[2014] FWCFB 3202

FAIR WORK COMMISSION

DECISION


Fair Work Act 2009
s.185 - Application for approval of a single-enterprise agreement

Canavan Building Pty Ltd
(AG2013/10430)

JUSTICE ROSS, PRESIDENT
VICE PRESIDENT HATCHER
SENIOR DEPUTY PRESIDENT ACTON
COMMISSIONER CARGILL
COMMISSIONER WILSON

MELBOURNE, 29 MAY 2014

Application for approval of the Canavan Building Pty Ltd Enterprise Agreement 2013.

Introduction

[1] Mr Irving Warren, a bargaining representative for Canavan Building Pty Ltd (Canavan), an employer, has applied under s.185 of the Fair Work Act 2009 (the Act) for approval of the Canavan Building Pty Ltd Enterprise Agreement 2013 (the Agreement). In order for an enterprise agreement to be approved, the Fair Work Commission must be satisfied of certain matters that are specified in the Act. One of those requirements is that contained in s.186(2)(c) as follows:

[2] Section 55 of the Act relevantly provides:

[3] An issue has arisen as to whether the Agreement contains provisions which exclude those entitlements and provisions of the National Employment Standards (NES) which concern paid annual leave. Because there have been conflicting decisions relevant to this issue, including a decision of a Full Bench of this Commission and a judgment of the Federal Court, Mr Warren’s application for approval of the Agreement was on 28 March 2014 referred by the President of the Commission to this Full Bench for determination pursuant to ss.582 and 615 of the Act.

[4] Directions were issued which permitted the Commonwealth and any Peak Industry Council (the ACCI, Ai Group and the ACTU) to file written submissions. The ACCI, Ai Group and the ACTU availed themselves of this opportunity and filed written submissions. The hearing of the application took place on 1 April 2014, and oral submissions were received from Mr Warren, the ACCI, Ai Group and the ACTU. The Commonwealth did not make any submissions and did not appear at the hearing.

Relevant provisions of the Agreement

[5] In broad terms, the Agreement provides that annual leave is to be paid for as a loading upon or incorporated into the hourly rate of pay, so that rather than being paid for annual leave at the time that such leave is taken, annual leave is notionally paid for in advance as a component of the payment made for work performed. The general concept is described in clause 9.3 of the Agreement as follows:

[6] Clause 41 deals with annual leave entitlements under the Agreement in the following terms:

[7] Appendix B identifies the wage rates payable under the Agreement. As a general concept, Appendix B establishes a single hourly rate for all employees which is intended to incorporate payment for all entitlements arising under the relevant modern award (the Building and Construction General On-site Award 1) and the Act, including the base award rate of pay, overtime, meal allowances, crib time, annual leave, redundancy, personal leave and fares allowances. Clause 1 of Appendix B explains the general concept as follows:

[8] Clause 7.1 of Appendix B sets out the specific calculation of the “Annual Leave Factor” in the hourly rate of pay:

[9] Clause 9.1 of Appendix B deals with the “Personal Leave Factor” in a similar way:

[10] The actual rates payable under the Agreement on the basis of the above methodology are set out in clause 14 of Appendix B:

[11] Clause 16 of Appendix B identifies how wage increases are payable under the Agreement:

[12] Finally, clause 19.2 of Appendix B confirms the incorporation of a payment in advance for annual leave in the hourly rate as follows:

NES annual leave provisions

[13] The scheme of provisions which establishes the statutory entitlement to annual leave is set out in Division 6 of Part 2-2 of the Act. Section 87(1) identifies the basic entitlement in the following terms:

[14] Section 87(2) identifies the method of accrual of the annual leave entitlement:

[15] The expression “paid annual leave” as used in s.87 (and elsewhere in Division 6 of Part 2-2) is defined, not particularly helpfully, in s.12 as follows:

[16] Section 88 specifies the circumstances in which annual leave may be taken by an employee:

[17] Section 89, which it is not necessary to set out in full, provides that an employee is taken “not to be on paid annual leave” if “the period during which an employee takes paid annual leave” includes a public holiday, a period of any other leave, or an absence from employment under Division 8 of the Act. Section 90 then deals with payment for annual leave as follows:

[18] Sections 92-94 set out the circumstances in which paid annual leave may be cashed out. Section 92 prohibits cashing out of annual leave except in prescribed circumstances:

[19] Section 93, for the purposes of s.92(a), identifies the circumstances in which modern awards and enterprise agreements may include cashing out terms for the purposes of s.92(a). It provides:

[20] Section 94 specifies the circumstances in which award/agreement free employees may cash out paid annual leave.

