[2015] FWCFB 5771

The attached document replaces the document previously issued with the above code on 15 September 2015.

The appearance for the New South Wales Business Chamber and Australian Business Industrial has been corrected to J Arndt.

Miriam Henry

Associate to Justice Ross

Dated: 3 March 2016

[2015] FWCFB 5771
FAIR WORK COMMISSION

DECISION


Fair Work Act 2009
s.156 - 4 yearly review of modern awards

4 yearly review of modern awards—Annual leave
(AM2014/47)

JUSTICE ROSS, PRESIDENT
DEPUTY PRESIDENT KOVACIC
COMMISSIONER HAMPTON

SYDNEY, 15 SEPTEMBER 2015

4 yearly review of modern awards - annual leave common issue - finalisation of model terms - excessive annual leave - cashing out of annual leave - granting leave in advance - purchased leave.

CONTENTS

Chapters

Page

Paragraph

1.

Introduction

4

[1]

2.

The June 2015 decision

4

[5]

3.

The issues

12

[37]

 

3.1 Excessive annual leave

14

[42]

 

3.2 Cashing out of annual leave

46

[179]

 

3.3 Granting leave in advance

48

[192]

 

3.4 Purchased leave

49

[198]

 

3.5 Draft determinations

4.

Next Steps

51

[212]

       

Attachments

A

Index of material

55

  

ABBREVIATIONS

AAA

Accommodation Association of Australia

ABI

Australian Business Industrial

ACCI

Australian Chamber of Commerce and Industry

Act

Fair Work Act 2009 (Cth)

ACTU

Australian Council of Trade Unions

AHA

Australian Hotels Association

AHEIA

Australian Higher Education Industrial Association

Ai Group

Australian Industry Group

Air Pilots decision

Australian Federation of Air Pilots v HNZ Australia Pty Ltd [2015] FWCFB 3124

AIS

Associations of Independent Schools

AMIC

Australian Meat Industry Council

AMMA

Australian Mines and Metals Association

AMWU

Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union known as the Australian Manufacturing Workers’ Union

APTIA

Australian Public Transport Industrial Association

ARA

The Australian Retailers Association

ASMOF

Australian Salaried Medical Officers Federation

CAI

Clubs Australia Industrial

CFMEU

Construction, Forestry, Mining and Energy Union

Commission

Fair Work Commission

EFT

Electronic Funds Transfer

FDA NSW

Funeral Directors Association of New South Wales

HIA

Housing Industry Association

IEU

Independent Education Union of Australia

June 2015 decision

Annual Leave 4 Yearly Review decision [2015] FWCFB 3406

MBA

Master Builders Australia

MIAL

Mining Industry Australia Limited

MPA of NSW

Master Plumbers Association of New South Wales

MTA

Motor Traders’ Association of New South Wales

NES

National Employment Standards

NFF

National Farmers’ Federation

NSWBC

New South Wales Business Chamber

QFDA

Queensland Funeral Directors Association

Regulations

Fair Work Regulations 2009

Review

4 yearly review of modern awards under s.156 of the Fair Work Act 2009

TAPS

The Association of Payroll Specialists

TCFUA

Textile, Clothing and Footwear Union of Australia

1. Introduction

[1] This decision deals with the variation of modern awards in relation to a number of matters regarding paid annual leave. The decision is issued as part of the first 4 yearly review of modern awards (the Review). The Review includes a Common issues stage and an Award stage. A common issue was defined in the initial stage of the Review as a proposal for significant variation or change across the award system, such as applications which seek to change a common or core provision in most, if not all, modern awards. 1 Following a period of consultation it was decided that the annual leave provisions in modern awards would be dealt with as a “common issue”.

[2] The scope of the matters to be considered in the context of the annual leave common issue was published in a Statement on 7 April 2014 2 as follows:

[3] Claims were made by interested parties relating to each of the matters outlined above. The ACTU advanced a claim in respect of the payment of annual leave entitlements on termination. Ai Group and ACCI coordinated discussions with various employer groups (the Employer Group) and presented a common position in respect of the matters under consideration.

[4] The 4 Yearly Review of Modern Awards – Annual Leave decision 3 (the June 2015 decision) dealt with claims in respect of the issues set out at paragraph [2] above. The June 2015 decision stated that interested parties would be provided with an opportunity to make further submissions directed at the issue of purchased leave,4 the provisional excessive annual leave model term, and the proposition that all modern awards be varied to insert the model term.5 Directions were issued6 in relation to the filing of written submissions and a further oral hearing was held on 7 August 2015. It is convenient to summarise the June 2015 decision before turning to the issues which are the subject of this decision.

2. The June 2015 decision

[5] The June 2015 decision begins with a consideration of the legislative context for the Review, noting that the Review is broader in scope than the Transitional Review of modern awards which took place in 2012–2013. The Full Bench also observed that the Review proceedings provided the first full opportunity to consider the content of modern awards. 7 The June 2015 decision then deals with the evidence adduced in the proceedings8 before turning to the specific claims advanced. The Full Bench’s consideration of the specific claims is set out below, albeit in summary terms.

[6] The Employer Group sought to insert a standard clause relating to “excessive” annual leave into 70 modern awards. The ACTU and a number of individual unions opposed the claim. The proposed clause provided that an employer may direct an employee to take paid annual leave if they had accrued at least six weeks of annual leave, provided that the employer gives the employee four weeks’ notice and the employee retains at least four weeks of accrued annual leave once the direction is given. 9

[7] The June 2015 decision deals with the relevant historical and legislative context noting that prior to the commencement of the National Employment Standards (NES) and modern awards, “federal and State legislation and awards commonly provided employers with a right to direct employees to take annual leave”. 10 The Full Bench noted that the evidence before it “clearly establishes that most employees accrue a portion of their paid annual leave entitlement and that a significant proportion of employees have six weeks or more of such accrued leave”.11 The evidence tendered by the Employer Group in support of their claim was in the form of the Employer Survey and various reports and academic articles relating to paid leave and why employees do not utilise their leave entitlements. We deal later with the findings made on the basis of that evidence.

[8] In the June 2015 decision the Full Bench redrafted the Employer Group clause to create a provisional model term dealing with the taking of excessive annual leave, as follows:

[9] Consistent with the Employer Group’s claim the provisional model term incorporates the employer’s right to direct an employee to take their excessive annual leave, but also makes provision for the circumstance where an employee accrues excessive paid annual leave but no employer direction is made. The provisional model term provides an avenue for an employee to exercise control over the time at which their leave is to be taken. The June 2015 decision details the operation of the clause and provides examples as to how the model term is intended to operate. 12

[10] The Full Bench expressed the provisional view that a variation of modern awards to incorporate the model term was necessary to achieve the modern awards objective. The Full Bench also observed that “greater consistency in the provisions governing the taking of annual leave will make the safety net simpler and easier to understand” and on that basis formed the provisional view that a model term dealing with excessive leave should be inserted into all modern awards. 13

[11] The terms of the provisional model term were the focal point of the present proceedings and we return to them shortly.

[12] The Employer Group sought to insert a standard clause relating to cashing out of annual leave into 120 modern awards reflecting the requirements of s.93(2) of the Act. 14 The union parties opposed the insertion of cashing out provisions in modern awards.

[13] The Full Bench noted that under previous legislative regimes, predecessor bodies to the Commission consistently rejected proposals for the cashing out of annual leave on the basis that they undermined the purpose of annual leave. However, the Act now makes specific provision for the cashing out of annual leave (at ss.92–94). Based on the evidence, the Full Bench observed that provisions permitting the cashing out of annual leave are a relatively common feature of enterprise agreements approved by the Commission, and that while most of these terms simply reflect the requirements in s.93, a significant proportion contain additional safeguards. The Full Bench stated that while the safeguards provided in s.93(2) set out the minimum requirements of such a term, they do not constitute a code and modern awards may also include terms that supplement the NES. 15

[14] The Full Bench granted the Employer Group’s claim in relation to cashing out of annual leave, subject to the incorporation of four additional safeguards as follows:

[15] The Full Bench held that the variation of all modern awards to incorporate the model term would ensure that each modern award provides a fair and relevant minimum safety net; is necessary to achieve the modern awards objective; and is consistent with the objects of the Act. 17

[16] The model cashing out term provides as follows:

[17] In the present proceedings a number of employer organisations sought a variation to clause 1.2(a)(i) of the cashing out model term and we return to that matter shortly.

[18] The Employer Group sought to insert a model “close-down” clause into 65 modern awards. The ACTU and a number of individual unions opposed the claim.

