Pre-paid Annual Leave OK – Again

s185 application Robjohn Enterprise Agreement 2013 [2013] FWCA 6685 (5 September 2013)

Pre-paying annual leave entitlements by the hour is not cashing-out leave according to another decision of the Fair Work Commission (FWC). The controversial provision of an enterprise agreement has been rejected by some members of FWC but agreed to by others, in what has become a disturbing trend of inconsistency from the tribunal. However on this occasion, FWC has followed, a full bench decision on the matter.

The full bench decision made the point that the National Employment Standard on annual leave provides for four weeks paid annual leave but does not say that the leave and the payment for it have to happen at the same time. In the enterprise agreements, the employees still have their leave, they just get paid for it in advance, each hour, rather than at the time of proceeding on leave.

Both this recent decision, and the previous full bench decision, make the point that this mechanism is not cashing-out leave, because that mechanism results in the employee not actually being entitled to any annual leave. If an employee cashes out leave, then that employee’s annual leave balance is reduced by the amount cashed out and the employee can never have that leave – it has been completely converted to money.

Since the full bench decision was made, some members of the FWC have refused to follow that decision, preferring instead to rely on a related, but not directly the same, set of conditions dealt with in a federal court decision. Normally a federal court decision would take precedence over even a full bench of FWC. However in this latest case, FWC has identified key difference s between the two cases and come down firmly on the side of the FWC approval decision.

The implications are that for employers, especially in retail where seasonality is often a factor (and therefore employees are looking for higher earnings), this device may be a useful mechanism to attract labour.