[21] Section 323 deals with the method and frequency of payment of certain employment entitlements. Section 323(1), which contains the prescription as to frequency, provides:

The conflicting decisions

[22] In Hull-Moody Finishes Pty Ltd 2 Fair Work Australia (O’Callaghan SDP) was required to consider whether the Hull-Moody Finishes Pty Ltd Enterprise Agreement 2011 was capable of approval under the Act. That agreement was, with respect to the system for the payment of annual leave, the same in all essential respects as the Agreement here, in that it provided for the payment of annual leave “progressively in advance” by way of an amount incorporated into the total hourly rate to be paid to employees for work performed, with the total rate of pay also encompassing a range of other entitlements including overtime. The Senior Deputy President identified two issues as arising with respect to the agreement’s annual leave provisions - the first being what the base rate of pay in the agreement was for the purpose of the entitlement in s.90(1) to payment for annual leave “at the employee’s base rate of pay”, and the second being whether the agreement provided for cashing out of annual leave in a manner not permitted by s.93.3 In respect of the first issue, the Senior Deputy President determined that the base rate of pay for the purpose of the annual leave entitlement was the hourly rate specified in the agreement because, although it was loaded to include overtime, it was payable for the employee’s ordinary hours of work.4 The implication of this conclusion, although not expressly stated by the Senior Deputy President, was that because the agreement calculated the annual leave amount incorporated into the hourly rate by reference to award rates of pay, it ousted the NES entitlement under s.90(1) to annual leave paid at the hourly rate in the agreement.

[23] As to the second issue, the Senior Deputy President said:

[24] The Senior Deputy President also found that, insofar as the agreement also loaded the NES entitlements to paid personal/carer’s leave into the hourly rate, the agreement was inconsistent with the NES entitlement to paid personal/carer’s leave in s.99 of the Act and permitted cashing out of that entitlement in a manner not permitted by s.100. 5 The Senior Deputy President rejected an undertaking proffered by the employer on the basis that it did not resolve the problems he had identified, and refused to approve the agreement.

[25] This decision was appealed by the employer and the bargaining representatives of the employer and the employees. In Mr Irving Warren; Hull-Moody Finishes Pty Ltd; Mr Romano Sidotti 6 a Full Bench of Fair Work Australia decided by majority to uphold the appeal. The majority (Vice President Watson and Hamberger SDP) firstly determined that the total hourly rate of pay specified in the agreement was not the base rate of pay for the purpose of s.90(1) because, having regard to the definition of “base rate of pay” in s.16(1), it included overtime and annual leave payments. In respect of the issue as to whether, by paying for annual leave in advance, the agreement excluded the NES annual leave entitlement, the majority said:

[26] Commissioner Cambridge dissented. The gravamen of his reasoning was contained in the following part of his decision:

[27] The Commissioner also noted that the appeal had been conducted without the benefit of a contradictor 7, and said:

[28] In Construction, Forestry, Mining and Energy Union v Jeld-Wen Glass Australia Pty Ltd 8 the Federal Court (Gray J) considered an application for civil penalties to be imposed under the Act in respect of an employer which, in accordance with the provisions of an Australian Workplace Agreement (AWA) entered into under the Workplace Relations Act 1996 and remaining in effect by virtue of the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009, had paid an employee an extra 1.5 hours’ pay each week in lieu of any entitlement to payment when the employee utilised any of his ten days’ sick leave entitlement. The application alleged that this method of payment contravened ss.100 and 101 of the Act, which prohibited the cashing out of personal/carer’s leave except in accordance with terms of a modern award or an enterprise agreement complying with the standards set out in s.101.

