Armacell Australia Pty Ltd
[2010] FWA 8283
•28 OCTOBER 2010
Note: An appeal pursuant to s.604 (C2010/5569) was lodged against this decision - refer to Full Bench decision dated 24 December 2010 [[2010] FWAFB 9985] for result of appeal.
[2010] FWA 8283 |
|
DECISION |
Fair Work Act 2009
s.185—Enterprise agreement
Armacell Australia Pty Ltd
(AG2010/11703)
Manufacturing and associated industries | |
COMMISSIONER RYAN | MELBOURNE, 28 OCTOBER 2010 |
Armacell Australia Enterprise Agreement 2010.
[1] An application has been made for approval of an enterprise agreement known as the Armacell Australia Enterprise Agreement 2010 (the agreement). The application was made pursuant to s.185 of the Fair Work Act 2009 (the Act). It has been made by Armacell Australia Pty Ltd (Armacell). The agreement is a single-enterprise agreement.
[2] The application was filed with Fair Work Australia on 6 July 2010.
[3] A hearing on the application was held on 16 August 2010 at which I outlined a number of concerns I had in relation to the agreement. Armacell was represented at the hearing by its legal representative. Armacell was not required to respond to my concerns at the hearing and was given leave to respond, at a time of its choosing, after it had considered the issues raised at the hearing.
[4] Armacell responded by letter dated 17 September 2010 in which they addressed the issues I raised. All but 2 of the issues were dealt with by way of Armacell offering 16 undertakings in relation to the operation of various clauses of the agreement. Each of the undertakings offered had also been the subject of a memo from Armacell to its employees and to the employee bargaining representatives. The undertakings offered addressed the concerns I had in relation to the various clauses.
[5] The 2 remaining issues concerned the provisions of the agreement permitting the cashing out of annual leave and long service leave. The relevant clauses of the agreement are as follows:
“32. ANNUAL LEAVE
32.1 Employees shall be entitled to 4 weeks’ paid annual leave in each year employment, to be taken at times agreed between the Employee and Armacell.
32.2 Shiftworkers
(a) Shiftworkers shall be entitled to 5 weeks’ paid annual leave in each year of employment.
(b) For the purposes of this Clause, a shiftworker is defined as an Employee who:
(i) works in an area of Armacell’s business in which Shifts are continuously rostered 24 hours per day for 7 days a week; and
(ii) is regularly rostered to work those Shifts; and
(iii) regularly works on Sundays and public holidays.
32.3 Annual leave accrues on a pro-rata basis throughout the year, is cumulative and is paid out upon termination of employment.
3.24 If possible, a request for the taking of annual leave should be made at least 4 weeks in advance. Armacell may reasonably refuse a request for annual leave where the operational requirements of the business necessitate such a refusal.
32.5 Armacell prefers and encourages Employees to take all accrued annual leave within 12 months of accruing that annual leave.
32.6 Annual leave loading
(a) Non-salaried Permanent Employees shall be entitled to the payment of 17.5% annual leave loading with respect to all annual leave accrued in a completed year of service.
(b) Annual leave loading shall be payable on termination with respect to annual leave accrued in a completed year of service.
(c) The salary for Salaried Employees incorporates an amount for annual leave loading. Such Employees shall not be paid annual leave loading as a separate amount.
32.7 Cashing in of Annual Leave
(a) An employee may elect, and Armacell may agree, to cash in a particular amount of the Employee’s accrued annual leave.
(b) Any agreement to cash in an amount of an Employee’s annual leave must be in writing.
(c) Armacell and the Employee must not agree to the Employee cashing in an amount of accrued annual leave if the agreement would result in the Employee’s remaining leave balance being less than 4 weeks.
(d) Any agreement to cash in an amount of an Employee’s annual leave must be in accordance with the Fair Work Act 2009.
32.8 Requirement to Take Annual Leave
Armacell may direct an Employee to take up to two weeks of annual leave, where the Employee’s accrued leave exceeds eight weeks; and
32.9 Annual Close Down
(a) Where Armacell intends to temporarily close (or reduce to essential staff only) the business, or any part of the business, for the purposes including to allow employees concerned to take annual leave, Armacell will give 3 weeks’ notice in writing to all employees concerned that Armacell elects to apply the provisions of this Clause. Such notice may be provided in the form of a bulletin or notice placed on a staff noticeboard.
(b) Any Employee given notice of annual close down pursuant to Clause 32.9(a), who at the date of closing is entitled to paid annual leave, shall be paid annual leave from the date of closing and concluding on the date of re-opening, or such other period as agreed between Armacell and the Employee.