[19] In the June 2015 decision the Full Bench was not persuaded to grant the Employer Group claim for three reasons. Firstly, the Full Bench was not satisfied that the model term proposed was “reasonable” in the sense contemplated by s.93(3), due to the broad nature of the provision and the limited notice period required. Secondly, while the Full Bench generally agreed with the proposition that it is desirable for provisions dealing with taking annual leave to be uniform across modern awards, it found that close-down provisions are an exception to this general proposition and warrant consideration on an award by award basis. The Full Bench observed that the circumstances in the industries covered by existing award close-down provisions, and the need for such provisions, vary considerably. Thirdly, the Employer Group submitted that it is desirable for employees to take leave and that the proposed model close-down clause would provide a mechanism by which employers could reduce their leave liability. The Full Bench noted that these issues associated with the accrual of excessive leave have been addressed in the consideration of the ‘excessive leave’ claim. 18

[20] Interested parties who wish to seek a variation to a modern award to either vary an existing close-down provision, or to insert a close-down provision may do so during the award stage of the Review. 19

[21] The Employer Group sought to vary 48 modern awards to include a provision allowing for the taking of annual leave in advance of an entitlement to such leave accruing, by agreement between an employer and employee. The claimed provision also allowed an employer to make a deduction from monies payable to an employee on termination of employment. The ACTU and a number of individual unions opposed the claim. 20

[22] The Full Bench was persuaded that an award term which facilitates agreements to take leave in advance will operate in a mutually beneficial manner and was appropriate. It would allow an employee, with the agreement of their employer, to take paid annual leave at a time when they may not otherwise be able to do so and will align the entitlements of modern award covered employees with those of award/agreement free employees. The main differences between the model term and the Employer Group claim are the requirements regarding the content and form of any agreement to provide leave in advance and the employer’s obligation to keep such agreements as an employee record. 21

[23] The model term is set out below:

[24] The Employer Group claim was directed at 48 modern awards and the Full Bench was satisfied that the variation of those modern awards to incorporate the model term was necessary to meet the modern awards objective. The Full Bench also expressed the provisional view that it was necessary to vary all modern awards to insert the model term, in order to achieve the modern awards objective. 22

[25] In the present proceedings a number of employer organisations sought a variation to the model term to delete clause 1.1(c) and we return to that matter shortly.

[26] The ACTU sought to vary 118 modern awards in relation to the payment of annual leave entitlements on termination, to provide that an employer must pay an employee the amount that would have been payable to the employee had the employee taken that period of leave. Ai Group and a number of other employer bodies opposed the ACTU claim. 23

[27] The merit of the ACTU’s claim turns on the proper construction of s.90(2) of the Act and at the time of the hearing that issue was the subject of an appeal before the Full Court of the Federal Court and was yet to be determined. At that time the Fair Work Amendment Bill 2014 also incorporated a proposed amendment to s.90(2). Having regard to these considerations the Full Bench concluded as follows: 24

[28] The judgment of the Full Court of the Federal Court on the proper construction of s.90(2) has now been handed down. 25 The ACTU wrote to the Commission on 31 August 2015 in the light of that decision26, stating that the programming of this issue can be revisited during the course of the next hearing, now scheduled for 23 November 2015.

[29] The Employer Group sought to vary 51 modern awards, which currently require the employer to pay an employee for annual leave prior to the employee taking the leave. The effect of the proposed variation is that when employees are paid by electronic funds transfer (EFT) they may be paid in accordance with their usual pay cycle while on paid annual leave. The union parties opposed the Employer Group claim. 27

[30] The Employer Group sought to insert the following clause into 51 modern awards:

[31] The 51 awards sought to be varied currently contain a term which requires the employer to pay an employee for annual leave prior to the employee taking the leave.

[32] The Full Bench noted that the existing award provisions which require annual leave to be paid prior to taking leave do not appear to have been the subject of any detailed arbitral consideration. In considering whether such a requirement is still relevant in contemporary circumstances, the Full Bench relied on evidence that a substantial majority of respondents pay their employees by EFT and data showing a trend away from cash based transactions towards either credit card usage or direct transfer and BPAY methods. 29

[33] The Full Bench granted the Employer Group claim and was satisfied that the variation will ensure modern awards provide a fair and relevant minimum safety net, taking into account the particular considerations set out in paragraphs 134(1)(a) to (h) of the Act. The Full Bench rejected the argument that s.90 requires annual leave to be paid in advance and was satisfied that the proposed clause is an ancillary or incidental term within the meaning of s.55(4) of the Act. 30

[34] In relation to purchased leave, Ai Group initially proposed a model clause to be inserted into each modern award that would allow employees additional annual leave in a year with a corresponding reduction in salary, either for the period of their annual leave (such as half pay for twice the standard annual leave period) or throughout the year. 31 This claim was not pressed further during these proceedings and we return to the matter later in this decision.

[35] Based on the material before it, the Full Bench noted that there seemed to be a level of interest in providing arrangements which facilitate the ‘purchase’ of additional annual leave, the Act permitted such a provision to be inserted in modern awards, and on its face, such a provision may meet the objective in s.3(d) of the Act. These considerations led the Full Bench to be following conclusion: 32

[36] We now turn to matters presently before us.

3. The issues

[37] As we have mentioned, directions were issued for the filing of written submissions and an oral hearing was held on 7 August 2015. A total of 42 submissions were received. A list of all submissions received is set out in Attachment A. The submissions canvassed the following issues:

[38] A Statement issued on 31 July 2015 attached a draft summary of the submissions relating to matters (i), (ii), (iii) and (iv) above and parties were invited to comment upon the draft summary during the course of their oral submissions at the hearing held on 7 August 2015.

[39] A number of parties 33 made submissions regarding whether particular modern awards should be varied to insert model terms. The submissions made are directed at the following awards:

[40] The hearing which took place on 7 August 2015 did not deal with the submissions referred to at paragraph [39] above. We decided to split the hearings so that the terms of the various model terms are finalised prior to any consideration of the insertion of those model terms into the particular modern awards concerned. These matters, along with any other objections to the insertion of the model provisions in other modern awards, will be dealt with at a hearing to be held on Tuesday, 23 November 2015.

[41] We now turn to the issues which were the subject of the proceedings on 7 August 2015.

[42] As we have mentioned, in the June 2015 decision the Commission set out a model term reflecting its provisional view as to the type of term which may be suitable for insertion into modern awards.

[43] Interested parties were provided with an opportunity to make further submissions – directed at both the model term and the proposition that all modern awards be varied to insert the model term.

[44] ACCI 34 and Ai Group35 advanced the most comprehensive submissions in relation to particular elements of the provisional model term. AAA, ABI/NSWBC, AHA, ARA, MIMA, MTA, VACC and the Voice of Horticulture supported ACCI’s submissions. The AHEIA, AMMA, AMIC and Business SA generally supported the submissions made by ACCI and Ai Group.

[45] The ACTU made no written submissions on the wording of the provisional model term but did respond to the submissions advanced by the various employer associations. The ACTU’s written submission was directed at the view provisionally expressed in the June 2015 decision that a model excessive leave term should be inserted in all modern awards. As we have mentioned the insertion of the model term in particular modern awards will be the subject of the second phase of the implementation proceeding.

[46] The AMWU submitted that the provisional model term be varied to provide as follows:

[47] The AMWU Vehicle Division supported the AMWU’s submission.

[48] The TCFUA supported the inclusion of the provisional model term in the Dry Cleaning and Laundry Industry Award 2010 and the Textile Clothing and Laundry Industry Award 2010, albeit with the inclusion of some additional safeguards.

[49] It is convenient to deal with the submissions by reference to the particular components of the provisional model term, beginning with subclause 1.1.

[50] ACCI and a number of other employer organisations submit that the proposed definition of shiftworker be deleted, noting that awards already contain a definition or description of a shiftworker when relevant.

[51] During the course of the oral submissions a broad consensus emerged in support of the proposition that the definition of a shiftworker for the purpose of this clause should be dealt with on an award by award basis. 36 As a general proposition the definition of ‘shiftworker’ for the purpose of this clause will be the same as the definition in the relevant award which entitles a shiftworker to additional paid annual leave in accordance with the NES.

[52] Business SA also submits that the definition of excessive leave accrual should be reviewed on the basis that the proposed threshold of eight weeks (for a non-shiftworker) reduces the flexibility of the provision and the potential productivity gains for business. It was proposed that a threshold of six weeks accrued leave be adopted. A similar submission is advanced in respect of the period of retained leave under paragraphs 1.2(b)(i) and 1.2(c)(i) of the provisional model term. Business SA submits:

[53] The June 2015 decision rejected the adoption of a six weeks’ accrued annual leave threshold – as had been proposed by the Employer Group – for three reasons:

[54] Nothing has been put in the present proceedings which persuades us to depart from the view expressed in the June 2015 decision. We propose to retain the definition of excessive leave accrual and the safeguards in paragraphs 1.2(b)(i) and 1.2(c)(i) of the provisional model term.

[55] We now turn to subclause 1.2(a).

