Pre-paid Annual Leave Banned

Canavan Building Pty Ltd [2014] FWCFB 3202 (29 May 2014)

A five member full bench has banned the practice of paying annual leave as it accrues in advance, a practice which was approved by an earlier full bench as recently as November 2011.

The issue revolved around an enterprise agreement which provided for employees to be paid a higher hourly rate as they worked, which included paying their annual leave in advance. The employees still were eligible for annual leave – it was just that their wages for the leave periods had been paid to them in advance.

The latest full bench rejected the 2011 full bench’s decision to OK this scheme, saying that in their view, the term “paid annual leave” was a single term, so it meant the employee was to be paid during the period of annual leave.

This latest full bench relied heavily on a single judge decision in the federal court over the issue of pre-paid sick leave, however that case did not traverse the area of treating the term “paid annual leave” as one indivisible term in the manner cited in this decision. The federal court decision relied on by FWC focused on whether or not the scheme amounted to cashing-out leave.