Fortress Systems Pty Ltd

[2013] FWC 3789

[2013] FWC 3789

FAIR WORK COMMISSION

INTERIM DECISION

Fair Work Act 2009
s.185—Enterprise agreement

Fortress Systems Pty Ltd
(AG2013/6481)

COMMISSIONER RYAN MELBOURNE, 14 JUNE 2013

Application for approval of the Fortress Systems Enterprise Agreement 2013.

[1] An application pursuant to s.185 of the Fair Work Act 2009 (the Act) for approval of the Fortress Systems Enterprise Agreement 2013 (the Agreement) was filed with the Commission on 16 May 2013.

[2] The application was listed for hearing on 4 June 2013. The Applicant, Fortress Systems Pty Ltd, was represented by Mr Chao Ni from Mason Sier Turnbull.

[3] At the hearing the Commission identified that it had 16 concerns in relation to the contents of the Agreement. Some of the concerns raised by the Commission were dealt with at the hearing with Mr Ni advising that the Applicant would give undertakings to address the concerns raised. Mr Ni submitted that the clauses in the Agreement dealing with a loaded salary were permitted and should be accepted by the Commission. I gave Mr Ni an opportunity of filing a further written submission on this issue and indicated that I would issue a decision in relation to the issue of a loaded salary and that if I decided against Mr Ni’s submissions then I would give the Applicant an opportunity to offer any additional undertaking in relation to the issue of loaded salary.

[4] Following the hearing Mr Ni filed with the Commission proposed undertakings in relation to 15 of the concerns and on 6 June 2013 filed submissions in relation to the issue of loaded salary. I now deal with the issue of loaded salary.

Payment of Annual Leave and Personal Leave as Loaded Salary

[5] The Agreement differentiates between Salaried and Non-Salaried employees. Clause 3 of the Agreement defines a number of terms. Relevantly clause 3 contains the following definitions:

“3.12. ‘Loaded Salary’ means, for a full time or part time Employee, the salary payable for all hours of work that is inclusive of the Employee’s entitlement to payment for annual leave and personal leave as provided for in this Agreement.

3.13. ‘Non-salaried Employee’ means a full time or part time Employee who receives an hourly rate of pay for each hour worked and who receives payment for overtime worked.

3.14. ‘Ordinary Wage Rate’ means an hourly wage rate paid to Non-Salaried Employees (exclusive of superannuation).

3.16. ‘Salaried Employee’ means a full time or part time Employee who receives a Salary in satisfaction of all hours worked and includes all Senior Managers.

3.17. ‘Salary’ or ‘Salaries’ means the salary payable to a full time or part time Employee for all hours of work (exclusive of superannuation). This may include a Loaded Salary as provided for in clause 35.”

[6] The Agreement contains Schedule 2 which sets out both the classification structure and whether a particular classification is salaried or non-salaried. From Schedule 2 to the Agreement the following picture emerges:

Salaried Employee	Non-Salaried Employee
Senior Managers	Resistor Manufacture Leading Hand
Project Engineer	Enclosure Assembly Leading Hand
Electrical Engineer	Sheet Metal Fabrication Engineer
Mechanical Engineer	Assembly Operator/Enclosure Assembly Operator
Produce Engineer	Sheet Metal Process Worker
Draftsperson	Storeperson
Administration Assistant
Administration Accountant
Internal Sales - Engineering
Procurement Officer

[7] Annual Leave and Personal/Carers Leave are provided for in clause 33 and 34 of the Agreement as follows:

“33.1. Subject to clause 35, this clause only applies to full time and part time Employees.

33.2. For each year of service with Fortress, a full time Employee is entitled to 152 hours of paid annual leave. A part time Employee receives an annual leave entitlement on a pro rata basis calculated according to the portion of ordinary hours worked compared to a full time Employee.

33.3. Annual leave accrues progressively during a year of service according to the employee's ordinary hours of work, and accumulates from year to year.