[29] The Court determined that the sick leave provisions contained in the AWA provided in effect for the cashing out of sick leave in a manner not permitted by s.101 of the Act, and were therefore unenforceable because otherwise they would displace the NES personal/carer’s leave provisions in s.101. The Court’s reasoning was as follows:

[30] Although Jeld-Wen is concerned with the NES personal carer’s leave entitlements rather than annual leave, it is nonetheless clear that its reasoning is inconsistent with that of the Full Bench majority in Hull-Moody. The decision in Jeld-Wen was delivered on 6 February 2012, but the hearing in the matter took place on 30 May 2011, well before the Hull-Moody appeal decision was delivered on 29 November 2011, so that it is likely that the Court’s attention was not drawn to Hull-Moody. It is certainly not mentioned by the Court in its decision. In Jeld-Wen, the Court founded its conclusion on two propositions. The first was that the requirement for payment for personal/carer’s leave under s.99 of the Act was a requirement which applied at the time the leave is taken. The second was that when the Act, in ss.100 and 101, referred to “cashing out”, it was referring to the cashing out of paid personal carer’s leave, not the leave itself. The decision of the Full Bench majority in Hull-Moody adopted conclusions which were directly contrary to these propositions in respect of annual leave provisions which are, for relevant purposes, difficult to distinguish from the personal/carer’s leave provisions.

[31] The conflict in reasoning between the majority decision in Hull-Moody and Jeld-Wen has led to inconsistency in single-member decisions in this Commission. In BM & KA Group as trustee for BM & KA Group Unit Trust 9 the Commission (Cribb C) determined that an agreement which provided for the “pre-payment” of annual leave and personal/carer’s leave through a loaded wage rate contravened s.55 of the Act by excluding the NES leave entitlements. That decision was based upon a preference for the treatment in Jeld-Wen of the expression “paid personal carer’s leave” as a composite term over the majority reasoning in Hull-Moody in which the treatment of the expression “paid annual leave” as a composite expression was not considered.10 However in Robjohn Enterprises Pty Ltd11 an agreement which provided for the payment in advance of annual leave and personal leave by way of a loaded wage rate was approved by the Commission (Bull C) on the basis that the majority decision in Hull-Moody was binding.12

Submissions

[32] Mr Warren submitted that the Agreement should be approved consistent with the majority decision in Hull-Moody, which was correctly decided. He submitted that the use of the word “paid” in the expression “paid annual leave” as it appears throughout Division 6 of Part 2-2 of the Act was only for the purpose of distinguishing annual leave from leave without pay; “paid annual leave” was otherwise not intended to have a meaning distinct from “annual leave”. The Act, by the use of that expression or otherwise, did not require that annual leave be paid for during or immediately before the period it was taken. The time at which payment for annual leave could be made was a matter that could be dealt with in an enterprise agreement as a term ancillary or incidental to the operation of the NES annual leave entitlement pursuant to s.55(4)(a). Awards such as the Building and Construction General On-site Award 2010 (which was the relevant award for Canavan) which required payment for annual leave to be made in advance did not constrain payment for annual leave being made at any time before the leave was taken, either in a single payment or progressively. 13

[33] Ai Group and the ACCI made submissions which generally accorded with the interpretation of the relevant provisions of the Act advanced by Mr Warren, without necessarily endorsing the precise payment methodology in the Agreement. We will not recite their submissions where they were in substance the same as those of Mr Warren. Ai Group submitted that the annual leave provisions such as those found in the Agreement did not contravene s.55(1) in that they did not contain any express exclusion of the NES or an exclusion of the effect or benefit of the NES. Such agreement terms instead adopted and provided to employees the full annual leave benefits of the NES, with its provision for payment in advance being a term ancillary or incidental to the operation of the NES entitlement authorised by s.55(4). Ai Group in that connection made reference to the statutory note that accompanies s.55(4) and identifies that such an ancillary or incidental term may, as an example, include a term that specified when payment under s.90 for paid annual leave must be paid. It submitted that a term that allows for payment of annual leave in advance, as in the Agreement, does not result in any detriment to employees but rather a benefit, since employees would have early use of the money. The AIG sought to distinguish the decision in Jeld-Wen on the basis that it did not concern the approval of an enterprise agreement, involved a different NES entitlement and different provisions of the Act, and dealt with a payment system for personal/carer’s leave that was quite different to the payment system in the Agreement.

