Inghams Enterprises Pty Limited
[2012] FWA 8668
•23 OCTOBER 2012
[2012] FWA 8668 |
|
DECISION |
Fair Work Act 2009
s.185 - Application for approval of a single-enterprise agreement
Inghams Enterprises Pty Limited
(AG2012/10901)
COMMISSIONER MCKENNA | SYDNEY, 23 OCTOBER 2012 |
Inghams Enterprises (Byron Bay) Processing Enterprise Agreement 2012.
[1] Inghams Enterprises Pty Limited (“Inghams”) has made an application, pursuant to s.185 of the Fair Work Act 2009 (“the Act”), for the approval of an enterprise agreement titled the Inghams Enterprises (Byron Bay) Processing Enterprise Agreement 2012 (“the Agreement”). The Agreement contains a provision with respect to annual leave loading that reads as follows:
“7.2.4 Annual Leave Loading
(a) The loading is the amount payable for the period of leave at the rate of 20% of the appropriate weekly time rate of pay prescribed by this Agreement for the classification in which the employee was employed immediately before commencing annual leave. It shall not include the amount prescribed for allowances, including shift allowances, penalty rates, overtime or any other payments.
(b) This clause extends to an employee who is given and takes annual leave and who would have worked as a shift worker if the employee would not have been on holidays, provided that if the amount to which the employee would have been entitled by way of shift work allowance for the ordinary time (not including time on a public or special holiday) which the employee would have worked during the period of the holiday, exceeds the loading calculated in accordance with this clause, then that amount shall be paid to the employee in lieu of the loading.
(c) No annual leave loading is payable if an employee resigns for any reason, except permanent and total incapacity.”
[2] Section 90 of the Act deals with payment for annual leave, as part of the National Employment Standards, in the following terms:
“90 Payment for annual leave
(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 forthe employee’s ordinary hours of work in the period.
(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.”
[3] Given s.90(2) provides that on termination of employment the employer must pay the employee, with respect to a period of untaken paid annual leave, the amount that would have been payable to the employee had the employee taken the period of leave, I invited Inghams to provide a written undertaking concerning cl.7.2.4 of the Agreement. That is, under the Agreement no annual leave loading is payable on resignation, other than where the resignation is for reasons of permanent and total incapacity. My preliminary view was that this necessitated an undertaking.
[4] Inghams declined to provide an undertaking (as to this matter) and subsequently filed written submissions relating to the Agreement’s annual leave loading clause and s.90. Those written submissions were elaborated by Ms J Lawrence of Inghams in proceedings on 10 October 2012. The Australasian Meat Industry Employees’ Union, Newcastle and Northern Branch (“AMIEU”), which was a bargaining representative, advised it did not want to be heard on the question of the annual leave loading and did not attend the hearing. An employee bargaining representative had already sought to be excused from involvement in any proceedings concerning the Agreement, as he no longer works for Inghams.
Inghams’ submissions
[5] Among other matters, Inghams referred to:
- the decision of Hampton C in Re Goodstart Early Learning Enterprise Agreement [2012] FWA 2408, where an undertaking concerning annual leave loading was not required;
- the annual leave loading arrangements in cl.7.2.4 of the Agreement being generally more beneficial than those in the relevant comparator award, the Poultry Processing Award 2010; and
- the approach adopted by the Fair Work Ombudsman concerning s.90(2), based on an advice by Mr J Phillips SC, as tabled before the Senate, Employment and Workplace Relations Committee, Additional Budget Estimates 2010-11, p.47.
[6] Inghams submitted that on an examination the Act, an enterprise agreement may set out a comprehensive annual leave system, with terms that replicate or supplement, or are ancillary or incidental to the National Employment Standards. With such arrangements operating in parallel, annual leave taken under the terms of an enterprise agreement is plainly different from that prescribed by and taken under the terms of the National Employment Standards. Moreover, any more generous benefits contained in an enterprise agreement, like those within cl.7.2.4 of the Agreement, cannot be said to form part of the legislative safety net. This would be contrary to the express purpose of the National Employment Standards, which act as a minimum set of conditions underpinning enterprise agreements. While the National Employment Standards are legislated minima, annual leave loading is not mentioned in the Act at s.90 or otherwise. This is not surprising, Inghams submitted, when considering matters such as the context of the legislation, the history of annual leave loadings (including in the former Australian Fair Pay and Conditions Standard), the inferred parliamentary intention, and the Explanatory Memorandum to the Fair Work Bill 2008. Further, a number of modern awards and enterprise agreements provide that annual leave loading is not payable in (some or all) circumstances of termination of employment – even where a loading is payable on leave taken.