33.4. Annual leave shall be taken at times agreed between the Employee and Fortress

33.5. Where possible, a request for the taking of annual leave should be made at least 4 weeks in advance. Fortress may refuse a request for annual leave on reasonable business grounds.

33.6. Fortress prefers and encourages Employees to take all accrued annual leave within 12 months of accruing that annual leave, and for Employees to have no more than 190 hours of annual leave accrued at any time.

33.7. Annual leave loading is not payable under this Agreement.

33.8. Cashing in of Annual Leave

(a) An Employee may elect, and Fortress may agree, to cash in a particular amount of the Employee's accrued annual leave.

(b) Each agreement to cash in an amount of an Employee's annual leave must be in writing.

(c) Fortress and the Employee must not agree to the Employee cashing in an amount of accrued annual leave if to do so would result in the Employee's remaining leave balance being less than 152 hours.

33.9. Requirement to Take Annual Leave

Fortress may reasonably require an Employee to take a period of annual leave in particular circumstances including, but not limited to, where the Employee has accrued an excessive amount of annual leave, being more than 228 hours.

34.1. Subject to clause 35, this clause only applies to full time and part time Employees.

34.2. For each year of service with Fortress, a full time Employee is entitled to 76 hours of paid personal leave. A part time Employee receives a personal leave entitlement on a pro rata basis calculated according to the portion of ordinary hours worked compared to a full time Employee.

34.3. Personal leave accrues on a pro-rata basis, is cumulative and is not paid out upon

termination of employment.

34.4. Personal leave may be used as follows:

(a) As 'sick leave'- in the event of personal illness or injury; or

(b) As 'carer's leave' - to provide care or support to a member of the Employee's

Immediate Family or household, who requires care and support because of:

(i) A personal illness or injury of a member; or

(ii) An unexpected emergency affecting the member.

34.5. Employees, including casual Employees, shall be entitled to up to 2 days' unpaid carer's leave for each relevant occasion in circumstances where the Employee's entitlement to paid personal leave is exhausted.

34.6. In order to be paid for personal leave, an Employee must inform Fortress of the need to take such leave and the expected period of absence from work (due to personal leave) prior to the ordinary start time of their shift or, in exceptional circumstances, as soon as is reasonably practical, so that alternative staffing arrangements can be made by Fortress.

34.7. To substantiate sick leave absences, an Employee may be required to provide evidence to Fortress that would satisfy a reasonable person of the Employee's inability to work or, in the case of carer's leave, confirming the illness or injury of the person being cared for by the Employee.

34.8. Fortress may deny applications for paid personal/carer's leave and request medical certificates to support applications for single day absences where excessive leave has been taken or where there is a cause to doubt the legitimacy of the application.

34.9. Fortress may direct an Employee to attend a medical examination arranged by Fortress in cases of excessive sick leave or where there is concern for the health and safety of other Employees in the workplace.

34.10. Sick Leave and Workers' Compensation

Employees are not entitled to paid personal leave for any period in respect of which they are entitled to workers' compensation.”

[8] Each of clauses 33 and 34 provide entitlements consistent with the NES (except for 34.6 which offends against s.107(2) of the Act and in relation to which a separate undertaking was offered by the Applicant) and clause 33.8 provides a specific term permitting the cashing out of annual leave.

[9] However each of clause 33 and 34 operate subject to clause 35 which is a follows:

“35.1. By agreement between an Employee and Fortress, all paid annual leave and personal leave provided for in this Agreement may be paid as a Loaded Salary, in accordance with the following conditions:

(a) The Employee's Loaded Salary is inclusive of an additional loading representing a pro-rata payment of the entitlement to annual leave and personal leave;

(b) The Employee will still accrue a pro-rata entitlement to take annual leave and personal leave, however, when such annual leave or personal leave is taken it will be unpaid; and

(c) If the Employee's Loaded Salary increases after the Employee has received payment of unused accrued annual leave and personal leave, but before the Employee takes such annual leave or personal leave, the Employer will, at the time such unpaid annual leave or personal leave is taken, pay to the Employee an amount equal to the difference between:

(i) the former pro-rata payment of the Employee's entitlement to annual

leave or personal leave; and

(ii) The new pro-rata payment of the Employee's entitlement to annual leave or personal leave.

