New Long Service Leave Legal Precedent

The MTA NSW Employment Relations team keeps an eye out for tribunal decisions that confirm or change the interpretation of employee entitlements.  By doing this we can inform Members and propose an approach to comply with the change, so that Members are not adversely affected by the change, or end up having to deal with underpayment claims and can avoid potential fines. 

Failure to comply with the Fair Work Act 2009 can result in fines of up to $63,000 for a body corporate per incident plus back pay of any underpayment.

Long service leave entitlements are complicated with different Federal and State legal instruments. The entitlement for long service leave has been maintained under the National Employment Standards (NES) as preserved entitlements under Division 9 – Long service leave of the NES.  Fortunately, this has meant that many of our Members that were members of the MTA as at 26 March 2006 maintain coverage for long service leave entitlements under the Federal Vehicle Industry, Repair Services and Retail (Long Service Leave) Award 1977 (Federal LSL Award) for their Vehicle Award employees.

Why is this a good thing?  It is good because the Federal LSL Award only applies to full time employees and provides no entitlement for service under 10 years.  So, this means there is no entitlement to long service leave for casual and part time employees.

However, if you are covered under the NSW Long Service Leave Act 1955 (NSW LSL Act) all employees have an entitlement.  So this is an important benefit for Members of being under and maintaining the Federal LSL Award. 

The Federal LSL Award does not apply to Award free employees (e.g. Award-free managers) or clerical employees in the Vehicle Industry. Such employees are covered under the NSW LSL Act.  This is similar to other States and Territories that have their own legislation.  Equally, it is different in the ACT where all employees are under the ACT Long Service Leave Act 1976.  So, you probably get now that it is complicated?

This is one of the most common areas for questions or requests for MTA NSW Employment Relations to work out employee entitlements for payroll purposes.  In 2018, of the 12,375 calls and contacts from Members, 1,666 related to leave entitlements – equivalent to 13.4% of all inquiries. 

Sometimes casual and part time employees will claim long service leave entitlements under the NSW LSL Act despite having no entitlement under the Federal LSL Award. There have also been claims made in other States, in particular South Australia, where the Long Service Leave Act 1987 (SA LSL Act) provides a higher entitlement of 13 weeks of long service leave after 10 years employment, and entitlements to long service leave for service between 5 and 10 years.  Naturally then given the extra benefits in SA the legal precedents in this area have occurred in SA.

MTA NSW Employment Relations have always interpreted that the entitlement to long service leave and the applicable instrument was determined as at 31 December 2009, the “test time” under the Fair Work Act 2009.  However, a recent SA decision has determined differently and applied the SA LSL Act to someone that became Award-free towards the end of their employment.  In this case the employee had been a long-serving employee (11.5 years) under the Federal LSL Award that later became an Award-free manager for about 18 months and then was terminated.  He then successfully claimed that all of his service is covered under the SA LSL Act gaining a benefit based on 13 weeks for 10 years’ service paid out at his $96,000 salary.  Very lucrative for him but it creates a nasty precedent for employers.

Click here to see the decision. This decision sets a precedent unless it is appealed.  It builds and relies on an earlier decision which determined at paragraph 40 (click here to see the decision) as follows:

40.  The first condition is that there is an award which would have applied to Mr Cooper at the test time if, at that time, he had been in his “current circumstances of employment”. It was common ground that “current circumstances of employment” referred to Mr Cooper’s circumstances of employment just before his employment with Maughan ended (that being the relevant time for considering his long service leave entitlement).

This seems to have been the view of the parties to the matter, so it was ‘common ground’. However, it might not be a final decision of the Court so we have not accepted this interpretation up to this time.  In that particular matter the employee’s circumstances had not changed so it was not an issue that needed to be determined.  As such, from a legal position, the Court has not determined this as a precedent. 

With the most recent decision, however, it has adopted this approach and it is arguably a precedent until there is an appeal of the decision or another decision is made to the contrary by a more superior tribunal.  Our initial view of this decision is that it has wrongly relied on the earlier decision as its authority for this position when that tribunal had not properly considered the matter.

MTA NSW Employment Relations is considering this issue at the moment and will provide our views and the recommended approach Members should take as result of this decision. 

It appears that greater care will need to be taken when employees change their “circumstances of employment” as this will mean a change to their entitlement.  This could benefit the employee but equally, if the precedent is correct, under the Federal LSL Award if an employee changes to part time or casual at the end of their employment, they may actually lose any long service leave entitlement.

To apply things in this way is likely to lead to a very unfair outcome for the employee.  It will also lead potentially to underpayment claims and further litigation until the position is determined more clearly.  

The approach we have taken under the Federal LSL Award is to maintain any accrued entitlement when the employee was full time. An example of this is once they have more than 10 years’ service their LSL entitlement is preserved. If the employee then becomes a part time or casual employee, they will cease accruing LSL but the preserved LSL entitlement from their former full time service is maintained and paid out when they leave.

An administrative approach may be the answer so that the employee is made aware of the implications of moving to part time or casual on their LSL entitlements before the change is made.  Administratively you could agree to preserve the entitlement that accrued when they were full time to avoid this being a barrier to the change from full time to part time or casual as may be desired by the employee or the employer.

Once we have completed our review of this issue we will provide more information to Members in the April IR News. 

Any member wanting to discuss this matter further, please contact MTA NSW Employment Relations on P: 02 9016 9000 or by E: eradvice@mtansw.com.au