[34] The ACCI submitted that neither s.87 nor s.90 contained any affirmative statement about when an employee is to be paid when they take annual leave. There is nothing unusual about payment being made for annual leave in advance, and the ACCI pointed in this respect to modern award provisions requiring this, as well as statutory provisions such as s.3(6)(b) of the Annual Holidays Act 1944 (NSW). The law relating to the set-off of award entitlements, established in cases such as Poletti v Ecob 14, Ray v Radano15, Otis Elevator Company Pty Ltd v Logan16 and Maslen v Core Drilling Services Pty Ltd17, demonstrates that employees may be paid an entitlement by way of aggregated remuneration rather than directly provided that the employer makes clear to the employee that a particular payment is being made in lieu of another entitlement. The type of payment in advance system contained in the Agreement did not amount to cashing out, the ACCI submitted, because, consistent with the reasoning of the majority in Hull-Moody, the fact that an employee has been paid in advance for a period of leave does not render a period of leave taken at a later date without further payment as “unpaid” leave.

[35] The ACTU submitted that the Agreement was incapable of approval under the Act because it contravened s.55(1). It pointed to s.90(1) as establishing a requirement that payment for annual leave was to occur only if an employee took a period of paid annual leave. The effect of clause 41 of the Agreement was to exclude s.90(1) by providing a different contingency for the payment of annual leave than that provided for by s.90(1). Clause 41 was not saved by s.55(4) because it was not ancillary, incidental or supplementary to the operation of the NES entitlement in s.90(1), but rather provided for a completely different entitlement to payment which was unconditioned by anything apart from turning up to work. Additionally, the expression “paid annual leave” connoted leave for which payment was made at the time the leave was taken. This interpretation of the expression is supported by the origins of the paid annual leave entitlement and universally accepted norms. The method of payment provided for in the Agreement constituted the cashing out of annual leave contrary to s.92, because on receipt of the loaded rate the employee forwent an entitlement to paid annual leave, retaining only an entitlement to take unpaid annual leave. Hull-Moody was wrongly decided and should not be followed.

Consideration

[36] Section 55(1) of the Act relevantly provides that an enterprise agreement “must not exclude” the NES or any provision thereof. It is not necessary that an exclusion for the purpose of s.55(1) must be constituted by a provision in the agreement ousting the operation of an NES provision in express terms. On the ordinary meaning of the language used in s.55(1), we consider that if the provisions of an agreement would in their operation result in an outcome whereby employees do not receive (in full or at all) a benefit provided for by the NES, that constitutes a prohibited exclusion of the NES. That was the approach taken by the Full Bench in Hull-Moody. 18 The correctness of that approach is also confirmed by the Explanatory Memorandum for the Fair Work Bill 2009 as follows:

[37] We will consider whether the Agreement excludes the NES provisions concerning annual leave on this basis.

[38] There is an immediate reason why the Agreement cannot be approved in its current form, irrespective of whether the Act allows for the payment of annual leave in advance or whether the Agreement provides for the cashing out of annual leave in a manner not permitted by the Act. The obligation for payment for annual leave in s.90(1) requires that the payment be made at the employee’s base rate as it is at the time the leave is taken. This is made clear by the words “must pay the employees at the employee’s base rate of pay for the employee’s ordinary hours of work in the period” (underlining added), the “period” being the “period of paid annual leave” taken by the employee. The ACCI and Ai Group accepted this was the case, and no party submitted otherwise. Because the Agreement provides for payment for annual leave on a progressive basis in advance rather than when annual leave is taken, and also provides for increases in the rates of pay during the life of the Agreement, it permits annual leave to be paid for, at least in part, at an earlier and lower rate of pay rather than the rate of pay applicable at the time that leave is taken. Therefore compliance with the terms of the Agreement does not require compliance with the payment obligation in s.90(1), and may result in that obligation not being complied with. To that extent, the NES provision in s.90(1) is excluded, contrary to s.55(1) of the Act.