[56] HIA, MPA of NSW and NFF submit that subclause 1.2(a) should be deleted in its entirety on the basis that it is unnecessary, overly prescriptive and will increase the regulatory burden on employers.

[57] Ai Group submits 39 that the mandatory requirement for a “meeting” is unnecessarily prescriptive. It submits that in practice, employers and employees often use a range of methods to communicate and that the parties should be left to determine the most appropriate means of seeking to reach an agreement on the steps to be taken to reduce or eliminate an employee’s excessive leave accrual. The Group of Eight advance a similar point, submitting that the concept of a physical meeting is outdated and inflexible:

[58] If the Commission is of the view that the requirement to genuinely try to reach agreement is not sufficient then Ai Group submits that all that should be required is that the relevant party has made “a reasonable attempt to initiate a discussion for the relevant purpose”. It is submitted that such a requirement would address the possibility of parties simply seeking a meeting or discussion at a time that could not be accommodated by the other.

[59] Subclause 1.2(a) provides that before an employer can issue a direction or an employee can give a notice, the employer or employee must:

[60] Contrary to the submissions of some of the employer parties we are not persuaded that subclause 1.2(a) should be deleted in its entirety. As observed in the June 2015 decision it is plainly preferable if issues associated with excessive leave can be resolved by agreement between the employer and employee concerned, without the need for a direction. 41 We are satisfied that an award term which requires the parties to confer and genuinely try to agree upon steps to reduce or eliminate an employee’s excessive leave accrual is necessary to achieve the modern awards objective.

[61] We acknowledge that the requirement that the employer or employee “must request a meeting” is inapt and unduly prescriptive. It is intended that the employer and employee discuss how to reduce or eliminate the employee’s excessive leave accrual (and genuinely try to reach agreement). Such discussions need not be confined to face to face meetings.

[62] To better reflect the intent of the provision we will delete the words “request a meeting” and insert the words “seek to confer” where the previous words appeared.

[63] We now turn to subclause 1.2(b). Four aspects of the subclause (underlined below) were the subject of submissions.

[64] First, ACCI, MPA of NSW and the NFF submit that the words “The direction must state that it is a direction given under subclause 1.2(b) of this award” be deleted. ACCI submits that it is a requirement going to form, with no practical effect and that it would be a regrettable outcome if a direction that complied with subclause 1.2(b) in every other respect could be said to be in breach of an award term because it did not include the statement referred to in subclause 1.2(b). The MPA of NSW submits that the requirement imposes an unnecessary regulatory burden on employers and exposes them to a liability for award breach. It is submitted that the removal of subclause 1.2(b) will assist in simplifying the model term and will remove a potential liability.

[65] The ACTU and a number of individual unions opposed the deletion of the words sought to be removed by ACCI and others. The ACTU submitted that in the context of a new provision that will have an impact across the award system such a provision is important in order “to explain to people what it is they need to do to comply so that people on both sides of the employment relationship actually understand what is happening … it provides clarity so that people can refer back to the clause and understand what it is exactly they’re being asked to do or are required to do”. 42

[66] We agree with submissions advanced by ACCI and others and will delete the words in question, from subclauses 1.2(b) and 1.2(c). We acknowledge the force of the argument put by the ACTU but in our view the issue it raises can be addressed in other ways, such as through the provision of information by the Fair Work Ombudsman and others.

[67] We now turn to the requirement that any direction must not require the employee to take any period of leave of less than one week (clause 1.2(b)(ii)).

[68] ACCI submits that subclause 1.2(b)(ii) be deleted on the basis that imposing a requirement that an employee cannot be directed to take a period of leave of less than one week “may have a negative impact on both employers and employees because of a loss of potential flexibility”. 43 Business SA submits that subclause 1.2(b)(ii) is “overly prescriptive and inflexible”.44 The potential impact on employers and employees is dealt with at paragraphs 8.2–8.8 of ACCI’s submission. For example, at paragraph 8.5 ACCI submits:

[69] ACCI submits that subclause 1.2(b)(ii) limits employer flexibility in relation to the management of leave liabilities, which in turn:

[70] During the course of oral argument ACCI conceded that the submitted increase in regulatory burden was “indirect” and that any employee preference for a period of less than a week – to align with a public holiday or a weekend – could be accommodated by agreement during the pre-direction discussion stage mandated by subclause 1.2(a). The central argument advanced in support of the deletion of subclause 1.2(b)(ii) was that such a limitation may not suit the operational requirements of some employers.

[71] We acknowledge that the limitation in subclause 1.2(b)(ii) may not suit particular businesses, but that is not the only consideration. It is desirable that some minimum period of leave be prescribed in circumstances where the employee concerned has an excessive leave accrual and may not have had the benefit of any paid annual leave for a period of more than two years. Subclause 1.2(b)(ii) of the provisional model term will be retained.

[72] Business SA submitted that subclause 1.2(b)(iv) should be deleted on the basis that it is “unnecessary and overly prescriptive” and that employees are sufficiently protected by access to the dispute resolution clause in the award. 45 Little detail is provided in Business SA’s written submission and this issue was not the subject of any elaboration during the course of oral argument. The proposed deletion of subclause 1.2(b)(iv) was not supported by any other party.

[73] As expressed in the June 2015 decision the rationale for paragraph 1.2(b)(iv) is “to ensure that the excessive leave accrual is dealt with reasonably promptly, but still allow sufficient scope for the leave to occur at a time that is suitable to both the employer and employee”. 46 Nothing put in these proceedings persuades us to depart from the view expressed in the June 2015 decision. Subclause 1.2(b)(iv) of the provisional model term will be retained.

[74] We now turn to the last component of subclause 1.2(b) which was the subject of submissions.

[75] ACCI, Ai Group 47 and the NFF submit that the following part of subclause 1.2(b) be deleted:

[76] It is submitted that the provisions are unnecessary given the requirement in subclause 1.2(a) for the parties to “genuinely try to agree upon steps that will be taken to reduce or eliminate the employee’s excessive leave accrual” and that the dispute resolution provisions within awards can be enlivened to deal with any potential problem.

[77] ACCI submits that it is desirable to avoid provisions that could operate as a source of disputation by encouraging the making of requests for annual leave only after the direction has been made by the employer rather than in an earlier process of genuinely trying to agree upon steps that would reduce or eliminate the employee’s excessive leave accrual.

[78] ACCI notes that the inclusion of clause 1.2(b) within awards will not prevent an employee making requests for annual leave either prior to or after the direction nor will it displace the requirement that an employer must not unreasonably refuse a request. ACCI submits that “at the very least”, the text providing that the “employer is not to take the direction into account in deciding whether to agree to such a request” should be removed from the model term.

[79] In addition, NFF submits that the deeming provision which effectively withdraws a direction that would otherwise result in leave accruals falling below six weeks, duplicates subclause 1.2(b)(i). A direction which does not comply with the safeguard in subclause 1.2(b)(i) would be invalid to that extent. This deeming provision is discussed further at paragraph [169] of this decision.

[80] The rationale for the insertion of the provision which is the subject of the ACCI, Ai Group and NFF submissions is set out at paragraphs [205]–[208] of the June 2015 decision, as follows:

[81] During the course of oral argument it was generally accepted that the making of a direction under subclause 1.2(b) did not prevent an employee from making a request to take paid annual leave, and that in conformity with s.88(2), the employer must not unreasonably refuse to agree to such a request. Section 88 of the Act provides:

[82] A direction to take leave clearly does not prevent an employee requesting paid leave additional to the leave he or she has been directed to take, or affect the employer’s obligation not to unreasonably refuse a request for additional leave. However, absent express words in the model clause to the contrary, a direction to an employee to take leave could well be treated as excluding any subsequent request to take some or all of the leave covered by the direction at a different time or times to that directed. Further, as discussed later in this decision, it seems to us that as a matter of statutory construction a direction to take leave pursuant to s.93(3) need not operate subject to s.88.

[83] The central issue for the various employer organisations was the retention of the sentence: “The employer is not to take the direction into account in deciding whether to agree to such a request”. A degree of consensus also emerged in relation to this issue. In the course of oral argument the ACTU submitted:

[84] Dealing with this issue first, we propose to amend the part of subclause 1.2(b) set out at paragraph [75] above by deleting the second sentence. The fact that a direction to take leave has been given would not of itself defeat any subsequent employee request to take leave covered by the direction at a different time. But, depending on the circumstances, it may be appropriate for the employer to take into account the reasons for giving the direction and consequences that have flowed from the giving of the direction in deciding whether to agree to the employee’s request. For example, if before the employee’s request is received the employer has already engaged short-term replacement labour to cover the employee’s absence during the directed leave, that may be relevant for the purposes of determining whether it would be unreasonable to refuse the requested leave.

[85] We are not persuaded, however, that any further text should be deleted from subclause 1.2(b).

