Upon termination, employers must continue to pay loading on accrued annual leave (to those employees who are entitled to leave loading), until such time as the relevant amendment has been passed through the Senate.

Late last year, in our article entitled “2014: The Year That Was”, we mentioned the workplace relations Bills which were at the time (and which, incidentally, are still) before the Senate. One of those Bills addresses an issue which has long been disputed in the IR World: the issue of whether or not annual leave paid to employees at the end of their employment attracts annual leave loading.

Early in March 2015, the Australian Federal Court determined this issue in the affirmative – holding that annual leave owed to workers whose employment comes to an end is to be paid out at the same rate they would have received had they taken it whilst still at work. What that means is that – for now – annual leave loading on those sums should indeed be paid.

The reason we say “for now” is twofold: Firstly, given the contentious nature of the issue and the degree of ambiguity surrounding the interpretation of the relevant section of the Fair Work Act 2009 (Cth) (section 90(2)), there may well be an appeal of the Australian Federal Court’s decision.

Secondly, the Fair Work Amendment Bill 2014 (which is one of those which has stalled in the Senate) has sought to amend section 90(2) to specify that annual leave loading is not payable on termination unless expressly provided for in an award or agreement. (Incidentally, that proposed amendment is the result of current Workplace Relations Minister, Senator Eric Abetz, seeking to adopt a recommendation of the former Labour Government Fair Work Review Panel).

Until such time as the relevant amendment has passed through the Senate, however, going forward employers should (consistent with the Australian Federal Court’s decision) pay annual leave loading to any employee who meets the following criteria:

is terminated (for whatever reason) or resigns from their employment;
has an entitlement to annual leave loading (note that the Australian Federal Court decision will have no impact in relation to employees who are not entitled to annual leave loading, including executives, some managers and other employees to whom an absorption or annualised salary clause can properly apply); and
has an accrued annual leave balance to be paid out on termination.