[39] The same conclusion would apply to the agreement considered and approved by the Full Bench majority in Hull-Moody, which as earlier observed was the same in all relevant respects as the Agreement here. Due to the lack of a contradictor in the Hull-Moody appeal, this issue does not appear to have been raised or considered. It nonetheless follows that the Full Bench majority in Hull-Moody was in error in approving the agreement under consideration in that matter.

[40] However, because it is possible that this impediment to approval could be overcome by an undertaking in appropriate terms, it remains necessary for us to consider whether the “pre-payment” or “self-funded” system for annual leave contained in the Agreement contravenes s.55(1) even if a mechanism could be developed to ensure that payment is made at the base rate applicable when the employee takes leave.

[41] The starting point for our consideration is to identify the meaning of the expression “paid annual leave” as used in Division 6 of Part 2-2 of the Act. The Division consistently uses the expression “paid annual leave”, not merely annual leave, in its prescription of the annual leave entitlement. The quantum of the entitlement as prescribed in s.87(1) is for the specified number of weeks of “paid annual leave”. Section 88 prescribes when “paid annual leave” may be taken. Section 89 specifies certain times at which an employee may be taken not to be on “paid annual leave”. Section 90(1) identifies the requirement for payment of annual leave when an employee takes a period of “paid annual leave”. And, critically, ss.92-94, in dealing with cashing out, refer to the cashing out of “paid annual leave”. The consistent use of the expression strongly suggests its fundamental significance to the nature of the entitlement established by the Division.

[42] The definition of the expression in s.12 is of little utility except insofar as it repeats within the definition the whole of the expression itself, again emphasising that “paid annual leave” is to be treated as the basal concept in the scheme. We consider that it should be treated as a composite expression, in which payment for the leave is inextricably linked to the leave itself. As a matter of the ordinary understanding of that composite expression, and consistent with the approach taken by Gray J in Jeld-Wen, we consider that “paid annual leave” means annual leave with pay, in the sense that the pay is provided together with the leave.

[43] Both the internal and the historical contexts of the Act support this approach. Internally, s.90, which deals with payment for annual leave, is the critical provision. Interpreted in accordance with its ordinary meaning, s.90(1) by the use at its commencement of the word “If” identifies a condition or contingency upon the satisfaction or occurrence of which a specified requirement applies. The condition or contingency is that “an employee takes a period of paid annual leave”. The requirement is that “the employer must pay the employee’s base rate of pay for the employee’s ordinary hours of work in the period”. It is therefore clear that the requirement to make payment in respect of paid annual leave arises when the employee actually takes the annual leave. It may also be noted, although not directly relevant here, that s.90(2) is constructed in a similar way: with respect to untaken paid annual leave; the condition or contingency is “when the employment of an employee ends”, and the requirement is that “the employer must pay the employee the amount that would have been payable to the employee had the employee taken that period of leave”. Thus, upon termination of employment, untaken annual leave must be paid out.

[44] Section 90(1) therefore confirms that the statutory scheme is founded on there being a temporal connection between the taking of annual leave and the payment for such leave. Section 323(1)(c), which deals with the frequency of payment for amounts payable to employees in relation to the performance of work - including, as the accompanying statutory note indicates, leave payments - further confirms this, in that such payments must be made “at least monthly”. In relation to annual leave, this provision only makes sense if read as a requirement for employers to pay for annual leave within the pay cycle that the leave is taken, such pay cycle being at least monthly in frequency. Paragraph 1283 of the Explanatory Memorandum for the Fair Work Bill supports s.323(1)(c) together with the statutory note being read in this way (underlining added):

