Five employment law cases that shook the world: #2 Annual leave loading is payable on termination
As part of a series of articles we are examining five employment law cases that shook the world (or at least members of the Australian HR community).
There was a time when there was some uncertainty as to whether an employee who was entitled to paid annual leave loading, was also entitled to the loading when accrued but untaken annual leave was paid out on termination of employment.
In Centennial Northern Mining Services Pty Ltd v Construction, Forestry, Mining and Energy Union (No 2)  FCA 136 Buchanan J was required to consider a term in an enterprise agreement that provided that employees who received annual leave loading whilst taking annual leave, were not entitled to be paid annual leave loading when annual leave was paid out on termination of employment.
Given that enterprise agreements (and modern awards) cannot contravene the terms of the National Employment Standards set out in the Fair Work Act 2009, the question was whether the National Employment Standards (in particular section 90(2)) should be read to mandate that where an employee is entitled to annual leave loading during employment, they must also be paid annual leave loading where annual leave is paid out on termination. If so, the relevant term in the enterprise agreement would have no effect.
Buchanan J noted that the Explanatory Memorandum to the Fair Work Bill 2008 provided as follows (with his emphasis):
“372. Subclause 90(2) provides that, on termination of employment, an employee is entitled to receive a payment in respect of any untaken paid annual leave. The payment will be equivalent to the amount that the employee would have been paid if the employee had taken the annual leave.
In light of this, the judge said that “I am not prepared, in effect, to read down s 90(2) in the face of the expectation stated in the Explanatory Memorandum when that construction is plainly open on the terms of s 90(2) itself.” Accordingly it was held that the relevant clause in the enterprise agreement had no effect, as it contravened the National Employment Standards.
The decision was upheld on appeal in Centennial Northern Mining Services Pty Ltd v Construction, Forestry, Mining and Energy Union  FCAFC 100.
The case is authority for the proposition that if an employee is paid annual leave loading during employment, they must be paid it when annual leave is paid out on termination.