(c) Any Employee given notice of annual close down pursuant to Clause 32.9(a), who at the date of closing is not entitled to paid annual leave, shall be given leave without pay commencing on the date of closing, and concluding on the date of re-opening, or such period as agreed between Armacell and the Employee.
37. LONG SERVICE LEAVE
37.1 Accrued long service leave
If an Employee has completed at least 10 years of service with Armacell, the Employee will be entitled to take an amount of long service leave equal to 0.8667 weeks of long service leave for every 1 completed year of continuous service with Armacell. Long service leave taken in accordance with this clause must be taken at a time as agreed between the Employee and Armacell.
37.2 Proportion to long service leave on termination of employment
(a) Subject to Clause 27.2(b), if an Employee’s employment ends after no less than 7 completed years of employment, the Employee will be entitled to payment of an amount of long service leave equal to 0.8667 weeks of long service leave for every 1 completed year of continuous service with Armacell.
(b) An Employee shall not be entitled to the payment of proportionate long service leave on termination where Armacell terminates the employment of the Employee because of the serious misconduct of the Employee in accordance with Clause 45.
37.3 Amount of long service leave
(a) For the purposes of this Clause, the number of hours the Employee is paid for each week of long service leave is taken to be:
(i) the average weekly number of hours worked by the Employee in the preceding 12 months; or
(ii) where an amount is paid to the Employee in lieu of taking long service leave - at the time the amount is paid to the Employee.
37.4 Continuous service
(a) For the purpose of this Clause, continuous service will be considered to have been broken where:
(i) the Employee resigns his or her employment (irrespective of the period between resignation and re-engagement);
(ii) in the case of Casual Employees, there is an absence of 3 months or more between engagements.
(b) The following types of absences do not break, but are not counted, as periods of continuous service;
(i) an absence from work other than an absence from work on leave taken in accordance with this Agreement or the National Employment Standards;
(ii) a period of time between termination and re-engagement of an Employee where the employment of the Employee is terminated by Armacell; or
(iii) any other period during which an Employee has been stood down on account of slackness of trade where an Employee is subsequently re-employed by Armacell.
37.5 Cashing in long service leave
An Employee who has been employed by Armacell for no less than 7 years may apply in writing to cash in their long service leave entitlement (or part thereof) in exchange for payment. Armacell may, in its discretion, grant this application.”
[6] Attached to the letter from Armacell dated 17 September 2010 was a submission in the following terms in relation to the two remaining issues.
“Background
1. On 5 July 2010, an application was made for the approval of the Armacell Australia Enterprise Agreement 2010 (the Agreement’) by the Applicant.
2. A hearing was conducted at Fair Work Australia (‘FWA’) on 16 August 2010 during which Commissioner Ryan sought submissions from the Applicant about matters relating to the approval of the Agreement, particular with respect to section 186(2) of the Fair Work Act 2010 (‘the Act’) which prescribes that FWA must be satisfied that the agreement passes the better off overall test.
3. With respect to items raised by Commissioner Ryan, the Applicant makes further submissions as follows:
Submissions
4. The Applicant has, by way of a document titled ‘Undertakings of the Applicant’ made a number of undertakings in relation to the Agreement. As these undertakings, by and large, operate to confirm employee rights provided under the Agreement, it is submitted that these undertakings will not cause financial detriment to employee and will not result in substantial changes to the Agreement.
5. Further concerns have been raised in relation to the cashing in of annual leave and long service leave under the Agreement.
Provisions of the Fair Work Act
6. Section 92 and 93 of the Act provide:
“92 Paid annual leave must not be cashed out except in accordance with permitted cashing out terms
Paid annual leave must not be cashed out, except in accordance with:
(a) cashing out terms included in a modern award or enterprise agreement under section 93, or
(b) an agreement between an employer and an award/agreement free employee under subsection 94(1).
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.”
7. The Applicant submits that the provisions dealing with casing in of annual leave under Clause 27.8 of the Agreement are consistent with these sections of the Act.
8. The explanatory memorandum for section 93 of the Act prescribes that section 93 was constructed to ensure that protections existed “[in] recognition of the importance of employees taking leave for the purpose of rest and recreation.”
9. Further, the explanatory memorandum for section 93 of the Act prescribes that:
The general protections provisions in Part3-1 of the Bill will apply to entering into a cashing out arrangement under this clause (see, in particular, clause 344, which prohibits the exertion of undue influence or undue pressure on an employee to agree to cash out the leave).
10. It is accordingly submitted that parliament identified that, where a request to cash in annual leave was made at the initiative of the employee, with no undue influence or undue pressure, that this would be for the benefit for an employee. The protections prescribed, that an employee must not cash in annual leave that would see their balance fall below 4 weeks, provides a safety net to ensure that employees do not exercise this benefit to their detriment.