35.2. Any payment for Overtime payable pursuant to clause 22, pro rata long service leave on termination pursuant to clause 38, payment in lieu of notice of termination payable pursuant to clause 42 or redundancy pay payable pursuant to clause 46, shall be calculated with reference to the respective Salary, exclusive of any loading for annual leave and personal leave.”

[10] In support of the contention that clause 35 was permitted and should be approved by the Commission Mr Ni submitted that:

“6. Clause 35 is not a term providing for the cashing out of leave by an employee. Inherent in the notion of “cashing out” is that there is an accrued entitlement that is forgone in consideration for a monetary payment. What clause 35 contemplates is the pre-payment of moneys potentially payable in respect of leave coupled with the absence of any requirement to repay those moneys in the event that the leave is not used.

7. The entitlement to leave is not extinguished or reduced by the payments made pursuant to clause 35. The employees remain entitled to absent themselves from work. They also retain the entitlement to be paid for that absence but, unlike the ordinary situation this occurs by way of pre-payment not at the conclusion of the pay period.

8. The clause does not operate automatically or at the sole discretion of the employer. Rather, it provides that the employee will have a choice about whether to receive the loaded wage rate for which it provides and puts in place mechanisms to ensure any difference in the timing when the loading is paid and the leave is taken does not disadvantage the employees.

Full Bench in Hull-Moody Finishes

9. The decision of Hull-Moody Finishes Pty Ltd [2011] FWAFB 6709 (“Hull-Moody”) dealt with the issue of loaded wage rates in an enterprise agreement. Like the current proceedings, it was concerned with whether prepayment of leave means that the agreement cannot be approved under section 186(2).

10. The majority of the Full Bench in the Hull-Moody decision did not see themselves as simply dealing with an appeal from the decision of SDP O’Callaghan at first instance. Rather, as it appears from the last sentence in paragraph 36 of the majority decision, the majority, cognisant of the views that had been expressed by individual Commissioners in respect of this issue, saw themselves as providing guidance and certainty to the Commission as a whole as to how the issue of prepayment of leave was to be dealt with when determining whether to approve an enterprise agreement. At paragraph 36, the majority said:

“36. The Senior Deputy President found that the Agreement did not provide the benefits of the NES for the reasons set out in paragraphs [24-26] of his decision (reproduced above). His Honour appears to have characterised the arrangement under the Agreement as the cashing out of annual leave and inconsistent with s 93. There have been other decisions of single members of FWA raising difficulties with the incorporation of annual leave payments into rates of pay and a number of agreements approved which contain such arrangements. In our view it is necessary to provide some certainty to this issue from an analysis of the provisions of the Act.” (My emphasis)

11. Having charged themselves with this task, the majority then went on to express an unequivocal position in respect of this issue. At paragraphs 37 to 44 the majority said:

“[37] There is no definition of “cashing out” in the Act, or in most dictionaries. The concept appears to be synonymous with “cashing in.” The Oxford Dictionary defines both terms as “to convert an account or investment into money.” The Workplace Relations Act 1996 had similar provisions. The term ‘cash out” was used in the heading to s233. The concept was described in the section as an entitlement “to forgo an entitlement to take an amount of annual leave.”

[38] In our view the concept of cashing out an entitlement to annual leave involves the making of a payment instead of recognising an entitlement to paid leave. The payment is made in substitution of the leave entitlement. When leave is cashed out, the entitlement to take leave is reduced by the amount compensated for by the alternative payment.

[39] In order to determine whether the terms of the agreement contravene s 55 or any term of the NES the nature of the benefits under the agreement must be identified and compared to the entitlements under the NES. Under the Agreement in this matter employees do not lose an entitlement to take leave. Nor are they deprived of payment with respect of leave that they take or that is untaken on termination of their employment. Indeed they receive payment with respect of their leave entitlements at the time the entitlement arises. Because they have already been paid for leave at the time it accrues, they do not receive any payment at the time they take the leave.

