clarified that:
- the entitlement to 10 days of personal/carer’s leave under the National Employment Standards (NES) is calculated based on an employee’s ordinary hours of work each week, not working days; and
- 10 days of personal/carer’s leave can be calculated as 1/26 of an employee’s ordinary hours of work in a year.
In layman’s terms, the High Court decision now restores an employee’s entitlement to accrue and take personal leave to that which was understood by most employers prior to the 2019 decision of the Full Federal Court. In other words, part-time employees accrue their personal leave, on a pro-rata basis, over the course of the working year.
We are Here to Help
We regularly advise clients on best practices to manage employees who are ill or injured, including, where appropriate, taking lawful avenues to sever the employment relationship where there is a genuine redundancy or the employee can no longer perform the inherent requirements of their position.
If you require further information in relation to any aspect of this client alert or assistance in dealing with an employment law related issue, please feel free to contact us.
This alert is not intended to constitute, and should not be treated as, legal advice.
This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please also note that the law may have changed since the date of this article.