The full bench of the Federal Court unanimously held in Centennial Northern Mining Services Pty Ltd v Construction, Forestry, Mining and Energy Union  FCAFC 100 that the primary judge (Buchanan J) correctly construed s 90(2)) of the Fair Work Act 2009 (Cth) (the Act). Buchanan J held that section 90(2) of the Act properly constructed, was to be read as inclusive of any leave loading when leave entitlements were paid out upon termination of employment.
Centennial Northern Mining Services (the Appellant) operated the Newstan Colliery located in NSW and made a number of employees redundant. 58 of these employees (represented by the Respondent, Construction, Forestry, Mining and Energy Union) were entitled to leave entitlements as part of their redundancy payment. The employees had been engaged under an enterprise agreement (the Enterprise Agreement) which provided for leave loading at the amount of 20% i.e. the employees were entitled to pay of 120% of their ordinary rate of pay when taking leave.
The Law and the Facts
The relevant sections of the Act, in this case, were sections 90(1) and 90(2). These sections state:
Section 90(1) If, in accordance with this Division, an employee takes a period of paid annual leave, the employer must pay the employee at the employee’s base rate of pay for the employee’s ordinary hours of work in the period.
Section 90(2) If, when the employment of an employee ends, the employee has a period of untaken paid annual leave, the employer must pay the employee the amount that would have been payable to the employee had the employee taken that period of leave.
The Enterprise Agreement included a provision which provided that all leave entitlements to be paid to an employee upon termination of employment were to be calculated on the employee’s ordinary rate of pay i.e. employees were not entitled to leave loading for leave entitlements upon termination of employment.
The Respondent argued that this provision of the Enterprise Agreement contradicted section 90(2) of the Act and, therefore, had no effect.
The Appellant argued that section 90(1) was to be read in conjunction with section 90(2) and as such, the provision of the Enterprise Agreement did not contradict the Act.
Essentially, the issue was whether section 90(2) properly constructed intended to include the payment of leave loading when leave entitlements were paid out upon termination.
Buchanan J approached the issue as a two step question. Firstly, what was the proper construction of s 90(2) and secondly, once determined, did the provision of the Enterprise Agreement contradict it?
Construction of Section 90(2)
In determining the proper construction of section 90(2), Buchannan J referred to other sections of the Act (sections 93 and 94) that also dealt with annual leave that is accrued but is not taken, as well as to the explanatory memorandum to the Fair Work Bill 2008 (the Explanatory Memorandum). According to his Honour’s reading of sections 93 and 94, his Honour did not think (although he does not use such firm language as to say they did not) that they were connected to s 90(1). Noting the lack of assistance these two sections provided, his Honour then turned to the Explanatory Memorandum which stated at paragraph 372:
The payment will be equivalent to the amount that the employee would have been paid if the employee had taken the annual leave.
According to Buchannan J, this was determinative and therefore section 90(2) was to be read as to mean leave loading was to be included when paying out leave entitlements upon termination of employment.
Did the Enterprise Agreement Contradict Section 90(2)?
Having determined the proper construction of section 90(2), Buchannan J then turned his attention to whether the provision in the Enterprise Agreement, therefore, contradicts the Act. Although he did acknowledge that there may be no inconsistency, he held that at least on its face, the provision in the Enterprise Agreement was contradictory and therefore of no effect.
When paying out employee entitlements upon termination, it is important to make sure that all employee entitlements are accounted for. Leave loading is only one employee entitlement that will need to be accounted for when calculating an employee’s entitlements. To ensure that you have not missed anything, speak with an employment lawyer. Questions? Get in touch.