FWA Decisions
11. Fair Work Australia has approved a number of enterprise agreements with the inclusion of provisions for cashing in of annual leave consistent with section 93 of the Act. Please see attached as Appendix 1, a list of some such enterprise agreements.
12. On 19 December 2008, the full bench of the AIRC considered the question of the cashing in of annual leave under modern awards [[2008] AIRCFB 1000]. This decision provided at paragraph 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.”
13. It is accordingly submitted that the full bench identified that the parties to an enterprise agreement were free to include provisions for the cashing in of annual leave within the parameters of the Act.
Cashing out of long service leave under state legislation
14. It is submitted that the arguments in favour of the cashing in of annual leave apply to the cashing in of long service leave.
15. Under the Agreement, employees may only cash in long service leave at their own initiative and accordingly where the employee has identified the cashing in of leave to be in their own benefit.
16. Please see attached as Appendix 2, a list of some enterprise agreements approved by Fair Work Australia which included provisions.
Leave practices in place at the workplace of the Applicant
17. Please see attached as Appendix 3, a summary of annual leave accrued and taken in the workplace of the Applicant.
18. Please see attached as Appendix 4, a summary of long service leave accrued and taken in the workplace of the Applicant.
19. As contemplated under 32.9 of the Agreement, the business of the Applicant will typically close down over the Christmas period. During this period, employees would typically be required to take between 5 and 10 days of annual leave.
20. The Applicant accordingly submits that the employees will be required to take a period of annual leave each year, and will not be in a situation where they work the full year without the taking of any leave.
Conclusion
21. The Agreement, with the provision of undertakings, was made in satisfaction of s.186 of the Act.”
[7] The submission from Armacell included 4 appendices. Two of the appendices were lists of agreements approved by Fair Work Australia which contained provisions permitting the cashing out of annual leave and/or long service leave. I have not found these appendices to be of any value in my consideration of this agreement. The mere fact that other agreements contain provisions permitting the cashing out of annual leave or long service leave is of no assistance in the absence of any reasons for the decisions.
[8] The other 2 appendices identified the use of annual leave and long service leave over the preceding 6 years. These appendices were provided to the Tribunal in response to a direct request from the Tribunal at the hearing on 17 September 2010. These latter 2 appendices did assist me in my consideration of the two remaining issues.
The History of Annual Leave
[9] It was not until the end of the 1930s and the early 1940s that the Federal Tribunals began to award one week’s annual leave as a regular benefit. This period was increased to 2 weeks in 1945, to 3 weeks in 1963 and to the current 4 weeks’ annual leave in the early 1970s.
[10] In 1936 in a decision to grant one week’s annual leave in the printing industry, Dethridge CJ said:
“This Court has frequently been asked to award annual leave on full pay but has hitherto not done so except in cases where employees have to work on Sunday or suffer some other deprivation by reason of isolation or other cause or in cases where such leave has become the custom generally by the practice of most of the parties concerned.” 1
The Chief Justice then went on to analyse the position in a number of industries and in a number of States. At 747 Dethridge CJ said:
“Unless an industry is finding difficulty in maintaining itself, in my opinion the institution of paid annual leave is a very desirable boon for employees. 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.”
Dethridge CJ then went on to quote from a 1935 ILO publication entitled “Holidays with Pay” and he said:
“The publication already referred to - 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. It is of course difficult to reckon these advantages in figures, but that they are nevertheless real is shown by the testimony of employers who have themselves spontaneously introduced annual holidays with pay”.
[11] It is important, in my view, to note that as early as 1935 and 1936 the ILO and Dethridge CJ, respectively, recognised that an award provision of one week’s annual leave provided real benefits to employees and to employers which were not necessarily measurable in pure monetary terms.
[12] The provision of paid annual leave attached to it a number of real benefits to both employees and employers that went beyond merely monetary amounts.
[13] In 1945 a Full Court of the Commonwealth Court of Conciliation and Arbitration comprising Piper CJ, Drake-Brockman J, O’Mara J, Kelly J and Foster J increased the minimum award entitlement to annual leave from one week to two weeks. The Full Court said:
“The general view put before the Court by the representatives of the Unions on behalf of their members is that if annual leave is to be allowed at all a period of 14 days is the desirable minimum if the rest from work is to achieve the purposes for which it is granted. In the present instance, the employers represented do not controvert the proposition that industry should provide workers with an adequate period of respite, without loss of income, from the continuity of work and they do not deny that a respite of two weeks in a year should be regarded as desirable. The Institute of Public Affairs of Victoria in a publication entitled “Looking Forward” says “the physical and mental health of employees and the social need for providing ample time for the bread-winner to spend in leisure with his family, make it desirable that a minimum annual holiday of two continuous weeks, with pay, should be instituted throughout the industry.” 2
[14] The Full Court went on to say:
“The Court’s view is an agreement with this consensus of opinion between employers and employees and it decides that the extra leave should be granted unless the strongest reasons exist to the contrary.”