[86] The employer arguments against retention of the remaining text set out at paragraph [75] appear to proceed on a misunderstanding of the requirements of s.93(3) of the Act and the operation of the provisional model term. Section 93 is in Division 6 of Part 2-2 and hence forms part of the NES. Subsection 93(3) is as follows:

[87] Subclause 1.2(b) of the provisional model term is plainly a term of the type contemplated by s.93(3). Subclause 1.2(b) provides that an employer may direct an employee to take a period or periods of paid annual leave in particular circumstances (i.e. where the employee has an excessive leave accrual). The power to issue such a direction is constrained by the requirement in subclause 1.2(a) firstly to seek to confer with the employee and to genuinely try to agree upon steps to reduce or eliminate the employee’s excessive leave accrual. The power is also constrained by the particular requirements set out in paragraphs (i) to (v) of subclause 1.2(b). However, for reasons explained below these constraints are not sufficient to ensure that the direction will be “reasonable” as required by s.93(3) of the Act.

[88] The Full Bench in Australian Federation of Air Pilots v HNZ Australia Pty Ltd (the Air Pilots decision) observed that in assessing the reasonableness of a requirement to take leave, “all relevant considerations needed to be taken into account including those which are set out in paragraph [382] of the Explanatory Memorandum to the Fair Work Bill 2008”. 50 The Explanatory Memorandum at paragraphs 381-382 states:

[89] In the Air Pilots decision, the Full Bench noted that:

[90] Finally, as noted in the Air Pilots decision:

[91] Similarly, s.55(1) prohibits an award term excluding the NES or any provision of the NES. Under s.56 of the Act an award term permitting an employer to direct that leave be taken would be of no effect to the extent that it purported to permit a direction to be given that was not reasonable for the purposes of s.93(3). The operation of s.55 is considered in more detail later in this decision.

[92] Pursuant to s.93(3) of the Act, the power of the Commission to include a provision in modern awards which facilitates an employer directing an employee to take accrued annual leave is conditioned on that direction being reasonable. In determining what is reasonable, all relevant considerations, including those set out in paragraph 382 of the Explanatory Memorandum, must be taken into account. It can be assumed that in formulating a direction to take leave, the employer will have considered the needs and circumstances of the employer’s business. But to ensure that the direction is reasonable in terms of s.93(3), the needs and circumstances of the individual employee must also be taken into account.

[93] It seems to us that two different approaches might be taken in crafting an award term to deal with requirements to take leave in a way that satisfies s.93(3).

[94] The first and perhaps most obvious approach would be to expressly require in the award term itself that any employer direction to take leave must be reasonable, taking into account all relevant considerations, including those identified in the Explanatory Memorandum. However, that approach would give rise to significant uncertainty and potential disputation, as the status of any employer direction would be open to challenge on the basis that the individual needs and circumstances of the employee had not properly been considered and that the direction was not reasonable.

[95] The better approach, it seems to us, is the one adopted in the provisional model term. The model term establishes a number of procedural requirements for any direction to take leave (that the parties first seek to confer, that the direction be in writing etc.) and broad constraints on the quantum and timing of the directed leave. These procedural requirements and constraints go some way to ensuring that any direction to an employee to take excessive accrued leave will be reasonable in terms of s.93(3), but they will not necessarily ensure proper consideration of the individual needs and circumstances of the employee so far as the timing of the directed leave is concerned. In order to address that issue, the model term enables the employee to make a subsequent request to take some or all of the leave covered by the direction at a different time or times (and the employer may not unreasonably refuse such a request). This approach provides greater certainty than the alternative approach outlined above as it minimises the scope for disputes as to the reasonableness of the direction. This is because, pursuant to the model term, the employee must comply with a direction to take excessive accrued leave meeting the requisite procedural requirements and constraints unless:

[96] Under the terms of the provisional model term, an employee to whom a direction has been given may make a request to take paid annual leave as if the direction had not been given, and if that leave is agreed and the direction would then result in the employee’s remaining accrued entitlement to paid annual leave at any time being less than six weeks, the direction will be deemed to have been withdrawn. Giving primacy to the right of an employee to request to take accrued annual leave (and not to have that request unreasonably refused by the employer) over the right of an employer to direct that leave be taken, provides a means of ensuring that the personal needs and circumstances of the employee are taken into account. These aspects of the operation of the model term were illustrated by the following example in the June 2015 decision:

[97] We now turn to subclause 1.2(c).

[98] ACCI, Ai Group and a number of other employer organisations submit that subclause 1.2(c) should be deleted.

[99] ACCI submits that subclause 1.2(c) represents a substantial departure from the existing provisions of the Act and the modern award system. It is submitted that the notion that employees can effectively direct the taking of leave is foreign to the current regulatory system and the various Federal and State based annual leave legislation that existed prior to 2010.

[100] ACCI identifies three particular issues in respect of clause 1.2(c):

[101] Ai Group also submits that subclause 1.2(c) of the model term should be deleted in its entirety. If the Commission is not persuaded to delete subclause 1.2(c) in its entirety, then Ai Group submits that the last sentence of clause 1.2(c) should be amended to state:

[102] Ai Group also submits that it would be appropriate to insert a transitional arrangement to address situations where a significant proportion of an employer’s workforce currently has excessive leave accruals or that it would be appropriate for subclause 1.2(c) to not commence operation until 12 months after the remainder of the clause.

[103] In support of its primary submission Ai Group submits 55 that subclause 1.2(c) is not necessary (within the meaning of s.128) to achieve the modern awards objective having regard to the significant protection afforded by s.88(2). It is also submitted that the proposed subclause risks imposing unfair and unworkable arrangements on employers. In particular, it is contended that the disruption and cost that may flow from affording employees an absolute right to take leave could be disproportionate to the benefits which would flow from reduced leave accruals.

[104] Further, Ai Group submits that it will be very difficult for smaller employers to accommodate a mandatory requirement to grant leave as such employers often have very limited capacity to cover employee absences. On this basis it is submitted that the model clause fails to acknowledge the special circumstances of small business and as such is inconsistent with the objects of the Act (s.3(g)).

[105] Ai Group also submits that subclause 1.2(c) would reduce an employer’s capacity to manage leave arrangements, and in particular employee absences, and on this basis would be contrary to a number of the s.134 considerations, in particular:

[106] Ai Group contends that affording employees an absolute right to require that leave be granted is likely to impose a significant burden, or be completely unworkable, where employers are faced with challenges such as:

[107] Ai Group advances three additional points in support of its primary submission:

[108] HIA submits that subclause 1.2(c) ignores the ability of current dispute resolution processes in modern awards to manage disagreements in relation to the granting of leave and is ‘nullified’ by the operation of s.56. In relation to the second point it is submitted that subclause 1.2(c) excludes the operation of part of the NES (namely s.88(2)) and accordingly has no effect because of the operation of s.56. 56

[109] The NFF submits that subclause 1.2(c) is inconsistent with the NES (s.88(2)) because it removes the right of an employer to refuse a request for leave on reasonable grounds. Business SA put a similar submission contending that subclause 1.2(c) “is contrary to s.88 of the Fair Work Act 2009 as it does not allow for reasonable refusal by the employer”. 57

[110] As is apparent from the above summary the various employer parties submitted that subclause 1.2(c) should be deleted, on both jurisdictional and merits grounds. It is convenient to deal with the jurisdictional arguments first.

[111] The essence of the jurisdictional argument is that a modern award term which allows an employee to determine the time at which he or she may take a period of paid annual leave (such as subclause 1.2(c)) of the provisional model term) excludes a provision of the NES (namely s.88(2)) and has no effect (because of s.56). It is submitted that a term which has no effect should not be included in a modern award. As part of the argument advanced it is also submitted that a provision such as subclause 1.2(c) is not a term of the type contemplated by subsections 93(3) or (4) and hence is not a term which the Commission is permitted to include in a modern award.

[112] The jurisdictional argument put by Business SA, HIA and NFF was not supported by Ai Group, ACCI or any other employer organisation and was opposed by the ACTU and a number of individual unions.

[113] We are satisfied that a provision such as clause 1.2(c) may be inserted into a modern award and we reject the jurisdictional argument advanced by Business SA, HIA and NFF.

[114] Section 55 deals with the interaction between the NES and a modern award or enterprise agreement:

[115] A term of a modern award has no effect to the extent that it contravenes s.55 (see s.56). Three aspects of s.55 are relevant for present purposes:

[116] The NES is contained in Part 2-2 of the Act and comprises ss.62–125. Section 59, which is described as a guide to Part 2-2, states:

[117] As we have mentioned, Business SA, HIA and NFF contend that subclause 1.2(c) of the provisional model term excludes a provision of the NES (s.88(2)) because it removes the right of an employer to refuse a request for leave on reasonable grounds.

