Are you overpaying long service leave?

By Andrew Hobbs on October 11th, 2017
  1. Long Service Leave

A QUIRK in an enterprise agreement will allow an Endeavour Energy employee to take his 61 weeks of long service leave (LSL) at his supervisor-level wages, an Appeal Bench of the Fair Work Commission (FWC) has found.

The decision is a warning to employers to ensure that the details of leave conditions in an enterprise agreement are spelled out clearly and are free of inconsistencies.

The worker in question has been employed by Endeavour on a full-time basis continually since 4 March 1986, working a 36-hour week up until 21 January 2013, when a promotion to supervisor pushed his schedule to a 40-hour week.

The difference between hours and days

He still works for the company, and both parties agree he is currently entitled to 61 weeks of LSL.

Under the Endeavour Energy Enterprise Agreement 2012, LSL is allocated in increments rather than accrued over time. A worker gets 13 weeks LSL after 10 years of employment and then another 8.5 weeks after 15 years.

This applies regardless of whether the employee works a 35-hour or 36-hour week – the agreement stipulates that the 13 weeks is equal to either 455 hours or 468 hours of leave.

Conditions applicable to supervisors are set out in a document called “IE Supervisory Employees Workplace Arrangement 2003” which the parties concurred formed part of the agreement.

The workplace arrangement reads: “Leave accrued in relation to annual and long service leave by Supervisory employees will be based on a 40-hour week.” [Emphasis added]

“Full time employees whose working hours increase as a result of appointment [as supervisors] will have their annual leave accrued balances adjusted to reflect their new working arrangements… There will be no further adjustments to any other leave types as a result of appointment to this arrangement.”

The payslip

The worker noted that his LSL accrual was expressed on a per-hour basis on his payslip and, when divided by the 40-hour week he now worked, it indicated that he would only be entitled to 55.75 weeks of long service leave.

Endeavour said the discrepancy was because the leave accrued between 1986 and 2013 was earned while the employee worked a 36-hour week, and would be paid out at that hourly rate.

But the employee argued that the company measured its LSL in weeks, not hours, and as such the salary paid over his 61 weeks of leave should be paid at his current weekly rate of pay, as a supervisor, and reflect a 40-hour working week.

The first Fair Work Commission decision, handed down by Deputy President Lyndall Dean in Sydney in June, agreed with Endeavour’s interpretation – saying that the agreement only covered an adjustment to the amount of annual leave accrued, not LSL.

What will be, will be

But the Appeal Panel, consisting of Vice President Joe Catanzariti, Deputy President Alan Colman and Commissioner Paula Spencer, had a different interpretation of the Endeavour Agreement – and the clause relating to supervisors.

“On the Deputy President [Dean]’s reading, it is the leave accrued in the future by a supervisory employee (as a supervisory employee) that will be based on a 40-hour week,” the decision said.

“However, the provision can also be read as meaning that all leave accrued by a person who is now a supervisory employee ‘will be’ based on a 40-hour week at the time they take leave.”

“On this reading, the prospective nature of the clause is directed at how long service leave will be treated henceforth. In our opinion, this interpretation is to be preferred.”

The appeal panel said this interpretation matched with its reading of the company’s conditions for LSL – that an employee is entitled to a certain number of weeks of leave after a particular period of service, rather than a certain number of hours.

The panel noted Endeavour said a worker who had worked 35-hour weeks for nine years before starting 36-hour weeks would still be entitled to take the full 13 weeks LSL at the 10-year mark.

A bank of weeks

“In our opinion, there is no bank of leave in hours, only an entitlement to take a certain number of weeks’ leave after a particular period of service,” they said.

As a result, the judges said that there was no adjustment to be made to the amount of time accrued for calculating LSL as employees were entitled to a bank of weeks.

As the workplace arrangement noted that “leave accrued will be based on a 40-hour week,” the panel said this meant the supervisor would be able to take his LSL based on the number of hours he was working at the time.

As a result, the panel concluded that the employee should be paid at his current weekly rate of pay per 40-hour week, rather than the hourly rate, while on leave.

A spokesperson for Endeavour Energy told Workplace Bulletin that they accepted the decision.

“Endeavour Energy accepts the decision of the full bench of the Fair Work Commission to uphold the appeal in relation to this matter and has no plans to take the matter further,” the spokesperson said.

Don’t be overpaying LSL

The matter above shows the importance of clearly specifying how you intend to determine long service leave allocations to operate within your business.

It may be that some clauses will not apply the way in which you had anticipated, or that external documents incorporated into your enterprise agreement are not as exhaustive, or explicit, as they might otherwise appear.

How LSL is to be calculated and to whom it should apply is the topic of a number of queries to the Employment Law Practical Handbook Helpdesk, with differences applying in every jurisdiction.

The Long Service Leave Guide eBook breaks this complex topic down into practical, easy-to-understand terms and shows you how you should be calculating the LSL entitlement.

It also explains how you can determine who is eligible and how the LSL legislation can vary for each jurisdiction.

Written by Holding Redlich partner Charles Power, the Long Service Leave Guide provides an easy-to-understand manual for understanding your obligations and entitlements.

Don’t delay, get your copy today to help address any outstanding inconsistencies in your business.

Related Articles: