Annual leave loading on termination

Context

Section 90(1) of the Fair Work Act 2009 (the Act) makes it clear that the payment for annual leave is at the ‘base rate of pay’.

Section 90(2) of the Act indicates that upon termination an employee is paid what he/she would have been paid if he/she had taken leave while working.

Modern awards, such as the Vehicle Manufacturing, Repair, Services and Retail Award 2010 (VMRSR Award), provide for the payment of annual leave loading when leave is taken. However, clause 29.8 of the VMRSR Award determines that the leave loading is not paid on untaken leave paid out upon termination. The VMRSR Award also provides a different and more beneficial payment than the ‘base rate of pay’ under the NES, for annual leave when leave is taken during employment (see clause 29.7 of the VMRSR Award).

However, since 2011 the Fair Work Ombudsman (FWO) has taken the view that the National Employment Standards under section 90 requires the payment of the annual leave loading on untaken leave upon termination. This is a departure from the accepted position over the history of award coverage in the vehicle industry since the introduction of the annual leave loading as a general award provision.

The FWO has not attempted to prosecute any employers leaving it to individual employees to make any claims in a local court. That being said, a Federal Court case of Centennial Northern Mining Services Pty Ltd v Construction, Forestry, Mining and Energy Union (No 2) [2015] FCA 136 agreed with the FWO’s opinion.

Outcome

2018