[118] Contrary to the submission advanced, s.88(2) does not confer any rights on an employer. Subsection 88(1) provides that paid annual leave may be taken at a time agreed between an employee and his or her employer. Subsection 88(2) provides that an employee’s request to take paid annual leave at a particular time must not be unreasonably refused by his or her employer. Properly construed, s.88(2) confers a conditional right on an employee to take paid annual leave in accordance with the employee’s request. The obligation upon the employer is to not unreasonably refuse to agree to such a request. Construed in this way the provisional model term cannot be said to exclude a provision of the NES.

[119] Even if we are wrong about the construction of s.88(2), and Business SA, HIA and NFF are correct, that is not the end of the matter. Section 88 forms part of the NES and it must be read in the context of the NES as a whole.

[120] Section 93 is in Part 2-2 and hence forms part of the NES. Subsections 93(3) and (4) provide as follows:

[121] The NFF submits that s.93(3) does not permit an award term to provide that an employee can require the taking of paid annual leave. This is clearly correct. The NFF then continues that s.93(4) must be read together with s.88, such that a modern award cannot deal with the “taking of leave” in such a way that the employer loses the right conferred by s.88(2) to refuse to agree to a request by an employee to take paid annual leave.

[122] Ascertaining the proper construction of a statutory provision necessarily begins with the ordinary grammatical meaning of the words used, having regard to their context and legislative purpose. 58 The apparent scope of a statutory provision (such as s.93(4)) may be limited by other sections of the Act. The provisions of an act must be read together such that they fit with one another. This may require a provision to be read more narrowly than it would if it stood on its own.59

[123] It is important to appreciate that s.88 sets out a minimum standard in relation to the taking of paid annual leave. Section 93(4) provides that a modern award may include terms “otherwise dealing with the taking of paid annual leave”. The expression “otherwise dealing with” in s.93(4) must be given some work to do and it seems to us that it is an expression of broad import. Read in context this expression means a term dealing with the taking of paid annual leave other than a term of the type contemplated by s.93(3).

[124] We reject the NFF’s contention that s.93(4) must be read down such that a modern award cannot deal with the taking of leave in such a way that the employer loses the right, said to be conferred by s.88(2), to “refuse to agree to a request by an employee to take paid annual leave”

[125] Leaving aside the correct characterisation of s.88(2), there is no warrant for limiting the scope of s.93(4) in the manner contended. Had the legislature intended the power conferred to be so limited then one would have expected that such a limitation would have been made explicitly – as is the case in s.93(3), in that an award term by which an employee may be directed to take paid annual leave must be reasonable. Elsewhere in the NES there are also express limitations on powers to include certain terms in modern awards (e.g. see s.63, s.93(2) and s.101(2)).

[126] We note that if the NFF was correct then it would seem to follow that a similar implied limitation would apply to s.93(3) and hence it should be read subject to s.88, in particular s.88(1) which provides that the taking of paid annual leave is by agreement between an employee and his or her employer. This would be manifestly absurd given that s.93(3) provides for award or enterprise agreement terms that require an employee or allow for an employee to be required to take paid annual leave.

[127] Further, the statutory scheme provides that the provisions of the NES, such as s.88, have affect “subject to” terms included in a modern award pursuant to a provision of Part 2-2, such as s.93(4) (see s.55(3)). The language of s.55(3) suggests a legislative precedence which is contrary to the submission advanced by the NFF.

[128] We are satisfied that subclause 1.2(c) is an award term which is expressly permitted by a provision of Part 2-2, namely s.93(4). It follows that such a term may be included in a modern award (see s.55(2)(a)).

[129] For completeness, we are also satisfied that subclause 1.2(c) may properly be characterised as a term which supplements the NES. Subclause 1.2(c) supplements s.88(2) by extending the circumstances in which an employer must comply with an employee’s request to take paid annual leave. The effect of subclause 1.2(c) is not detrimental to an employee in any respect, when compared to the NES, and hence may be included in a modern award pursuant to s.55(4)(b).

[130] We now turn to the merit arguments advanced by the various employer parties advocating the deletion of subclause 1.2(c). The essence of the arguments put is that an award term which gives an employee the right to determine when he or she takes paid annual leave will have an adverse impact on business and may impair the efficient and productive performance of work. On this basis it is submitted that the matters set out in paragraphs 134(1)(d) and (f) of the modern awards objective are relevant and tell against the insertion of a term such as 1.2(c) in a modern award.

[131] We also note that the NFF, in the course of presenting its jurisdictional objections in relation to this provision, raised the suggestion that the draft model provision might encourage employees to accrue excess leave with a view to ultimately being able to issue a direction that would override their employer’s capacity to refuse leave on reasonable grounds. 60 Such a submission takes insufficient account of the fact that under the model term the employer has the option to issue a direction, before an employee may issue a notice under subclause 1.2(c).

[132] The modern awards objective is central to the Review. It is directed at ensuring that modern awards, together with the NES, provide a “fair and relevant minimum safety net of terms and conditions” taking into account the particular considerations in paragraphs 134(1)(a)–(h). The objective is very broadly expressed. There is a degree of tension between some of the s.134 considerations with no particular primacy attached to any of the matters set out in paragraphs 134(1)(a)–(h). The Commission’s task is to balance the various considerations and ensure that modern awards, together with the NES, provide a fair and relevant safety net of terms and conditions.

[133] The employer submissions focus on the effect of subclause 1.2(c) on business, understandably so. But it is important that the debate on this issue be seen in its broader context. In the June 2015 decision the Commission made a number of findings on the basis of the evidence adduced (primarily by the Employer Group). Three sets of findings are particularly relevant for present purposes.

[134] The first set of findings deal with the extent of excessive annual leave accruals. In that regard the Commission made the following findings:

[135] The second set of findings concern the impact of excessive annul leave accruals on employees and employers. In that regard the Commission made the following findings:

[136] On the basis of the findings set out at paragraphs [134] and [135] above the Commission was persuaded that modern awards should include a mechanism for dealing with “excessive leave”. 63 In considering the form and content of an appropriate award term the Commission examined the reasons why employees do not fully utilise their accrued paid leave.

[137] The third finding relevant for present purposes concerns the reasons why employees do not fully utilise their accrued paid leave. At paragraph [144] of the June 2015 decision the Commission stated:

[138] The three sets of findings referred to above underpinned the decision to reject the Employer Group claim and to formulate the provisional model term. So much is clear from paragraphs [180]–[189] of the June 2015 decision:

[139] In short, the Employer Group claim sought to replicate previous mechanisms to address excessive leave accruals. Such mechanisms have had, at best, limited success in the past in addressing the issues associated with excessive annual leave accruals. The claim did not address a significant factor in the excessive accrual of annual leave – where work pressure prevents an employee from taking all of their paid annual leave. It was on this basis that the Commission concluded that granting the claim would not be sufficient to address the problems of excessive accrued paid annual leave and went on to formulate the provisional model term.

[140] Nothing put in the present proceedings has persuaded us to depart from the view expressed in the June 2015 decision that the model term should make provision for the circumstance where an employee accrues excessive paid annual leave but no employer direction is made. The problem that the model term is seeking to address is the accrual of excessive annual leave and the negative impacts this may have on employees and employers. The Act does not require that this problem only be addressed by way of employer directions to take leave.

[141] We now turn to consider whether we should vary any aspect of subclause 1.2(c) in order to address the concerns raised by the employer parties.

[142] We observe at the outset that the submissions put about the impact of subclause 1.2(c) are, necessarily, speculative and somewhat overstated. For instance, it is relevant to note that prior to the commencement of the NES and modern awards the Annual Holidays Act 1944 (NSW) provided that an annual holiday had to be taken “before the expiry of a period of six months after the date upon which the right to such a holiday accrues”. There was a capacity to postpone a period of annual leave by application to the Industrial Registrar, but it was rarely utilised 65. There is no evidence that a legislative requirement that annual leave be taken within six months of accrual adversely affected business and subclause 1.2(c) is not as restrictive as the provisions of the Annual Holidays Act 1944 (NSW).

[143] The right of an employee to require that a period of leave be granted pursuant to subclause 1.2(c) is subject to a number of preconditions, in particular:

[144] Further, any notice to the employer that the employee wishes to take a period of paid annual leave is subject to the additional safeguards in paragraphs 1.2(c)(i)–(v). In particular the notice must:

[145] We emphasise that we intend the different elements of the model term to deal with the various causes of excessive annual leave and to operate with appropriate checks and balances to directly encourage the taking of leave for its intended purpose by agreement where possible.

