By Dr Laura Sowden, Partner and Annabel Cheung, Lawyer

Background

On 21 October 2024, the United Workers Union (the Union) referred a dispute to the Fair Work Commission (FWC) regarding the calculation of long service leave entitlements by Coles Group Supply Chain Pty Ltd (the Employer).

In July 2024, the Union was informed that its member (the Employee) had taken one day of long service leave and received 5.36 hours pay and not his ordinary 7.5 hours pay for that day.

The Employee was covered by the Coles Eastern Creek CDC Enterprise Agreement 2021 (the Agreement). The Union raised a concern regarding this calculation.

The Employer said:

• when an employee takes a single day of long service leave, they are entitled to be paid one-seventh of their weekly wage for the day off.
• Its payroll system was configured for workers to accrue entitlements based on calendar days and a weekly entitlement.

Union said:

• Coles had contravened clause 30 of the Agreement which reads:

Clause 30. Long Service Leave

All Team Members will be entitled to take and accrue long service leave in accordance with the provisions of the Long Service Leave Act 1955 (NSW) (as amended).

• A proper interpretation of the Long Service Leave Act 1955 (NSW) (LSL Act) would be an ordinary working day, not a calendar day;
• this would be important in resolving the dispute about whether 5.36 hours pay for a days long service leave was correct under the Agreement.

Question before the FWC

Commissioner Sloan outlined that to consider this dispute only by reference to the effect of the clause 30 within the Agreement would “lose sight of the wood for the trees”. Basically the FWC needed to consider the LSL Act.

Rather the issue in dispute was, under s 4(1) of the LSL Act, “every worker shall be entitled to long service leave on ordinary pay”. The questions were:

• How is “ordinary pay” to be calculated when a worker takes a single day of long service leave?
• Is it calculated by reference to their ordinary hours of work for the day, as the Union argues?
• Or is it one-seventh of the worker’s weekly wage, as the Employer contends?

What did the FWC determine?

Commissioner Sloan had regard to the history of the LSL Act.

Until there were amendments introduced in 2020, “the LSL Act did not expressly contemplate a period of long service leave of less than a week”. The expectation had always been that long service leave would be taken in significant blocks of time.

The purpose of LSL has always been described as a period of rest for the employee so that they might recuperate and re-energise after many years of loyal service to an employer.

Therefore, the LSL Act was not designed for LSL being taken in shorter periods.

The LSL Act has entitled a worker to long service leave “on ordinary pay”. “Ordinary pay” has consistently referred to the “ordinary time rate of pay” as fixed by the terms of the worker’s employment.

Commissioner Sloan held that where there is no such rate, the LSL Act has allowed for the worker’s ordinary pay to be determined by the weekly rate earned or the weekly hours worked by the worker.

Employer’s approach

If an employee takes a day of LSL and they do not have fixed weekly hours then they will be paid for the average hours they work on each day they work.

However, if an employee takes a day of LSL and they do have a fixed number of weekly hours then they receive payment of one-seventh of their weekly wage.

The Employer approach means unless that employee works seven days a week, their LSL payment will be less than the amount they would receive for the average hours they work each day.

Basically, the Employer approach left employees worse off that if they had worked.  Commissioner Sloan said this was inconsistent with the language and purpose of the LSL Act, saying:

To my mind, Coles’ submissions do not reflect all of the terms of the LSL Act. Read properly and as a whole, the LSL Act cannot be read as providing that an employee who takes a single day of annual leave is entitled to receive payment of one-seventh of their weekly wage.

Conclusion

The FWC:

• Said paying employees one-seventh of a week’s wage was not compliant with the LSL Act.
• Said an “ordinary working day” is the relevant consideration for the LSL Act, but noted variance in hours worked day to day.
• Considered that a better approach to determining LSL Act entitlements is the definition of “ordinary pay”.

What to take away?

Employers should carefully consider how LSL is accrued on their payroll systems to ensure compliance with the LSL Act.

This is particularly, if like this Employer, you are using a seven-day week to calculate long service leave pay, but you employ (1) workers who have a fixed number of weekly hours as well as (2) workers who do not have a fixed number of weekly hours.

A sensible approach is to consider the definition of ordinary pay in relation to the accrual of the number of hours an employee has worked.