In this case, the employer appealed against an earlier decision of FWA in which
an application for approval of an enterprise agreement was refused because the
rates of pay in the agreement were loaded to include payment for annual leave.
FWA refused to approve the agreement on the basis that the annual leave
provisions contravened the National Employment Standards (NES) and /or provided
for cashing out of annual leave in a way that was not allowed under the Fair
Work Act 2009.
On appeal, a Full Bench of FWA approved the agreement. The Full Bench found
that under the NES, employees were entitled to a base rate of pay for period of
annual leave, which was different to the loaded hourly rate of pay in the
agreement. After clarifying that “the concept of cashing out an entitlement to
annual leave involves the making of a payment instead of recognising an
entitlement to paid leave”, the Full Bench found that the agreement did not
‘cash out’ annual leave, because it did not result in employees foregoing an
entitlement to leave. The Full Bench also found that there was no breach of the
NES, because the agreement provided for payment of annual leave in advance
(through the loaded hourly rate of pay) and the taking of annual leave at a
later date. While the agreement made different arrangements than the NES in
terms of the timing of payment for annual leave, the Full Bench did not find
any NES requirement that payment for annual leave be made at the time leave is
taken. The Full Bench concluded that payment of annual leave in advance through
a loaded hourly rate of pay will not exclude the NES annual leave entitlement
as long as the NES is expressly adopted, each of the annual leave benefits in
the NES are reflected in the Agreement and the payment arrangement does not
amount to cashing out of annual leave.
One member of the Full Bench dissented on the basis of concerns about the ‘harm of loaded rates’
and their potential to undermine the legislative safety net.