[40] Employees under the Agreement can take leave as provided for in the NES. They are obliged to take at least two weeks per year. If they do not take leave it will accrue until they subsequently take it. On termination of employment employees are entitled to receive payment for untaken leave. Under the Agreement they have already received payment of this entitlement in advance.

[41] The real difference between the conventional operation of the NES and the arrangement under this Agreement is the timing of payments. In our view there is no obligation in the NES to make a payment for annual leave at a particular time, although a delay in payment may be in a different category. Even if there was an obligation to pay for leave at the time it is taken, we do not believe that payment in advance amounts to the exclusion of the entitlement to payment. The Senior Deputy President placed some importance on payment being made at the time of taking leave. We cannot see any basis for this in the NES. In our view each of the benefits conferred by the NES are provided for by the Agreement.

[42] We do not agree that the arrangement involves the cashing out of annual leave because the payment incorporated into wages does not extinguish the entitlement to leave. In our view it is not permissible to speculate as to how employees will conduct their leave arrangements under the Agreement or consider whether the arrangement encourages them to adopt one approach or another.

[43] In determining this matter the focus must be on whether the benefits provided by the NES are retained or removed by operation of the payment arrangements. As the amount of leave available to be taken is equivalent to that provided for in the NES, and the Agreement provides for payment with respect to annual leave at the level required by s 90, we do not believe that the arrangement is inconsistent with the NES. It is unnecessary to consider the prohibition of cashing out or the conditions in the Act with regard to cashing out as the arrangement cannot properly be described as cashing out.

[44] We find that the payment arrangement in the Agreement does not exclude the NES because the NES is expressly adopted, each of the annual leave benefits in the NES are reflected in the Agreement and the payment arrangement does not amount to cashing out of annual leave.” (My emphasis)

12. The majority in Hull-Moody has sought to deal with and authoritatively state the position in respect of the application of section 186 of the Fair Work Act 2009 to agreements which provide for payments of the type provided for in clause 35. The effect of the majority’s reasoning is that such payments are not a basis for refusing to approve the Proposed Agreement.”

[11] I have had the benefit of a recent decision of Cribb C in BM & KA Group as trustee for BM & KA Group Unit Trust  1, issued on 6 June 2013 which addresses the same issue and in the context where the clause 32 of the enterprise agreement before Cribb C is essentially in the same terms as clause 35 of the Agreement in the present matter.

[12] In matter before Cribb C the contest was between the decision of the majority of a Full Bench in Hull-Moody and the decision of Gray J in Construction, Forestry, Mining and Energy Union v Jeld-Wen Glass Australia Pty Ltd  2 (Jeld-Wen).

[13] I adopt the observation of Cribb C at paragraph 28 of her decision:

“[28] The majority in Hull-Moody does not appear to have considered that the term “paid annual leave”, in section 87 of the Act, is a composite term. The Hull-Moody decision refers to “annual leave” and “leave’ but not to “paid annual leave.” For example:

● “In our view the concept of cashing out on entitlement to annual leave...”

● “Under the Agreement in this matter employees do not lose an entitlement to take leave.”

● “Employees under the Agreement can take leave as provided in the NES...If they do not take leave it will accrue until they subsequently take it.”

● “As the amount of leave available to be taken...”

● “We find that the payment arrangement in the Agreement does not exclude the NES because the NES is expressly adopted, each of the annual leave benefits in the NES are reflected in the Agreement...”  [citations omitted]

[14] I came to the same conclusion as Cribb C that I am not bound to apply the majority in Hull-Moody but I arrived by a slightly different route.

[15] It appears to me that the majority in Hull-Moody made a simple but fundamental error of statutory interpretation.