[146] Three additional limitations were canvassed during the course of these proceedings:

[147] The first limitation was proposed by Ai Group, but opposed by ACCI and the ACTU. We are not persuaded that such a limitation is appropriate. If the proposed words were inserted then subclause 1.2(c) would add little to an employee’s existing rights under s.88(2). We accept that there are some differences between the proposed wording and s.88(2), Ai Group’s proposal refers to the employer having “reasonable business grounds” for not granting the leave sought and s.88(2) provides that an employer must not ‘unreasonably’ refuse an employee’s request to take leave. Ai Group’s proposal also requires the employer to advise the employee of the grounds for refusing leave and there is no comparable requirement in s.88. Despite these differences there is a considerable conceptual overlap between Ai Group’s proposal and s.88(2) and the differences are apt to confuse.

[148] The second limitation proposed has merit. We acknowledge that a provision such as subclause 1.2(c) is a significant change to the modern award system and it is appropriate that employers are provided with some lead time to adjust. Subclause 1.2(c) will commence operation 12 months after the commencement of subclauses 1.2(a) and (b).

[149] We are also satisfied that limiting the period of annual leave which may be the subject of a notice under subclause 1.2(c) will assist in ameliorating any adverse effects on business. We will amend the model term such that the maximum period of paid annual leave that may be the subject of a notice by an employee in any 12 month period will be four weeks’ leave if the employee is not a shiftworker and five weeks’ leave if the employee is a shiftworker. If an employee could not take paid annual leave except by giving a notice under subclause 1.2(c), this would at least allow the employee to take their yearly leave accrual so that their excessive leave accrual does not continue to grow from year to year.

[150] We now turn to subclause 1.2(d).

[151] ACCI, Ai Group and a number of other employer organisations submit that subclause 1.2(d) is unnecessary because the dispute resolution clause in all 122 modern awards already allows employees to raise a dispute about any matters “arising under the award” (also see s.146 of the Act).

[152] In addition ACCI submits that subclause 1.2(d):

[153] Ai Group notes that subclause 1.2(d) suggests that any dispute about the matters identified in paragraphs (d)(i)–(iii) can be referred directly to the Commission without going through the antecedent steps prescribed in the dispute settlement clause in the relevant award. 67

[154] During the course of oral argument the ACTU submitted that when introducing a change to the award system it makes sense to explain how the new provision operates within the context of the award. On this basis the ACTU supported the retention of subclause 1.2(d), 68 whilst acknowledging that there may be alternate ways of directing attention to the dispute settlement clause in the relevant award, such as a note to that effect.69

[155] The June 2015 decision indicated that as subclause 1.2(a) required discussion between the employer and employee, it was not necessary for there to be further discussions under the terms of the award dispute resolution clause before a dispute could be referred to the Commission under subclause 1.2(d). 70 However, on reflection we are not persuaded that it is necessary to include a detailed dispute resolution provision in the model term.

[156] Given that the model term is a substantive change to the modern award system it is appropriate that attention be directed to the dispute settlement clause in the award. A note to this effect will be inserted at the commencement of the model term.

[157] There are three final matters in relation to the form of the excessive leave model term.

[158] First, as mentioned earlier the AMWU submitted that the provisional model term be varied to provide as follows:

[159] The essence of the AMWU’s proposal is that the excessive annual leave model term should be varied to provide employees with the right to give notice of their intention to take leave, in the first instance, that is before any employer direction to take such leave. The AMWU submits as follows:

[160] The AMWU also proposes that an employee’s notice to take paid annual leave should not be subject to the retention of an accrued entitlement to six weeks’ paid leave. In support of this proposition the AMWU submits that:

[161] A revised draft model term is attached to the AMWU’s submission.

[162] We do not propose to make the changes sought by the AMWU. In our view the management of excessive annual leave accruals should remain primarily an employer responsibility. Under the model term an employee’s right to issue a notice in relation to the taking of annual leave only arises where they have had an excessive leave accrual for more than six months and their employer has not issued a direction to reduce or eliminate their excessive leave accrual. In our view this sequencing of rights is an appropriate response to the issue of excessive annual leave accruals and appropriately balances the interests of employers and employees.

[163] The second matter we wish to refer to was raised by the ACTU during the course of oral argument:

[164] The safeguards in paragraphs 1.2(b)(i) and (v) and 1.2(c)(i) and (v) of the provisional model term are directed at the issue raised by the ACTU. These provisions provide that a direction or notice must not:

[165] In the June 2015 decision the Full Bench made the following observations about these safeguards:

[166] It seems to us that paragraphs 1.2(b)(i) and (v) and 1.2(c)(i) and (v) of the provisional model term address the issue raised by the ACTU and no further amendment or clarification is required.

[167] Paragraphs 1.2(b)(i) and 1.2(c)(i) were also the subject of submissions by HIA. HIA submits that:

[168] The point in time test proposed by HIA fails to take into account paid leave that has been agreed but not taken at the time a direction or notice is given. That test also would not give primacy to the right of an employee to request leave (see paragraph [96] above), as once a direction was given the amount of leave covered by a direction would no longer be available to the employee for the purposes of any subsequent request for leave. Paragraph 1.2(b)(i) accommodates these matters by requiring that a direction to take leave not result in an employee’s leave balance at any time being less than six weeks. All other leave is to be taken into account for the purposes of determining this minimum leave balance – that is: any leave agreed (whether agreed prior or subsequent to the direction being given); any other leave that the employee has been directed to take under subclause 1.2(b), and any leave that the employee has given notice of under subclause 1.2(c).

[169] As noted in paragraph [79] above, the NFF submitted that the deeming provision in subclause 1.2(b) of the provisional model term (the penultimate paragraph in subclause 1.2(b)) duplicates subclause 1.2(b)(i). This deeming provision is to the effect that a direction to take leave is deemed to be withdrawn if leave is agreed after a direction has been issued and the direction would then result in the employee’s leave balance at any time being less than six weeks. Whilst, strictly, this deeming provision may be unnecessary, it will be retained so as to make clear that a direction complying with subclause 1.2(b)(i) at the time that it is given may subsequently cease to operate if the taking of further leave is agreed between the employer and employee.

[170] The final general matter concerns the drafting of paragraphs 1.2(b)(i)-(v) and 1.2(c)(i)-(v). HIA proposes that these provisions be redrafted in positive rather than negative terms in order to avoid confusion and add clarity. 76 HIA submits that paragraphs 1.2(b)(ii)–(iv) could be improved by redrafting, as follows:

[171] While the HIA’s submission has some merit, on further consideration we are of the view that redrafting the provisions in positive terms would not in this case improve clarity.

[172] For the reasons given we have decided to vary the provisional model term in a number of respects. The final version of the excessive leave model term is as follows:

The model term—Excessive Annual Leave Accruals

[173] Subject to what may be put about the circumstances pertaining to a particular modern award our general view is that the variation of modern awards to incorporate the model term is necessary to ensure that each modern award provides a fair and relevant minimum safety net, taking into account the s.134 considerations (insofar as they are relevant) and would also be consistent with the objects of the Act.

[174] The taking of accrued paid annual leave can have mutual benefits for employers and employees. Yet most employees do not use their full paid annual leave entitlement and a significant proportion of employees have six weeks or more accrued paid annual leave. The excessive accumulation of leave has significant adverse consequences. Not taking a reasonable portion of leave can give rise to a serious threat to the health and safety of the employees concerned and excessive annual leave accruals represent a significant financial liability for employers which can give rise to cash flow problems (particular for small businesses) when paid out on termination. When leave is taken so as to reduce or eliminate excessive leave accruals, employees will benefit from a period of rest and recovery from work, which has significant positive implications for employee health and wellbeing. Reducing fatigue at work and improving workplace health and safety is also of benefit to employers, and the evidence indicates that absenteeism is also reduced after a period of leave.

[175] The model term facilitates the making of mutually beneficial arrangements between an employer and employee and provides an effective mechanism to address excessive annual leave accruals. It provides an employer with a reasonable opportunity to deal with an employee’s excessive leave accrual before the employee is able to issue a notice requiring of leave be granted. The various safeguards incorporated into the model term seek to protect the interest of both employees and employers.

[176] Section 134(1)(d) of the modern awards objective requires the Commission to take into account the need to promote flexible modern work practices and the efficient and productive performance of work, and under s.134(1)(f) the Commission must also take into account the likely impact of any exercise of modern award powers on business, including on productivity, employment costs and the regulatory burden. For the reasons outlined above, the insertion of the model term would assist in ensuring that modern awards are relevant to the needs of the modern workplace, and would assist businesses.

[177] Finally, the insertion of the model term into modern awards is also consistent with the objects of the Act by: providing workplace relations laws that are fair to working Australians and are flexible for businesses (s.3(a)); ensuring a guaranteed safety net of fair, relevant and enforceable minimum terms and conditions through the NES and modern awards (s.3(b)); assisting employees to balance their work and family responsibilities by providing for flexible working arrangements (s.3(d)); and acknowledging the special circumstances of small and medium-sized businesses (s.3(g)). In respect of s.3(g), as relatively few employees employed in small businesses are covered by a collective agreement, a modern award variation of the type proposed would ensure that all such businesses have capacity to deal with excessive leave accruals.