[45] On the contrary approach taken by the majority in Hull-Moody and advanced in this appeal, namely that Division 6 of Part 2-2 establishes no connection between the taking of and payment for annual leave, no practical work can be assigned to s.323(1)(c) in respect of annual leave, because there is never any time at which payment for annual leave falls due, and therefore any part of the amount may be paid at any time. We note in this connection that the majority in Hull-Moody recognised a difficulty in this approach in that while they said that “there is no obligation in the NES to make a payment for annual leave at a particular time”, they went on to say that “a delay in payment may be in a different category” without identifying why that would be the case. In fact, on the Hull-Moody majority’s approach, there would be no statutory impediment to payment for annual leave being made at any time before or after the taking of annual leave. The detrimental consequences of that result are obvious and are strongly suggestive of fallacy in that approach. The interpretation of the expression “paid annual leave” in Division 6 of Part 2-2 and of ss.90(1) and 323(1)(c), which we favour, avoids that result.

[46] The historical context is of significant assistance in understanding the provisions of Division 6 of Part 2-2. 19 The enactment by the legislature of a NES entitlement to paid annual leave in the Act did not occur in a vacuum, but rather against the lengthy historical background of the development and establishment of paid annual leave as a standard industrial entitlement through decisions and awards of industrial tribunals and earlier State and federal statutory provisions. We consider that we are entitled, under s.15AB(1)(a) of the Acts Interpretation Act 1901 (Cth), to have regard to that historical context in order to confirm that the meaning of “paid annual leave” and s.90 “is the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act”.

[47] Foundational arbitral decisions concerning annual leave referred to an entitlement to “annual leave on full pay” 20, “an adequate period of respite, without loss of income” and “a minimum annual holiday of two continuous weeks, with pay”21. The earliest statutory provisions for annual leave expressed the entitlement in a similar way: for example, s.3(1) of the Annual Holidays Act 1944 (NSW) provided for an entitlement to “an annual holiday of two weeks on ordinary pay”, and s.10A(2) of the Industrial Conciliation and Arbitration Act 1932-1945 (Qld) as amended by s.4 of the Industrial Conciliation and Arbitration Acts Amendment Act 1946 (Qld) provided for “an annual holiday on full pay”. The NSW statute (s.3(6)(b)) required the employer to “pay each worker in advance before the commencement of the worker’s annual holiday, his ordinary pay for the holiday period”, and the Queensland statute (s.10A(3)) similarly required that the annual holiday “be paid for in advance at the ordinary rate payable to the employee immediately prior to such annual holiday”. The standard award provision for annual leave established by the Metal Trades Annual Leave Case22 in 1946 and the NSW statute (s.3(5)) both contained prohibitions against the making and acceptance of payment in lieu of the annual leave entitlement. It is clear, we consider, that the development of the entitlement of annual leave by industrial tribunals and legislatures did not contemplate anything other than that annual leave would be taken by employees and paid for at the time it was to be taken (except in respect of the payment of untaken accrued annual leave upon termination of employment). References to payment for annual leave in advance in that context are to be read, we consider, as payment before the period of leave commenced but once the decision to provide, and take, the leave had been made - not at some indeterminate earlier period.

[48] That position remained unchanged for many decades. In 1987, a Full Bench of the NSW Industrial Relations Commission in Bakers (Cumberland) Conciliation Committee 23 rejected a consent application to vary an award which permitted the cashing out of an additional leave entitlement as contrary to established industrial principles24, and indeed Cahill VP went so far as to refer to “industrial morality” in his rejection of the claim.25 Similarly in 1994, the Australian Industrial Relations Commission (Watson DP) declined to approve an enterprise flexibility agreement under the provisions of the Industrial Relations Act 1988 (Cth) because it contained provisions permitting the cashing out of annual leave which were considered to be contrary to the public interest in that they involved the diminution of an entitlement in the nature of a community standard.26

[49] The well-established position concerning the industrial standard for annual leave began to be altered when specific legislative provision began to be made for the cashing out of annual leave. The first example of this appears to have been s.8 of the Minimum Conditions of Employment Act 1993 (WA), which permitted an employer and employee to agree in writing that the employee forgo his or her annual leave entitlement if the employee was given “an equivalent benefit in lieu of the entitlement”. Section 8 operated as an exception to the general entitlement conferred by s.23 to “paid annual leave”, payment for a period of which was, under s.24(1), to be made “in the normal course of employment” unless the employee requested in writing to be paid before the period of leave commenced.