[15] Annual leave has variously been regulated either by Awards of federal or state Tribunals or by legislation. At the present time annual leave is regulated effectively by the provisions of the National Employment Standards (NES) in the Act.
[16] In 1944 the New South Wales Parliament passed the Annual Holidays Act. The Second Reading Speech given by Mr McKell, then Premier and Colonial Treasurer, included the following:
“I should like to quote the view expressed by Mr Justice Cantor in 1936 on the question of the expense to industry involved in granting a fortnight’s holiday with pay. “. . . .I do not believe” His Honour said, “it is an expense which produces no return at all. I believe. . . .that the allowance of a reasonable period of leave accompanied by pay encourages - indeed, in many cases, enables - men to take full advantage of their spell from work, frequently with their wives and families and to derive such measure of benefit from their holiday as will be reflected in better general health, better feeling between the employer and the employee, better work or output, less illness, less absence, and probably fewer accidents.
In the same year, although it had not been the practice for the Commonwealth Court to grant annual holidays except in special cases, the late Chief Justice Dethridge of that Court expressed the opinion that “Unless an industry is finding difficulty in maintaining itself, in my opinion the institution of paid annual leave is a very desirable boon for employees.”
“Although at first,” he said, “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 Chief Judge, at the same time, quoted the following passage from a report issued by the International Labour Office in the previous year.” 3
[17] The Second Reading Speech after quoting from the 1935 ILO report then went on to say at page 1547:
“Many workers have reached a stage at which they should have at least a fortnight’s holiday, but that holiday cannot be taken unless it is paid for. In the past, workers have been forced to take holidays, but those holidays, instead of proving a boon, have proved a curse because no pay was coming in to meet the expenses of the home which went on from day to day during the holiday period, or should I say during the period of enforced idleness.”
[18] And further on:
“But the time has arrived when consideration must be given to the granting of at least a fortnight’s holiday with pay to every person who falls within the definition of “worker” as contained in this bill - it should be granted by Parliament as a minimum right to which every worker shall be entitled - the industrial tribunals being left free to determine the industries in which holidays with pay in excess of a fortnight shall be granted.”
[19] The critical recurring theme both in the early Court decisions and in the legislation for paid annual leave is that workers do need the certainty of a period of paid leave away from work. Periods of unpaid leave are unsatisfactory and do not necessarily have the same outcomes as do periods of paid leave away from work.
The modern approach to annual leave
[20] The Australian Fair Pay and Conditions Standards introduced by the Work Choices legislation of the Howard Government created a statutory entitlement at the federal level for four weeks’ annual leave but with the possibility that some of the leave could be cashed out.
[21] Similarly the Actrepeats the statutory entitlement to four weeks’ annual leave but with a varied approach to allowing cashing out of annual leave. The particular provisions of the Act are as follows:
92 Paid annual leave must not be cashed out except in accordance with permitted cashing out terms
Paid annual leave must not be cashed out, except in accordance with:
(a) cashing out terms included in a modern award or enterprise agreement under section 93, or
(b) an agreement between an employer and an award/agreement free employee under subsection 94(1).
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.”
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.
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 accruedpaid 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.
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.”
[22] One feature which is common between both the Work Choices legislation and the Act is that each is predicated upon the importance of guaranteeing to employees a period of paid leave from work. In each case, the ability to cash out a period of leave is seen to be an exception to the rule that employees are to have a guaranteed entitlement to a period of four weeks’ paid annual leave away from the workplace.
[23] The Explanatory Memorandum to each of the two respective Bills makes this clear as is shown below.
[24] The Work Choices Explanatory Memorandum 4 emphasised the importance of taking annual leave. At paragraph 515 the Work Choices Explanatory Memorandum describes the cap on the amount of annual leave that can be cashed out and concludes with the following:
“This will ensure that employees have access to a reasonable period of annual leave for rest and recreation each year.”
[25] Additionally, after explaining the terms relating to cashing out annual leave the Work Choices Explanatory Memorandum gave the following very clear example of the circumstances in which it was thought appropriate for annual leave to be cashed out.
[26] The Fair Work Explanatory Memorandum 5 contains no illustrative examples of how the cashing out of annual leave was proposed to work. However the language of the Fair Work Explanatory Memorandum emphasises the importance of having and taking annual leave.
[27] The Fair Work Explanatory Memorandum says of section 93 of the Act:
“Subclauses 93(1) and 93(2) permit a modern award or enterprise agreement to include terms for the cashing out of paid annual leave. In recognition of the importance of employees taking leave for the purposes of rest and recreation, the cashing out terms in an award or agreement must require that;
• The employee retain a minimum balance of four week’s accrued annual leave after the cash out;
• Each cashing out arrangement be a separate agreement in writing between the employer and the employee; and
• The employee receive at least the full amount that would be payable so the paid annual leave cannot be cashed out at a lower rate than the employee would have received had the employee taken the leave.” [Emphasis added] 6
[28] The Fair Work Explanatory Memorandum draws attention to the general protections provisions of the Act and notes “in particular, clause 344, which prohibits the exertion of undue influence or undue pressure on an employee to agree to cash out the leave” 7.
[29] The plain language of s93(1) makes clear that the Act permits but does not require a modern award or enterprise agreement to include terms providing for the cashing out of paid annual leave by an employee. Where a term is included in a modern award or enterprise agreement the term must at the very least meet the requirements of s93(2) of the Act.
[30] Further s93(2) only provides for the minimum requirements for a term of an agreement which provides for the cashing out of paid annual leave by an employee. There is nothing in s93(2) which prevents an enterprise agreement from placing other restrictions or constraints on the cashing out of paid annual leave.
[31] Whist the concept of cashing out of annual leave was introduced by the Work Choices legislation, it was done so in the environment where there was no ‘no-disadvantage test’ or “fairness test” applying. In which case, whilst the Work Choices Explanatory Memorandum had an illustrative example which clearly indicated a very limited role for the cashing out of annual leave, the generality of the language of the Work Choices legislation permitted cashing out of annual leave in a vastly greater number of circumstances. In the absence of any effective vetting of workplace agreements made under Work Choices legislation, employees were either permitted to, or often required to, agree to workplace agreements which provided for cashing out of annual leave to the maximum allowed by the statutory provisions.
[32] Such is not the case at present. Whilst the Fair Work Act permits cashing out of annual leave that is not to say that the Tribunal must simply approve agreements which meet the minimum statutory requirements for the process of cashing out annual leave under the Fair Work Act. Any inclusion of provisions enabling the cashing out of annual leave under an enterprise agreement made under the Fair Work Act must still meet the requirements of the Act in relation to providing terms and conditions of employment under which the employee is ‘better off overall’ under the terms of the agreement than they would be under the terms of the Award and the NES.
Consideration of the Submissions from Armacell
[33] The argument of Armacell is contained in paragraphs 10 and 13 of its written submission in this matter.
[34] The submission is misconceived.
[35] Firstly, the submission in paragraph 10 of the written submission goes far beyond what the plain language of the Fair Work Act provides. The conclusion drawn by the submission made by Armacell is that the combination of an employee freely choosing to cash out annual leave together with the requirement to maintain 4 weeks annual leave means that no cashing out can be detrimental to the employee and must be of benefit to the employee. This submission ignores the scheme of the Act and in particular it ignores the specific provisions relating to the approval of enterprise agreements.
[36] Secondly, the submission in paragraph 13 appears to be based upon a wrong premise namely that the capacity to have a cashing out of annual leave provision in an enterprise agreement is equal to the right to have the enterprise agreement approved with the cashing out of annual leave provision. This submission ignores the scheme of the Act and in particular it ignores the specific provisions relating to the approval of enterprise agreements.
[37] The Better Off Overall Test (BOOT) is simply that, an employee must be better off overall under the terms of the agreement than under the terms of the Award and the NES. The language of s.193(1) is very clear with the BOOT being passed “if FWA is satisfied, as at the test time, that each award covered employee, and each prospective award covered employee, for the agreement would be better off overall if the agreement applied to the employee than if the relevant modern award applied to the employee.” The BOOT will not be satisfied merely because a cashing out of leave provision meets the minimum statutory requirements set by the legislation. The BOOT must be considered on the basis of the overall effect of the agreement on the employees to be covered by the agreement. An enterprise agreement with a cashing out of annual leave provision may pass the BOOT, whilst another enterprise agreement with a cashing out of annual leave provision may fail the BOOT. Each enterprise agreement needs to past the BOOT and each enterprise agreement is unique. This is simply because each enterprise agreement covers a unique combination of employer, employees and workplace.
[38] Cashing out of annual leave terms of an enterprise agreement do not sit outside of the agreement for BOOT purposes.
[39] The BOOT applies to the whole of the enterprise agreement, including any provision in an enterprise agreement which provides for the cashing out of paid annual leave. The BOOT also applies to the whole of the statutory minimum conditions of employment that apply to the employees if they are covered by the modern award. The BOOT is not limited only to the terms of the modern award.
[40] It is relevant in my view that regard be had to the approach adopted by the former AIRC to applying the then “no disadvantage test” to agreements in the context of matters which were not simply monetary entitlements.
[41] In a decision of 21 October 1997 Commissioner Whelan said:
“Is the no-disadvantage test a mathematical exercise?
The no-disadvantage test has sometimes been described as a "no net reduction" test implying that the determination of disadvantage can be conducted purely as a mathematical exercise. Entitlements can be "bought out" provided the value of those entitlements is compensated for by the wage the employee takes home at the end of the week, fortnight, month or year.
The benefits of some award conditions, however, cannot be so easily calculated and compensated for in that way. Parental leave, for example, is unpaid leave. It is an allowable matter under section 89A and one of the minimum terms and conditions of employment for Victorian employees covered by Schedule 1A of the Act. It is not inconceivable that an agreement may be reached between an employer and a union or group of employees that in effect "buys out" parental leave as a condition of employment. How does this Commission put a buy out value on the right to parental leave as a condition of employment? Could any agreement which removed the right to parental leave be considered, on balance, not to result in a reduction in the overall terms and conditions of employment of those employees? Should the Commission consider the purpose of award provisions are not simply their financial value to the employee?
Take another example, would an agreement which provided for 16 hour shifts and which more than adequately financially compensated the employees for the additional hours, be found on balance not to disadvantage them?
The agreement before me allows an employees to work for 50 hours per week in any week and for six consecutive days in any of those weeks. They could work each Saturday and Sunday during those weeks and up to five public holidays as part of their ordinary hours (subject to the Sunday loading of time and a half). The only limit is that once they have completed the required number of annual hours they may only work at their request. The wages they receive may well compensate them for the loss of overtime they might otherwise be entitled to under the award. Does that, however, mean that on balance they are not disadvantaged?
Since 1983 standard hours of work of 38 per week have been generally available to employees in accordance with principles adopted by successive Full Benches of this Commission. Progressively since 1904 this Commission and its predecessors have reduced the number of standard hours for reasons of social desirability.
In 1913 (Timber Workers' Case 7 CAR 210 at 228) Higgins J concluded that 48 hours constituted the generally accepted standard of working time.
In 1921(Standard Hours Inquiry 15 CAR 1044 at 1051) Powers J expressed the view that it would be desirable to make standard hours 40 per week but concluded that industry could not afford to reduce hours from 48 to 44 under the prevailing economic conditions.
In 1926 (the Engineering Hours Case 24 CAR 755 at 764) Dethridge CJ expressed the view that there were few people in Australia who would not agree that 44 hours was desirable and likely to be beneficial not only to the workers themselves but indirectly to the whole community. Beeby J noted, in the same case (at page 871) that the first 48 hour week had been introduced in Australia in 1857.
In 1947 (the Standard Hours Inquiry 59 CAR 581) the Full Bench (at page 587) in introducing the 40 hour week noted that:
"One hundred years ago in England a 10 hour day or a 60 hour week was enacted. In Australia 90 years ago an 8 hour day or 48 hour week was achieved in limited cases. Twenty years ago this Court awarded a 44 hour week. There is no reason to assume that the capacity of industry has ended at 44 hours."
They referred to the 40 hour week as a desirable social reform.
In 1997 should this Commission consider employees not to be disadvantaged by an agreement which provides for a 50 hour week, a 10.5 hour week day or six consecutive days of work in any one week? In my view it should not.” 8
[42] Whilst the Act now requires that an enterprise agreement pass a Better Off Overall Test the same questions and issues raised by Commissioner Whelan are relevant to the a consideration by Fair Work Australia as to whether an enterprise agreement passes the BOOT.
[43] The agreement will not only apply to existing employees but will apply to new employees employed after the date upon which the agreement commences. In the case of a new employee, the agreement would permit the employee to work for one year in which time the employee would accrue an entitlement to four weeks’ annual leave. Having accrued that entitlement the agreement would then permit the employee and the employer to agree that future leave accruals be converted into cash. This can simply be done under the agreement by the employee making requests which the employer grants to cash out future annual leave entitlements so long as the first four weeks’ accrued leave is not touched.
[44] The very real practical outcome of the operation of the simple cashing out of leave provisions permitted by the Act is that an employee could be employed for the life of the enterprise agreement without having any paid annual leave. Whilst the employee maintains an accrued figure of four weeks’ annual leave all other annual leave entitlements can be the subject of cashing out. Many employees in low paid positions, or even in better paid positions, may find times in their working life where there is need for extra cash. The easiest way in which to access extra cash is to cash out an annual leave entitlement.