[16] The majority in Hull-Moody said at para 32:

“[32]It is important to interpret s 90 in context. Section 87 provides for an entitlement to annual leave and quantifies the amount of that leave entitlement. Section 88 provides that leave may be taken at an agreed time and that an employer must not unreasonably refuse to agree to a request to take paid annual leave. Section 89 provides that annual leave does not include an absence on a public holiday.”

[17] The characterisation of s.87 as only providing an entitlement to annual leave would appear to ignore the plain language of the Act and the way in which the Act has been drafted.

Section 12 of the Act provides a Dictionary. As the Explanatory Memorandum to the Fair Work Bill succinctly puts it: “The Dictionary contains a list of every term that is defined in the Bill. It includes a number of ‘signpost’ definitions that refer readers to the sections in which terms are substantively defined.”

[18] Section 12 contains the following:

“paid annual leave means paid annual leave to which a national system employee is entitled under section 87.”

[19] Importantly the term in the Dictionary is paid annual leave not merely annual leave.

The heading for s.87 of the Act is Entitlement to Annual Leave but the very substance of s.87 is specifying what is meant by paid annual leave.

[20] The definition of paid annual leave in the Dictionary is a delimiting definition. As Legislative Drafting, 4th edn by G C Thornton describes it at p147:

“A delimiting definition determines completely the limits of the significance to be attached to the term defined. The purpose is not to alter conventional significances but to provide a desirable degree of definiteness.”

[21] The word ‘means’ immediately following paid annual leave is a verb of stipulation. As Thornton says at p.148:

“‘Means’ is appropriate where the stipulated meaning is expressed in a complete form and no part of the intended meaning is omitted. The significance to be attached by the reader to the word defined is limited to the stipulated meaning. ‘Means’ may be appropriate in delimiting, extending or narrowing definitions. The vital element is that the definition must give a complete meaning.”

[22] Following this approach it would appear to be clear that the term paid annual leave is a composite term and thus the entitlement provided for in s.87 is not unpaid annual leave and separately an entitlement to payment which may be at any time. Rather the entitlement provided by s.87 is to have annual leave which is paid for at the time. The payment and the annual leave going hand in hand with each other.

[23] Even without recourse to a text on legislative drafting it is difficult to see how the term paid annual leave could be understood as being comprised of two quite separate and separable elements ‘annual leave’ and ‘payment’. Paid annual leave has an industrial relations context and the use of the composite term paid annual leave has regard to the long industrial relations usage of the term as a composite term.

[24] The discomposing of the composite term paid annual leave by the majority in Hull-Moody appears to fly in the face of the requirement imposed by s.15AA of the Acts Interpretation Act 1901 which provides as follows:

“15AA Interpretation best achieving Act’s purpose or object

In interpreting a provision of an Act, the interpretation that would best achieve the purpose or object of the Act (whether or not that purpose or object is expressly stated in the Act) is to be preferred to each other interpretation.”

[25] It would appear that the purpose of the Act through both s.12 and s.87 is to ensure that the entitlement of employees is to periods of paid annual leave.

[26] The interpretation given by the majority in Hull-Moody to s.87 and s.90 is expressed as follows:

“[41] The real difference between the conventional operation of the NES and the arrangement under this Agreement is the timing of payments. In our view there is no obligation in the NES to make a payment for annual leave at a particular time, although a delay in payment may be in a different category. Even if there was an obligation to pay for leave at the time it is taken, we do not believe that payment in advance amounts to the exclusion of the entitlement to payment. The Senior Deputy President placed some importance on payment being made at the time of taking leave. We cannot see any basis for this in the NES. In our view each of the benefits conferred by the NES are provided for by the Agreement.”

[27] An interpretation of s.12 and s.87 which permits the taking a period of annual leave but not receiving payment for the period of annual leave at the time the annual leave is taken could only be achieved by ignoring a plain reading of the term paid annual leave and replacing a plain reading of the term with an artificial and highly strained reading of the term. The conclusion reached by the majority in Hull-Moody in para 41 above relies upon the discomposition of the composite term paid annual leave.