[50] In the federal sphere, cashing out of annual leave was first permitted under the Workplace Relations Act 1996 (Cth) as amended by the Workplace Relations (Work Choices) Amendment Act 2005 (Cth). The Workplace Relations Act as amended by the Work Choices legislation established for the first time a federal legislative annual leave prescription of general application, as part of the “Australian Fair Pay and Conditions Standard”. The entitlement “guarantee” in s.232 of the amended Workplace Relations Act was expressed in terms of “paid annual leave” (not defined). Section 235(1) set out the “payment rules” applicable upon the taking of annual leave as follows:

[51] Section 233 entitled an employee to elect to forgo an annual leave entitlement credited to the employee (subject to a limit of half the entitlement accrued each year) with the authorisation of the employer, provided that an applicable workplace agreement provided for such an entitlement on the basis that the employee would receive payment at the employee’s base rate for any leave so forgone. The section did not actually use the expression “cashing out”, but instead referred to an entitlement to “forgo” annual leave. However, the explanatory memorandum for the Work Choices legislation 27 repeatedly referred to the provision as being concerned with an entitlement to cash out annual leave.

[52] The position that emerges from the historical context at the time the Act was enacted is therefore that annual leave was an entitlement which involved payment at the employee’s ordinary rate of pay, with such payment being made during the taking of the leave in accordance with normal pay arrangements or immediately before the leave was taken. However, a specific exception to this entitlement was created by statutory provisions permitting the cashing out of annual leave in prescribed and limited circumstances. That historical context confirms that “paid annual leave” in Division 6 of Part 2-2, and s.90, are to be interpreted in the way earlier identified.

[53] It follows that we cannot accept the submission that the provisions in the Agreement concerning “pre-payment” for annual leave can be characterised as provisions merely ancillary or incidental to the operation of the NES annual leave entitlement and are thus authorised by s.55(4) of the Act. For the reasons we have set out, the scheme of self-funded or pre-paid annual leave provided for by the Agreement does not constitute “paid annual leave” as contemplated by the Act at all. To the extent, as indicated by the accompanying statutory note, that an enterprise agreement may under s.55(4) contain ancillary or incidental provisions concerning when payment for annual leave is to be made, such provisions would necessarily have to be consistent with the concept of “paid annual leave” as we have earlier described it. Provisions which require payment immediately before the leave is taken, or at identified intervals during the period of leave, or in accordance with the normal pay cycle at the time leave is taken, are the type of provisions in this respect which would be authorised by s.55(4). Modern award provisions concerning payment for annual leave, such as that in the Building and Construction General On-site Award 2010 referred to by Mr Warren, are to be understood in this way: they provide for payment in advance for an actual period of annual leave which has been arranged to be taken, not a payment made in respect of any future annual leave entitlement whenever it is taken or whether taken at all.

[54] The interpretation of relevant provisions of the Act advanced by Mr Warren and the various employer groups (and as stated in Hull-Moody) would in application have consequences which are entirely improbable. For example (and as was conceded by the ACCI), if pre-payment of annual leave was permissible under the Act, that would include the capacity to pre-pay for annual leave for any number of years in the future at the commencement of employment or at some other time, regardless of whether such leave was ever taken or not. It would further follow that, in connection with bargaining for an enterprise agreement, it would be available for employees to take protected industrial action in support of a claim that annual leave entitlements over the life of the proposed agreement be paid to employees “in advance” by way of a single payment regardless of whether such annual leave is ever actually taken or not. Such a consequence is so far removed from the ordinarily-understood concept of “paid annual leave” that it cannot have been intended by the legislature, and constitutes a further reason why that interpretation cannot be accepted. 28 The requirement for payment in s.90(1), as we have earlier interpreted it, avoids such consequences in a way which provides mutual protection for employers and employees.