[45] Cashing out annual leave provides a short term benefit to an employee but at a long term cost to the employee.
[46] As was recognised in 1944 in relation to the Annual Holidays Act it is not a boon but a burden for an employee to be on annual leave when it is not paid. If annual leave is at the election of an employee on the basis of unpaid annual leave the reality is most employees will not apply for unpaid annual leave.
[47] Armacell drew attention at paragraphs 19 and 20 of their written submission to the possibility of an annual closedown of the business for 5 to 10 days over the Christmas period.
However, even if Armacell does have a 5 to 10 day Christmas close down and requires all employees to take the close-down period as annual leave, the operation of the cashing out provision would still enable employees to build up an accrued entitlement of four weeks’ annual leave, have 5 to 10 days annual leave for shut-down purposes and cash out the remaining 10 to 15 days.
[48] The effect, in my view, is that the cashing out of annual leave as a general proposition operates to the significant disadvantage of employees. What the cashing out clause in this agreement permits is very different from the example that was given in the Explanatory Memorandum to the Work Choices legislation which identified that there can be circumstances where employees with large amounts of accrued leave planning to take a holiday use a portion of their accrual to fund a holiday and in doing so that would promote relaxation, renewal, reinvigoration of the employee to enable them to continue on with their working life.
[49] No such restrictions are placed in this agreement. It would operate at large and has the very real potential, if not the intention, of leading to a situation of permitting employees to effectively cash out as much as they possibly can as often as they possibly can so as to never have a real and effective break from work. Also whilst Armacell submits that the Christmas close-down “would typically be” between 5 and 10 days this is not required by the terms of the agreement. In fact, no annual close-down is required by the agreement. The agreement merely permits the Armacell to have an annual close-down and if it does so then Armacell is entitled to require employees to use annual leave for the close-down period.
[50] Whilst Armacell did not, in its written submissions, draw attention to clause 32.5 of the agreement I have taken this provision into account.
[51] Clause 32.5 is a statement of principle that “Armacell prefers and encourages Employees to take all accrued annual leave within 12 months of accruing that annual leave.” This statement of principle is laudatory and is consistent with the social purpose behind the annual leave entitlement in the NES. If this statement of principle was implemented then the possible utilisation of the cashing out of annual leave provision of the agreement would be rare.
[52] At the request of Fair Work Australia Armacell provided details of the annual leave accruals and annual leave usage over the last 6 years. What is evident from the data supplied by Armacell is that to date Armacell has not implemented the principle enunciated in clause 32.5. In fact it appears that management of annual leave at Armacell has resulted in some employees taking very little annual leave in some years and accruing very large amounts of annual leave.
[53] The attached table identifies the leave records for existing employees. This information has been taken from the data supplied by Armacell but with the names of employees deleted and with data concerning terminated employees deleted. I have also included the amount of accrued and taken along service leave for the employees with 7 or more 10 years of service as these employees would be entitled under the terms of the agreement to cash out long service leave.
[54] Armacell did not offer any explanation about the accruals or usage of annual leave or long service leave by employees.
[55] What is apparent from an examination of the attached table is that some employees have very large amounts of accrued leave.
[56] For example Employee 1 who commenced employment with Armacell in April 2002 has 816.69 hours (107.5 days) of accrued annual leave as at 31 December 2009. The same employee has taken very little leave over the last 4 years: 5 days in 2009, 6 days in 2008, 13 days in 2007 and 5 days in 2006. It is clear from the data that Employee 1 averaged only between 4 and 5 days annual leave in each of the years 2002 to 2005
[57] Should the agreement be approved in its current form Employee 1 would be entitled to cash out up to 664.69 accrued hours of annual leave. This amount would be increased or decreased by the net amount of annual leave accrued during and taken during 2010.
[58] I note that there were 9 occasions in the last 4 years where an employee has taken more than their annual entitlement to annual leave and only 2 occasions where the employee has taken their annual entitlement. In all other cases, a total of 73 occasions the existing employees have taken less than their entitlement.
[59] The attached table does not support a contention that Armacell prefers and encourages employees to take their annual leave entitlements within 12 months. The data for Employee 1 alone shows that Armacell permits the continuation of a practice which has an employee taking a very small portion of their annual leave entitlement in each year of their employment.
Long Service Leave
[60] I have not sought to canvass the history around the provision of long service leave entitlements which have traditionally been dealt with primarily by way of State and Territory laws rather than by way of awards. However much of the social argument as to the provision of periods of paid leave from work apply equally to long service leave as they do to annual leave. The Long Service Leave Act (Victoria) emphasises the value placed upon the provision of paid leave from work through 2 of its provisions. Firstly, s.74 prohibits the cashing out of long service leave. Secondly, s.78 prohibits employees from working whilst on long service leave.
