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How unpaid leave impacts accrual of entitlements

When employees take unpaid leave, how does it affect accrual of entitlements?
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How unpaid leave impacts accrual of entitlements

How unpaid leave impacts accrual of entitlements

17 May 2021

When employees take unpaid leave, how does it affect accrual of entitlements such as annual leave and long service leave?

This article summarises the impact unpaid leave has on accrual of entitlements. Differences to accrual rates depend on circumstances, and are also subject to the relevant statutory provision.


Forms of unpaid leave

This term refers to statutory unpaid leave for full-time and part-time employees, such as unpaid parental leave, but also refers to a non-statutory absence, such as leave without pay (LWOP).

LWOP is unpaid leave of absence from employment, authorised or consented to by the employer. It is rare for it to be prescribed by a modern award or an enterprise agreement, and it is not a general employment right under a contract of employment.

LWOP is usually granted at the complete discretion of the employer and is almost exclusively granted only to full-time employees with a reasonable length of service with the employer. Common reasons for this type of leave include extended travel time, or recuperation from a non work-related illness or injury, when all other available paid leave has been exhausted.
 
An employer has no right to send an employee on LWOP unless otherwise provided by the applicable award, agreement or contract of employment.
 
In this article, LWOP is a separate form of unpaid leave to unpaid leave prescribed by the Fair Work Act.


NES – annual leave, personal/carer’s leave and redundancy pay

The Fair Work Act (s22(2)) provides that the following periods do not count as service for the purposes of calculating annual leave, personal/carer’s leave and redundancy pay entitlements under the National Employment Standards:
 
Periods that do not count as service (excluded periods) are:
  • any period of unauthorised leave, for example, when an employee has abandoned their employment, is engaging in industrial action or is otherwise absent from work for a period contrary to a direction made by an employer; or
  • any period of unpaid leave, for example, unpaid parental leave or unpaid carer’s leave, or unpaid authorised absence (such as LWOP), other than a period of community service leave, a period of stand down, or a period of absence prescribed by the regulations (no such provision).


Parental leave, termination notice, flexible work

Under the Fair Work Act (s22(4)), service – in relation to requests for flexible working arrangements, parental leave and related entitlements, and notice of termination or payment in lieu of notice – only excludes a period of unauthorised leave. Therefore, an employee’s absence from work on unpaid parental leave, workers compensation or LWOP does count as service for the purpose of determining an employee’s entitlement to these conditions under the National Employment Standards. However, it does not count as service for the purposes of accruing other entitlements under the NES, such as paid annual leave, paid personal/carer’s leave or redundancy pay.


Public holidays

Whether employees are entitled to a paid public holiday that falls during a period of LWOP is not specifically prescribed by the Fair Work Act, although s116 states if they do not have ordinary hours of work on the day the public holiday falls, they are not entitled to payment for it. An employer could, as a condition of consenting to an employee’s request for LWOP, alter the employee’s ‘guaranteed’ hours to zero for the period of LWOP, resulting in the employee having no ordinary hours that would fall on any public holiday during LWOP.
 
There is no entitlement to a public holiday that falls within a period of unpaid parental leave.


Unfair dismissal

Workers compensation

In a matter heard before (then) Fair Work Australia, an employee was in receipt of workers compensation and accident pay during a period of leave. It was found that the payments, even though they were being made by insurers, were made on behalf of the employer pursuant to a legal obligation imposed directly on the employer. Therefore the absence was not an authorised unpaid absence and was not an excluded period for the purpose of determining the minimum period of employment. See Workpac Pty Ltd v Bambach [2012] FWAFB 3206.
 

Unpaid personal leave – motor accident compensation

In a matter heard before (then) Fair Work Australia, an employee had been on authorised leave during his employment due to a motor accident injury. The employee did not receive any payment from his employer during this period but was in receipt of payments from the Traffic Accident Commission (Vic). It was held that this period was an excluded period because it was unpaid leave. See Webster v Toni and Guy Port Melbourne t/a Toni and Guy Port Melbourne [2010] FWA 4540.
 

Income protection payments – super fund

In a matter heard before (then) Fair Work Australia, an employee was absent from work for about five weeks because of illness, and was paid income protection insurance payments by a private insurer through his superannuation fund.

It was held that because the employer was under no legal obligation to provide income protection insurance, the employee was on unpaid leave or authorised unpaid absence. This was distinguished from workers’ compensation payments which arise from a legal obligation on the employer. See L.M. v Standard & Poor’s (Australia) Pty Ltd [2012] FWA 9634.


Workers comp legislation and the Fair Work Act

In the context of the Fair Work Act, it would seem the courts regard an absence on workers compensation as an absence on paid leave, rather than a period of unpaid leave or authorised unpaid absence.
 

Accrual of paid leave – National Employment Standards

The accrual of annual leave when an employee is absent on workers compensation depends on the relevant workers compensation legislation in the state or territory where the employee is receiving compensation. This issue, in relation to New South Wales workers compensation legislation, was rdetermined by a full court of the Federal Court.
 

Consequences of full Federal Court decision

The full Federal Court allowed a worker to take annual leave while receiving workers compensation benefits. The court also found annual leave continued to accrue over the period when a worker is receiving workers compensation. While this case related to a NSW worker, the full court was of the view that if the relevant state or Commonwealth legislation sanctioned, condoned or countenanced dual entitlement, then dual entitlement was permitted. See Anglican Care v NSW Nurses and Midwives’ Association [2015] FCAFC 81 (5 June 2015)]
 

New South Wales

The Workers Compensation Act 1987 [NSW] (s49) permits the taking of annual leave, a public holiday and long service leave during a period of workers compensation. A full court of the Federal Court interpreted this situation in a decision.

It upheld an order that required an employer to pay a former employee based in NSW the annual leave she accrued while absent on workers compensation. The decision confirmed that employees receiving workers compensation are also entitled to annual leave accrual, provided that "permission is given by the compensation law for dual receipt".

The full court made it clear the exception at s130(2) of the Fair Work Act should be "read beneficially". The court said that while the NSW Act did not create a "right" to receive annual leave payments while on workers compensation, it provided the "opportunity" for a worker to receive both benefits. Consequently, employees in NSW accrue annual leave during an absence on workers compensation
 

Other states and territories

The reasons for the above decision may have significant ramifications outside NSW, as similar terms exist in workers compensation legislation in other states.

In Victoria and Western Australia, the relevant workers compensation statutes contain terms similar to the NSW legislation on this point, which allows an employee who takes annual leave to continue to receive payments of weekly compensation at the same level – Workplace Injury Rehabilitation & Compensation Act 2013 [VIC] (s185(4)) and Workers Compensation & Injury Management Act 1981 [WA] (s80).

Employers in these two states should take into account the possibility of a similar outcome to that of NSW if the relevant legislation is challenged before the federal court.

In South Australia, the Return to Work Act 2014 [SA] (s50) permits an employee to take or accrue leave while also receiving workers compensation payments.

In Tasmania, the Workers Rehabilitation & Compensation Act 1988 [TAS] (s84) contains provisions that prevent a worker from receiving weekly payments of compensation and paid annual leave simultaneously.

There are no relevant provisions in the Workers Rehabilitation & Compensation Act [NT].
 
In the Australian Capital Territory, the Workers Compensation Act 1951 [ACT] (s46) states the Act is not intended to affect an entitlement that the worker has a benefit or payment unless otherwise provided by an ACT law. Examples of benefits not affected include accrual of long service leave and accrual of annual leave.


Long service leave accrual – LWOP and workers compensation

The accrual of long service leave during an employee’s absence on workers compensation or LWOP is usually dependant on the relevant state or territory legislation, or the applicable award-derived long service leave term preserved under the NES.
 
The following is a summary of state and territory long service leave legislation with respect to accrual of leave when an employee is absent on workers compensation or LWOP:
  • Long Service Leave Act 1976 (ACT): continuous service includes leave for up to two weeks each year due to illness or injury, but not when absent on LWOP.
  • Long Service Leave Act 1955 [NSW]: an employee continues to accrue long service leave when absent on workers compensation, but not during a period of LWOP.
  • Long Service Leave Act (NT): an employee does NOT accrue long service leave when absent on unpaid leave; an absence on workers compensation is also considered unpaid leave.
  • Industrial Relations Act 1999 [Qld]: an employee continues to accrue long service leave when absent on workers compensation, but not during a period of LWOP (unless otherwise provided by the applicable industrial instrument).
  • Long Service Leave Act 1987 (SA): an employee accrues long service leave when absent on account of illness or injury (including workers compensation), but not during a period of LWOP.
  • Long Service Leave 1976 (Tas): an employee accrues long service leave when absent due to illness or injury (including workers compensation), but not during a period of LWOP.
  • Long Service Leave Act 2018 [Vic]: an employee continues to accrue long service leave while absent on workers compensation.
  • Long Service Leave Act 1958 (WA): an employee accrues long service leave when the absence is necessitated by sickness or injury (including workers compensation) but only to the extent of 15 working days in any year of employment, but not when absent on LWOP.

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