[7] Inghams submitted the annual leave loading issue cannot be determined in isolation by reference only to the words of s.90(2). Instead, meaning must be determined by reference to matters such as overall context, general purpose and policy. An interpretation of s.90 concentrating on delineating in s.90(1) the words “base rate of pay” from those in s.90(2) is overly simplistic and gives insufficient attention to the full wording of s.90 and the statute generally.
[8] Inghams’ submissions also went to the variants within the legislation as to the meaning of “pay”, such as the meanings of “base rate of pay” and “full rate of pay”. Inghams submitted that from a proper reading of s.90 in full, s.90(1) clearly prescribes the rate at which the basic annual leave entitlement established by s.87 of the Act is paid, i.e. the base rate of pay. Section 90(2) operates to confirm the basic entitlement, as captured in s.87 and s.90(1), is paid on termination of employment. Section 90(1), in referring to “base rate of pay” and not including a loading, clearly conditions s.90(2).
[9] Considering context, general purpose and the policy of provisions such as s.87 and s.90, Inghams submitted it is apparent more beneficial payments for annual leave were not to form part of the National Employment Standards. Leave taken under the terms of an enterprise agreement is distinct from that taken in accordance with the National Employment Standards, viewed in the context of the legislative provisions. It would be incongruous, and cannot have been intended by the Parliament, that the National Employment Standards provide a more generous payment for annual leave paid-out on termination than when leave is actually taken. Section 90(2), it was submitted, does not apply to leave taken under more beneficial terms of an enterprise agreement.
[10] Inghams submitted it is evident that s.90 is concerned with a minimum entitlement to be paid the basic entitlement to annual leave at the base rate of pay. More beneficial annual leave arrangements, like annual leave loading, stand apart from the National Employment Standards and are provided only in the circumstances prescribed by the industrial instrument that creates the entitlement - such as cl.7.2.4 of the Agreement.
[11] Inghams submitted Fair Work Australia could not be satisfied, considering the matters advanced, that cl.7.2.4(c) of the Agreement would comprise a contravention of the minimum statutory safety net. Inghams submitted the general requirements as to when Fair Work Australia must approve an enterprise agreement, as set out in s.186, have been met.
Consideration
[12] The proper interpretation of s.90 of the Act as it concerns the payment of annual leave loading on termination of employment is a matter about which reasonable minds can differ. The operation of the section is not entirely clear, as was noted in the recently-released review of the Act: “Towards more productive and equitable workplaces: An evaluation of the Fair Work legislation” (“the Review”). As to annual leave loading on termination of employment, the Panel wrote and recommended as follows (from p.100):
“5.2.7 Annual leave loading on termination
A principal concern raised by stakeholders about annual leave provisions under the NES is the payment of annual leave loading on termination, an issue that has received some public attention recently and was raised in many submissions and meetings with the Panel. The concern arises with the interpretation of s.90(2), which provides:
(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 provision has been interpreted by the FWO, based on advice from Senior Counsel, as requiring the payment of an annual leave loading entitlement, even where award or agreement provisions specifically preclude payment of the loading. Stakeholders including the ACCI and the Ai Group propose amendment to the legislation to clarify that leave loading is only payable on termination if provided for in the relevant industrial instrument.
The provision of annual leave loading was originally to compensate employees for the notional loss of overtime earnings while on leave, although the benefit then spread to most sectors of the workforce, including areas not generally subject to overtime payments. A common feature of award leave loading provisions historically was that leave loading was not payable on termination. Advice tendered to the Senate’s Education, Employment and Workplace Relations Committee by the FWO was that 112 modern awards include provision for annual leave loading, 29 of which either explicitly or implicitly provide that the loading is not payable on termination of employment, a further nine provide that it is payable and 74 are silent on the issue.
While it is not clear beyond doubt whether s.90(2) was intended to preserve existing arrangements for the payment of leave loading on termination, the interpretation of the provision by the FWO, in contradistinction to the interpretation by many employer representatives, has meant that longstanding arrangements under awards and enterprise agreements have been disturbed.
For employers who traditionally have not had to pay annual leave loading on termination, they have incurred an additional cost in paying out the annual leave on termination. Leave loading typically amounts to 17.5 per cent on the base rate of pay, depending on the relevant modern award or enterprise agreement. It is impossible to quantify the cost of this change to the economy overall, as there is no way to gauge how much leave is owed to employees whose employment has been terminated, what their base rate of pay is, what the relevant leave loading is, how many employees are covered by awards or agreements that provide leave loading and whether all employers have been meeting the new requirement. It is, however, noted that the interpretation of the requirement would have the most negative impact on affected small businesses. The benefit to employees covered by instruments that previously had not attracted leave loading on separation is that they are entitled to be paid leave loading on top of leave owed to them when leaving their employment.
Backed with the weight of past practice and to provide certainty on the issue, the Panel therefore recommends that s.90(2) of legislation be amended to provide that leave loading is only payable on separation where expressly provided under the relevant modern award or enterprise agreement for both new and existing employees.
Recommendation 6: The Panel recommends that s.90 be amended to provide that annual leave loading is not payable on termination of employment unless a modern award or enterprise agreement expressly provides to that effect.”
[Footnotes not reproduced.]
[13] The advice referred to by the Panel in the preceding extract was given by Mr J Phillips SC and has been used by the Fair Work Ombudsman concerning the interpretation of s.90 of the Act. The advice read in part:
“9. Consequently, the National Employment Standards are what is applicable for the payment of the base rate of pay for an employee's ordinary hours of work in the period of the taking of paid annual leave pursuant to s.90(1). Such a minimum provision can be supplemented by an award, enterprise agreement or contractual provision so long as it is not detrimental to the employee (see ss55(4)(b) referred to above). An additional payment could hardly be said to be detrimental to an employee. The provisions in subsection (2) could have been expressed in the same way were it the case that annual leave loading was not to be paid on untaken annual leave. However, it is instructive to note that the provision is expressed in quite different terms to what is to be found in subsection (1) of s.90. Subsection (2) has no reference to the expression "employee's base rate of pay". What is to be found in subsection (2), is that an employee on termination who has a period of untaken paid annual leave must be paid by the employer the amount that the employee "would have been payable had the employee taken that period of leave." In these circumstances, if there is an award or an enterprise agreement or a contract which permits the taking of annual leave upon which is paid an annual leave loading, then in my view that is the amount which would be payable as untaken paid annual leave to an employee on termination.
10. Those who contend that untaken paid annual leave is to be paid at the base rate of pay on termination without any amount of annual leave loading added to it, neglect the words used in the subsection. In order to bolster their case they need in effect to add words to the subsection which are not there. In order to make good their argument, they would need to have the same provision of the expression "employee's base rate of pay" as found in subsection (1) repeated in subsection (2). Perhaps also to add the words "only will be paid the employee's base rate of pay for untaken paid annual leave on termination of employment." It is not permissible in effect to add such words to the Act. This is particularly so when the words in subsection (2), in my opinion, are clear on their ordinary English meaning and in the context of the Act.
[14] Inghams’ submissions, on one view of it, were that the approach to legislative construction adopted by the Fair Work Ombudsman, based on advice by senior counsel, was incorrect; although the submissions went much beyond that - including references to statutory interaction, explanatory memoranda and the like. In my consideration of the provisions of the Act, and apart from my consideration of the fully-developed submissions made by Inghams, I have also considered the decision in Re Goodstart Early Learning Enterprise Agreement [2012] FWA 2408, the advice by senior counsel relied on by the Fair Work Ombudsman, and the commentary and recommendation made as a result of the Review.
[15] Section 90(2) provides that 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. See also the Explanatory Memorandum to the Fair Work Bill 2008 at items 370 to 372. Here, the Agreement does not provide for payment in the manner described, in unembroidered language and without words of limitation, in s.90(2) on the termination of employment by resignation, excepting resignations brought about by employees’ permanent and total incapacity. Under the Agreement the employees’ payment on termination of employment by resignations other than those brought about by total and partial incapacity would be made at the employees’ base rate of pay and not as if taken. I consider cl.7.2.4(c) of the Agreement probably runs foul of the provisions in s.90(2) of the Act, although I accept different statutory constructions of s.90 are available particularly in circumstances where the payment of annual leave loading does not otherwise feature in the National Employment Standards. I respectfully agree with the comments of the Review Panel that the matter would benefit from legislative clarification.
[16] I again invite Inghams to provide an undertaking as to this matter (as well as in relation the undertakings it has otherwise agreed to provide). The signed undertakings, in their consolidated form, or, alternatively, written confirmation that an undertaking concerning the annual leave loading will not be provided, should be emailed to my Associate and to the AMIEU by 2.00pm on Friday, 26 October 2012.
COMMISSIONER
Appearances:
J. Lawrence for the Inghams Enterprises Pty Limited.
Hearing details:
2012.
Sydney.
October 10.
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