[28] The second key element of the decision of the majority in Hull-Moody was that:

“[37]There is no definition of “cashing out” in the Act, or in most dictionaries. The concept appears to be synonymous with “cashing in.” The Oxford Dictionary defines both terms as “to convert an account or investment into money.” The Workplace Relations Act 1996 had similar provisions. The term ‘cash out” was used in the heading to s233. The concept was described in the section as an entitlement “to forgo an entitlement to take an amount of annual leave.”

[38]In our view the concept of cashing out an entitlement to annual leave involves the making of a payment instead of recognising an entitlement to paid leave. The payment is made in substitution of the leave entitlement. When leave is cashed out, the entitlement to take leave is reduced by the amount compensated for by the alternative payment.

[42]We do not agree that the arrangement involves the cashing out of annual leave because the payment incorporated into wages does not extinguish the entitlement to leave. In our view it is not permissible to speculate as to how employees will conduct their leave arrangements under the Agreement or consider whether the arrangement encourages them to adopt one approach or another.”

[29] I prefer the analysis of Gray J in Jeld-Wen where he said:

“‘Cashed out’ and ‘Cashing out’

The online edition of the Macquarie Dictionary defines “cash out” as meaning “to take in monetary form”. It gives as an example “to cash out one’s annual leave.” It is interesting that there is also a definition of “cash in”, which means “to obtain cash for”. The example given is “to cash in an insurance policy.” The use of prepositions that are antonyms, in conjunction with the word “cash” as a verb, gives rise to two expressions that are highly similar, if not identical, in meaning. There is nothing to indicate that the phrases “cashed out” and “cashing out”, used in ss 100 and 101 of the Fair Work Act, have anything other than their ordinary meaning, which in this case corresponds with the dictionary meaning. In other words, s 100 provides that paid personal/carer’s leave must not be taken in monetary form (as distinct from in the form of leave), otherwise than in accordance with terms included in a modern award or enterprise agreement, which comply with the standards in s 101(2) and provide for such leave to be taken in monetary form.

It is clear that it is the entitlement to take paid personal/carer’s leave that is capable of being cashed out, rather than the leave itself. If leave is taken, there is an obligation on the employer to pay the employee at the appropriate rate, pursuant to s 99 of the Fair Work Act (or, in this case, pursuant to cl 13.5(b) of the individual agreement). It is only untaken leave entitlements for which a monetary payment could substitute. Once this conclusion is reached, it becomes clear that the leave to which cl 13.5(b) of the individual agreement entitled Mr de Thierry was required to be paid leave on and after 1 January 2010, when the National Employment Standards came into operation. Reference to s 97(a) of the Fair Work Act makes it clear that the sick leave to which Mr de Thierry was entitled is paid personal/carer’s leave for the purposes of the National Employment Standards. If cl 13.5(b) does not of itself provide that entitlement, the entitlement arises from s 96(1) in conjunction with s 61(1) of the Fair Work Act, by setting a standard of 10 days of paid personal/carer’s leave for each year of service with the employer, which cannot be displaced.

To understand this is to understand that one argument put on behalf of Jeld-Wen cannot be accepted. That argument is that the prohibition on leave being cashed out for which s 100 of the Fair Work Act provides is limited to entitlements that have accrued. The prohibition is equally capable of application to entitlements yet to be accrued as it is to entitlements already accrued. The mere fact that money was paid in advance would not render the payment any less a payment in substitution for the entitlement than if the payment were made after the entitlement had accrued. In any event, cl 13.5(c) of the individual agreement did not provide for payment in advance. Clause 13.5(b) gave rise to an immediate entitlement, at the beginning of each year of service, to be taken at any time during the year in the event of the occasion for leave arising. The effect of cl 13.5(c) was to spread the payment over the entire year, so that it would be made whether or not the leave had actually been taken. (The question whether s 96(2) of the Fair Work Act has the effect of converting the entitlement to one that accrues progressively during a year of service remains to be determined on a future occasion.)