[61] The provisions of clause 37 of the agreement differ from the terms of the previous agreement that applied to Armacell and its employees. Under the 2004 Agreement employees were entitled to 13 weeks long service leave after 10 years. The new agreement provides for an entitlement of 13 weeks after 15 years. The new agreement is in line with the entitlements arising under the Long Service Leave Act (Vic). The reduction in the long service leave entitlement under the new agreement is not a matter that I need to take into account for the purposes of approval of this agreement as it is no less than what an employee would be entitled to under the terms of the Award and the NES.
[62] The agreement permits employees to apply to cash out long service leave even before they become entitled to take long service leave under the Victorian Act. Whilst Armacell reserves to itself the right to grant or not grant a request to cash out long service leave there is nothing in clause 37 which provides any parameters as to how Armacell will exercise its discretion.
[63] Given that the agreement does not entitle an employee to take a period of long service leave until they have at least 10 years of service it would appear that the very structure of the agreement will encourage employees to cash out long service leave prior to reaching 10 years of service with Armacell.
[64] I note that the data supplied by Armacell shows that Employee 1 has 273.33 hours of accrued long service leave all of which could be cashed out under clause 37.5 of the agreement. In total Employee 1 has approximately 938.02 hours of annual and long service leave available to be cashed out
[65] A modern award must not contain terms dealing with long service leave. Thus long service leave entitlements of employees are found in either the NES or in the relevant State long service leave legislation. In considering whether or not the agreement passes the BOOT I have, in relation to long service leave, considered the fact that if the employees are employed under the terms of the modern award and the NES then cashing out of long service leave would not be permitted, due to the operation of the relevant State legislation.
Personal Carers Leave
[66] The agreement permits through clause 33.7 for employees to elect and Armacell to agree to the employee’s election to cash out accrued personal leave. Clause 33.7 meets the requirements of the Act. I did not raise with Armacell any concerns as to the operation of this clause nor do I now. I have taken into account the presence of the provision permitting the cashing out of personal leave when considering whether or not the agreement which contains provisions for the cashing out of long service leave and annual leave passes the BOOT.
Conclusion
[67] The combined effect of clauses 32.7, 33.7 and 37.5 is that Armacell have constructed an agreement with their employees which permits the employees to cash out all of their long service leave and significant amounts of accrued annual leave and up to the statutory limit of the personal leave accruals.
[68] The agreement appears to promote a culture of cashing out rather than taking paid leave. The absence of limits, other than the minimum statutory limits, on the making of requests to cash out leave and the granting of the requests leads me to draw the conclusion that the agreement is not about providing real and tangible benefits to employees which enhance their leave entitlements but is about reducing leave accruals through cashing out leave entitlements to the extent permitted by the Act. If the agreement did not have cashing out of annual leave or long service leave I would have approved the agreement with clause 33.7 intact.
[69] Section 186(2) of the Act requires that I must be satisfied that the enterprise agreement passes the BOOT before the enterprise agreement can be approved under s.186(1). I am not satisfied that the Armacell Australia Enterprise Agreement 2010 passes the BOOT under s193 of the Act.
[70] Section 190 of the Act permits Fair Work Australia to approve an agreement if it is satisfied that an undertaking offered by the employer and which addresses the concerns of Fair Work Australia that the agreement does not meet the requirements set out in s186 and s187.
[71] In this matter I have given Armacell the opportunity of offering undertakings to address my concerns that the agreement does not meet the requirements set out in s186 and s187.
[72] The undertakings offered in relation to the agreement meet my concerns in relation to the matters addressed in the undertakings. However no undertakings were offered in relation to clause 32 or clause 37.
[73] The application for approval is refused.
COMMISSIONER
Appearances:
Ms K. Sweatman, Mason Sier Turnbull, for the Applicant
Hearing details:
2010:
Melbourne
16 August
1 PATEFA v PIEUA, 36 CAR 738 at 746
2 55 CAR 595 at 597
3 NSW, Legislative Assembly, Annual Holidays Bill Second Reading Speech, 5th December 1944, page 1546
4 Workplace Relations Amendment (Work Choices) Bill 2005 Explanatory Memorandum
5 Fair Work Bill 2008 Explanatory Memorandum
6 Abid.at paragraph 378
7 Abid at paragraph 380
8 Shop, Distributive & Allied Employees’ Association v Bunnings Building Supplies Pty Ltd, Print [P6024],Whelan C, 21 October 1997
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