[55] We therefore conclude that the Agreement, in providing in clause 7.1 of Annexure B that employees are required to fund any time taken off work by way of annual leave, excludes the NES provisions for annual leave contrary to s.55(1) of the Act in two inter-related respects:

(1) it excludes the entitlement to “paid annual leave” in s.87(1); and

(2) it excludes the requirement for payment in respect of annual leave in s.90(1).

[56] Additionally we consider that the scheme of “pre-payment” of annual leave in the Agreement constitutes cashing out of annual leave in a manner inconsistent with s.93, with the result that the prohibition in s.92 is excluded. Once it is understood that “paid annual leave” means annual leave accompanied by pay when it is taken, then the prohibition in s.92 must be understood as prohibiting the making of a payment which would lead to the employee forgoing his or her entitlement to later take annual leave with pay (unless such cashing out is authorised by s.93 or s.94). This is what the Agreement if approved would do. Mr Warren did not contend that the annual leave payment provisions in the Act constituted a cashing out provision in an enterprise agreement which complied with s.93, and it is clear that it does not because the Agreement does not contain any provision which would ensure a minimum accrual of four weeks’ paid leave would remain in place, and does not require a written separate agreement between the employer and the employee in order for the cashing out to occur.

[57] It would probably follow from our reasoning and the decision of Gray J in Jeld-Wen that the provisions in the Agreement concerning “pre-payment” for personal/carers leave also offend s.55(1) of the Act. However because this issue was not properly argued before us, and because it is unnecessary for us to do so, we will not express a final view about this issue at this point.

[58] The Agreement as it currently stands cannot be approved, because we cannot be satisfied for the purpose of s.186(2)(c) that the terms of the Agreement do not contravene s.55. However we will give Canavan an opportunity to proffer undertakings which might allow the Agreement to be approved under s.190. In deciding whether and how it might avail itself of this opportunity, Canavan should give consideration to the issue of personal/carer’s leave as well as annual leave.

PRESIDENT

Appearances:

I. Warren for Canavan Building Pty Ltd

N. Ward for the ACCI

B. Ferguson for Ai Group

R. Reitano of counsel for the ACTU

Hearing details:

2014.

Melbourne:

1 April.

 1   MA000020

 2   [2011] FWA 5618

 3   Ibid at [21]

 4   Ibid at [23]

 5   Ibid at [28]-[31]

 6   [2011] FWAFB 6709

 7   Ibid at [75]

 8   [2012] FCA 45; (2012) 213 FCR 549

 9   [2013] FWC 3654

 10   Ibid at [25]-[29]

 11   [2013] FWCA 6685

 12   Ibid at [24]-[29]

 13   Clause 38.2(a) of the Building and Construction General On-site Award 2010 provides: “Instead of the base rate of pay as referred to in s.90(1) of the Act, an employee under this award, before going on annual leave, must be paid, in advance, the amount which they would have received for working ordinary time hours if they had not been on leave.”

 14   [1989] FCA 492, (1989) 30 IR 343

 15   [1967] AR (NSW) 471

 16   S119/1999 [2000] HCATrans 84 (10 March 2000)

 17   [2013] FCCA 460

 18   At [26]; see also Re Armacell Australia Pty Ltd (2010) 202 IR 38 at [18]-[19]

 19   See Construction Forestry Mining & Energy Union v Mammoet Australia Pty Ltd [2013] HCA 36 at [45], [52]-[59] for an example of the way in which historical context may be used as an aid to statutory interpretation.

 20   Printing and Allied Trades Employers Federation of Australia v Printing Industry Employees Union of Australia (1936) 36 CAR 738 at 746

 21   Metal Trades Annual Leave Case (1945) 55 CAR 595 at 597

 22   Ibid at p.601, cl.7.

 23   (1987) 20 IR 152

 24   Ibid at 166 and 181.

 25   Ibid at 181.

 26   Arrowcrest Group Pty Ltd [1994] AIRC 1054, Print L4310

 27   At paragraphs 511-516

 28   See Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297 at 321 per Mason and Wilson JJ

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