The effect of cl 13.5(c) of the individual agreement is to provide that paid personal/carer’s leave is cashed out. There is no suggestion of the existence of any modern award or enterprise agreement, containing terms providing for the cashing out of paid personal/carer’s leave, complying with s 101(2) of the Fair Work Act, so as to permit Jeld-Wen to cash out the leave entitlement. Because cl 13.5(c) provides for cashing out, it must be unenforceable, by virtue of s 61(1) of the Fair Work Act. If this were not so, cl 13.5(c) would operate to displace the standard for which s 100 provides. From 1 January 2010, therefore, Jeld-Wen had an obligation to provide Mr de Thierry with 10 days of paid personal/carer’s leave each year. Jeld-Wen could not substitute a monetary payment, whether in weekly parts or otherwise, for that entitlement.” 3

[30] Clause 13.5(b) and (c) of the individual agreement that Gray J was considering were in the following terms:

“(b) Employees are entitled [sic] 10 days of 7.6 hours each sick leave per year.

(c) Sick leave will be paid as a weekly allowance of 1.50 hours at the base rate specified in Appendix 1. This means that in each year the employee receives the full entitlement but absences will be without pay as the payment is made each week.”

[31] Whilst expressed differently the intent behind clause 35 of the Agreement is the same as clause 13.5(c) of the individual agreement before Gray J.

[32] In applying the decision in Jen-Weld the conclusion I draw is that clause 35 of the Agreement operates to cash out entitlements to paid annual leave and paid personal/carers leave and does so in a manner which does not meet the requirements of either or both s.93 and s.101 of the Act.

[33] Quite separate from considering clause 35 of the Agreement as an impermissible cashing out of paid annual leave and paid personal/carers leave there is an additional reason for finding against the validity of clause 35.

[34] The very fact that clause 35 operates to dicompose the composite term paid annual leave raises the question as to whether clause 35 contravenes s.55 of the Act.

[35] Leaving aside the question: Does clause 35 of the Agreement exclude any provision of the NES? and any consideration of s.55(1), clause 35 of the Agreement needs to be considered in relation to the operation of s.55(4) of the Act which is as follows:

“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.

[36] Note 1(b) to s.55 specifically draws attention to the issue of payment for a period of paid annual leave. However the note is to be read in the context of s.55(4) which does not permit terms which undermine or conflict with an NES entitlement. The Explanatory Memorandum to the Fair Work Bill said of s.55(4):

“214. This provision allows modern awards and enterprise agreements to deal with machinery issues (such as when Payment for leave must be made).”

[37] Common machinery provisions in enterprise agreements dealing with the payment of paid annual leave either provide for the payment of the amount of paid annual leave immediately before the period of annual leave commences or requires that the employee be paid through the normal periodic pay system that applies. The operation of each of these common arrangements is that of a machinery provision. The common arrangements do not attempt to alter the substantive entitlement to a period of paid annual leave.

[38] Clause 35 of the Agreement is not a term which is ancillary to the operation of the entitlement to a period of paid annual leave. Nor is it a term which is incidental to the operation of the entitlement to a period of paid annual leave. Nor is it a term that supplements the entitlement to a period of paid annual leave.

[39] Clause 35 of the Agreement seeks to recast the nature of the entitlement provided for in the NES into a different entitlement.

[40] Clause 35 is not a term permitted by s.55(4). Therefore clause 35 of the Agreement contravenes s.55.

[41] The Agreement could not be approved with clause 35 in it given the requirement of s.186(2)(c) of the Act.

[42] I note that no undertakings have yet been provided to the Commission in accordance with the requirements of s.190(5) of the Act. I will give the Applicant 7 days to offer any undertakings to address the Commission’s concerns. If any undertakings are offered I will consider all the undertakings having regard to the requirements of s.190 of the Act.

[43] If the Applicant does not offer any undertakings I will decide the application on the basis of the material before me.

COMMISSIONER

 1   [2013] FWC 3654

 2 [2012] FCA 45

 3   Ibid at paras 18-21

Printed by authority of the Commonwealth Government Printer

<Price code A, PR537828>