[178] As mentioned earlier, we propose to provide interested parties with an opportunity to make submissions about the insertion of the model term into particular modern awards. The process for filing further submissions is dealt with in chapter four of this decision.

3.2 Cashing Out of Annual Leave

[179] The model term in respect of the cashing out of annual leave is set out at paragraph [16] above.

[180] The submissions in the present proceeding were directed at subclause 1.2(a) and (b) of the model term, which provides as follows:

[181] ACCI and a number of other employer organisations submit that the text “and retained as an employee record” in subclause 1.2(a)(i) of the model term is not necessary having regard to the terms of Regulation 3.36 of the Fair Work Regulations 2009 (Cth) (the Regulations).

[182] ACCI submits there is no need for there to be two separate requirements for an employer to keep a record of an agreement for the cashing out of leave and if two are created, employers could find themselves in breach of both an award term and the record keeping requirements under the Regulations in respect of the same administrative error.

[183] The AMWU submits that the model term should explicitly provide for leave loading to be paid. For example, clause 41.12(ii) of the draft determination for the Manufacturing and Associated Industries and Occupations Award 2010 should read:

[184] The AMWU submission is supported by the AMWU–Vehicle Division and the TCFUA.

[185] TAPS seeks clarification in relation to the meaning of “in any 12 month period” in paragraph 1.2(d) of the model term. TAPS notes that its members have canvassed two alternate formulations, either “in each calendar year” or “in each financial year”.

[186] We turn first to the proposition that the text “and retained as an employee record” in subclause 1.2(a)(i) is not necessary. Regulation 3.36 provides:

[187] The requirement in subclause 1.2(a)(i) that an agreement to cash out accrued paid annual leave be retained as an employee record is consistent with the obligation imposed by Regulation 3.36(2)(a). We are satisfied that in the context of such a substantive change to the modern award system it is necessary to include a provision in these terms.

[188] We acknowledge that the retention of this provision means that an employer may find itself in breach of both an award term and Regulation 3.36(2)(a) in respect of the same conduct. However, it is important to appreciate that an employer will not face a double penalty for such a single course of conduct: see generally ss.556–557 and R v Hoar (1981) 148 CLR 32 at 38; CFMEU v Director of the Fair Work Building Industry Inspectorate (2014) 225 FCR 210 and Director of the Fair Work Building Industry Inspectorate v CFMEU (No.2) [2015] FCA 407.

[189] As to the AMWU’s proposal that the model term should explicitly provide for leave loading to be paid – that is a matter best dealt with on an award by award basis. Subclause 1.2(b) of the model term makes it clear that the employee must be paid “at least the full amount that would have been payable to the employee had the employee taken the leave at the time that it is cashed out”. It follows that if the employee is entitled to be paid leave loading when taking annual leave then the leave loading must be paid when such leave is cashed out.

[190] As to the submission by TAPS, we confirm that the intention of paragraph 1.2(d) is to limit the amount of accrued annual leave which may be cashed out in any 12 month period. In the June 2015 decision the Commission said:

[191] In the present proceedings no party supported a variation to paragraph 1.2(d) and it will be retained in its current form.

3.3 Granting Leave in Advance

[192] The model term in respect of the granting of annual leave in advance is set out at paragraph [23] above.

[193] The submissions in the present proceeding were directed at subclause 1.1(c) of the model term. Subclause 1.1 provides as follows:

[194] ACCI submits that on the whole it has no significant concerns with the form of the model term but that it could be enhanced by removing subclause 1.1(c) on the basis that record keeping requirements with regard to leave are already set out within Regulation 3.36 of the Regulations. Submissions to similar effect were advanced by a number of other employer organisations.

[195] ACCI contends, in essence, that Regulation 3.36(1) requires an employer to make and keep an employee record in respect of a period of paid leave taken in advance of the employee accruing an entitlement to such leave. On this basis it is submitted that subclause 1.1(c) of the model term is unnecessary and, further, it may expose an employer to multiple prosecutions in respect of the same conduct (namely the failure to make and keep a record in respect of paid leave taken in advance pursuant to the model term).

[196] For our part we doubt that Regulation 3.36 requires an employer to make and keep an employee record in respect of paid leave granted in advance pursuant to the model term. Regulation 3.36 relates to the circumstance where “an employee is entitled to leave”. The model term facilitates agreements between an employer and employee “to the employee taking a period of paid annual leave in advance of the employee accruing an entitlement to such leave”. Hence the model term operates in circumstances where there is no entitlement to leave. At the very least there is some uncertainty as to the application of Regulation 3.36 to agreements in respect of the granting of leave in advance.

[197] We are satisfied that in the context of such a substantive change to the modern award system, and given the uncertain application of Regulation 3.36, it is necessary to include subclause 1.1(c) in the model term. Our earlier observations about the prospects of an employer facing a double penalty (see paragraph [188] above) are also apposite in this context.

3.4 Purchased Leave

[198] Ai Group initially proposed a model clause to be inserted into each modern award that would allow an employer and an employee to agree to a “purchased leave” arrangement under which the employee could choose to forgo an amount payable in relation to the performance of work but would receive a corresponding additional amount of annual leave. This claim was not pressed during the proceedings.

[199] In the June 2015 decision the Commission noted that there seemed to be a level of interest in providing arrangements which facilitate the “purchase” of additional annual leave; the Act permits such a provision to be inserted in modern awards and, on its face, such a provision may meet the objective in s.3(d) of the Act.

[200] As foreshadowed in the June 2015 decision, a Background paper 78 was published on 1 July 2015 summarising the earlier submissions and providing a number of examples of purchased leave provisions from enterprise agreements. Interested parties were asked to consider whether a provision for purchased leave should be included in some or all modern awards and if so, what form it should take. Submissions were received from ABI, ACCI, ACTU, Ai Group, APTIA, HIA, MBA, TCFUA and the Voice of Horticulture.

[201] None of the submissions filed support the development of a model term dealing with purchased leave. In the Statement issued on 31 July 2015 79, the Commission expressed the provisional view that any proposal in respect of purchased leave will be dealt with on an award by award basis, during the award stage of the review. Any interested party who wished to advance a different view to the one provisionally expressed was invited to attend the hearing on 7 August 2015 and make oral submissions in support of the course for which they contend. No party made submissions advancing a different view to the one provisionally expressed in the 31 July 2015 Statement.

[202] In the circumstances we do not propose to take any further steps in relation to the development of a model term dealing with purchased leave. Any proposal in respect of purchased leave will be dealt with on an award by award basis, during the award stage of the review.

3.5 Draft determinations

[203] A number of parties raised specific issues with the draft determinations published on the Commission’s website on 29 June 2015. The issues raised generally concerned the interaction between a model term and other award provisions, some technical and drafting issues and the removal of obsolete provisions. The various submissions are summarised at paragraphs [57]–[59] of the Summary of Submissions attached to the Statement issued on 31 July 2015. There was no opposition to the specific variations proposed and subject to three exceptions we propose to make the variations suggested.

[204] The first exception relates to the Airport Employees Award 2010. Clause 31.4 presently prohibits payments instead of annual leave:

[205] Clause 31.9 currently states:

[206] Ai Group submits that an additional exemption should be included in clause 31.4 to refer to the new provision in relation to the cashing out of annual leave. 80 Rather than adopt the Ai Group suggestion we propose to simply delete clause 31.4.

[207] The second exception relates to the Building and Construction General On-site Award 2010 and the Joinery and Building Trades Award 2010.

[208] MBA submits that the word “this” be inserted at the beginning of clause 38.4(b) of the Building and Construction General On-site Award 2010 so the clause would read:

[209] A similar amendment is proposed to clause 32.7(b) of the Joinery and Building Trades Award 2010.

[210] Throughout these and other modern awards, current drafting practice is that the word “this” is not used when a clause is cited by number. We are not persuaded that the amendments proposed are necessary and we do not propose to make them.

[211] Finally, we also note that MSS Security (MSS) propose 81 amending the wording of the cashing out provision in the Security Services Industry Award 2010 in a number of respects. The submission made does not provide any grounds for the changes proposed. If MSS wishes to press the changes sought it may do so in the next stage of these proceedings.

1. Next steps

[212] Revised draft determinations incorporating the changes outlined in this decision will be published on the Commission’s website.

[213] We have now finalised the terms of the various model terms. The next phase of these proceedings will deal with the insertion of the model terms into modern awards. We propose to provide all interested parties with an opportunity to make submissions and adduce evidence in relation to whether the various model terms we have determined should now be inserted into particular modern awards. Directions in relation to the next phase of these proceedings will be issued shortly. The matter will be listed for further hearing before the Full Bench at 9.30 am on 23 November 2015 in Sydney.

PRESIDENT

Appearances:

T Clarke for the Australian Council of Trade Unions.

V Wiles for the Textile, Clothing and Footwear Union of Australia.

B Ferguson for the Australian Industry Group.

L Izzo for the Australian Chamber of Commerce and Industry and the Pharmacy Guild of Australia.

W Chesterman for the Victorian Automobile Chamber of Commerce and Motor Trades Associations.

S Pill for the Group of Eight Universities.

J Arndt for the New South Wales Business Chamber and Australian Business Industrial.

M Adler for the Housing Industry Association.

S Maxwell for the Construction, Forestry, Mining and Energy Union.

M Nguyen for the “Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union” known as the Australian Manufacturing Workers’ Union (AMWU) and the (AMWU)—Vehicle Division.

M Burns for the Maritime Union of Australia.

S Crawford for The Australian Workers’ Union.

M Davecis for the Australian Salaried Medical Officers Federation.

L Carroll for The Australian Mines and Metals Association.

S McKinnon for the National Farmers’ Federation.

R Sostarko for Master Builders Australia Limited.

C Pugsley for the Australian Higher Education Industrial Association.

T Evans for the Australian Hotels Association and the Accommodation Association of Australia.

E Van Der Linden for the South Australian Chamber of Commerce and Industry trading as Business SA.

Hearing details:

2014.

Sydney, Melbourne, Adelaide, Brisbane and Canberra (video hearing)

August 20, 21.

October 16.

December 1.

2015.

Sydney, Melbourne, Adelaide, Brisbane, Canberra and Perth (video hearing)

August 7.

 1   [2013] FWC 10195; [2014] FWC 1790

 2   [2014] FWC 2279

 3   [2015] FWCFB 3406

 4   Ibid at [475]

 5   Ibid at [469]

 6   Directions, 11 June 2015, AM2014/47 – Annual leave

 7   [2015] FWCFB 3406 at [36] and [38]

 8   Ibid at [39]-[58]

 9   Ibid at [59]

 10   Ibid at [76]

 11   Ibid at [100]

 12   Ibid at [190]-[213]

 13   Ibid at [149]-[169]

 14   Ibid at [220]

 15   Ibid at [222]-[240]

 16   Ibid at [255]-[264]

 17   Ibid at [264]-[267]

 18   Ibid at [380]

 19   Ibid at [382]

 20   Ibid at [384]-[385]

 21   Ibid at [411]-[413]

 22   Ibid at [415]

 23   Ibid at [416]-[420]

 24   Ibid at [428]-[429]

 25   Centennial Northern Mining Services Pty Ltd v CFMEU [2015] FCAFC 100

 26   ACTU correspondence, 31 August 2015

 27   [2015] FWCFB 3406 at [430]-[434]

 28   Ibid at [431]

 29   Ibid at [436]-[442]

 30   Ibid at [443]-[457]

 31   Ai Group submission, 20 March 2014 at [2.19]

 32   [2015] FWCFB 3406 at [466]

 33   Ai Group, AAA, AHA, AHEIAAIS, AMMA (see Transcript at PN400), Business SA & MIAL, APTIA, ARA, ASMOF, CAI, IEU, Group of Eight Universities, MPA, NFF, MTA

 34   ACCI Submission, 13 July 2015

 35   Ai Group Submission, 14 July 2015

 36   See for example PN 68-74 and 514-516 of the Transcript, 7 August 2015

 37   Business SA submission, 13 July 2015 at p 3

 38   [2015] FWCFB 3406 at [173]-[175]

 39   See Ai Group submission, 14 July 2015 at [124]-[127]

 40   Transcript, 7 August 2015 at PN 324

 41   [2015] FWCFB 3406 at [177]

 42   Transcript, 7 August 2015 at PN434-435

 43   ACCI submission, 13 July 2015 at [8.1]

 44   Business SA submission, 13 July 2014 at p 4

 45   Ibid

 46   [2015] FWCFB 3406 at [203]

 47   Ai Group submission, 14 July 2015 at [128]-[129]

 48   [2015] FWCFB 3124 at [25]-[28]

 49   Transcript,7 August 2015 at [438]-[439]

 50   [2015] FWCFB 3124 at [25]

 51   Ibid at [26]

 52   Ibid at [27]

 53   ACCI submission, 13 July 2015 at [9.15]

 54   Ai Group submission, 14 July 2015 at [118]

 55   Ibid at [130]-[135]

 56   HIA submission, 13 July 2015 at [2.5.7]-[2.5.12]

 57   Business SA submission, 13 July 2015 at p 4

 58   See Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory) (2009) 239 CLR 27 at [47]; CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at [408]; Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at [69]

 59   Ross v R (1979) 141 CLR 432 at paragraph 440; Commissioner of Stamps v Telegraph Investment Co Pty Ltd (1995) 184 CLR 453 at [479]

 60   Transcript, 7 August 2015 at PN375

 61   [2015] FWCFB 3406 at [116]

 62   Ibid at [138]

 63   Ibid at [139]

 64   Ai Group submission and witness statements, 20 June 2014 at [33]

 65   [2015] FWCFB 3406 at [78]-[79]

 66   ACCI submission, 13 July 2015 at [10.1]-[10.6]

 67   Ai Group submission, 14 July 2015 at [130]-[135]

 68   Transcript, 7 August 2015 at PN467

 69   Ibid at PN 472-475

 70   [2015] FWCFB 3406 at [213]

 71   AMWU submission, 13 July 2015 at [16]-[20] and [22]-[24]

 72   Ibid at [27]-[28]

 73   Transcript, 7 August 2015 at PN424

 74   [2015] FWCFB 3406 at [199]-[200] and [204]

 75   HIA submission, 13 July 2015 at [2.4.4]-[2.4.6]

 76   Ibid at [2.4.2]-[2.4.3]

 77   [2015] FWCFB 3406 at [256]-[257]

 78   Background Paper – Purchased annual leave, 1 July 2015

 79   [2015] FWCFB 5219

 80   Ai Group submission, 14 July 2015 at [15]-[17]

 81   MSS Security submission, 13 July 2015

Printed by authority of the Commonwealth Government Printer

<Price code J, PR571047>

Attachment A—Index of material

Accommodation Association of Australia and another

Submission

14 July 2015

Associations of Independent Schools

Submission

10 July 2015

Submission

10 July 2015

Australian Business Industrial and the NSW Business Chamber

Submission

13 July 2015

Australian Chamber of Commerce and Industry

Submission

13 July 2015

Australian Council of Trade Unions

Correspondence

24 July 2015

Australian Council of Trade Unions

Submission

13 July 2015

Australian Higher Education Industrial Association

Submission

13 July 2015

Australian Hotels Association

Submission

13 July 2015

Australian Industry Group

Submission

13 July 2015

Australian Manufacturing Workers' Union

Submission

13 July 2015

Australian Manufacturing Workers' Union – Vehicle Division

Submission

17 July 2015

Australian Meat Industry Council

Submission

17 July 2015

Australian Mines and Metals Association

Submission

17 July 2015

Australian Mines and Metals Association and the Maritime Industry Australia Ltd

Submission

17 July 2015

Australian Public Transport Industrial Association

Submission

13 July 2015

Australian Retailers Association

Submission

13 July 2015

Australian Salaried Medical Officers’ Federation

Submission

17 July 2015

Business SA

Submission

13 July 2015

Clubs Australia Industrial

Submission

10 July 2015

Construction, Forestry, Mining and Energy Union – Construction and General Division

Submission

13 July 2015

Housing Industry Association

Submission

13 July 2015

Independent Education Union of Australia

Submission

13 July 2015

Master Builders Australia

Submission

13 July 2015

Master Plumbers Association of NSW

Submission

17 July 2015

Motor Traders’ Association of NSW and others

Submission

17 July 2015

MSS Security

Submission

13 July 2015

National Farmers’ Federation

Submission

13 July 2015

Printing Industries Association of Australia

Submission

13 July 2015

Queensland Funeral Directors Association and Funeral Directors Association of New South Wales

Submission

17 July 2015

Restaurant and Catering Australia

Submission

13 July 2015

Textile Clothing and Footwear Union of Australia

Submission

17 July 2015

The Association for Payroll Specialists

Submission

10 July 2015

University of Western Australia and others

Submission

17 July 2015

Voice of Horticulture

Submission

14 July 2015

Index of material—Purchased leave

Australian Business Industrial and the NSW Business Chamber

Submission

13 July 2015

Australian Chamber of Commerce and Industry

Submission

21 July 2015

Australian Council of Trade Unions

Submission

20 July 2015

Australian Industry Group

Submission

20 July 2015

Australian Public Transport Industrial Association

Submission

13 July 2015

Housing Industry Association

Submission

20 July 2015

Master Builders Australia

Correspondence

20 July 2015

Textile, Clothing and Footwear Union of Australia

Submission

22 July 2015

Voice of Horticulture

Submission

23 July 2015