FEDERAL COURT OF AUSTRALIA

Centennial Northern Mining Services Pty Ltd v Construction, Forestry, Mining and Energy Union [2015] FCAFC 100

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT

1    This appeal turns on the proper construction of s 90 of the Fair Work Act 2009 (Cth) (“FW Act”), which is concerned with rates of pay for annual leave. Subsection (1) imposes an obligation on employers to pay employees, who take a period of paid annual leave, at their “base rate of pay for … ordinary hours of work in the period”. Subsection (2) requires that employees who have untaken annual leave when their employment comes to an end be paid “the amount that would have been payable” if the leave had been taken. The question raised by the notice of appeal is whether, as the primary judge found, s 90(2) requires payment of the actual amount that would have been payable if the employee had taken the period of untaken annual leave or, as the employer contended, at the amount calculated by reference to the employee’s base rate of pay.

Background

2    The appellant (“Centennial”) is in dispute with the first respondent (“the CFMEU”) over the amount of annual leave benefits to be paid to some 58 employees who were made redundant with the closure of Centennial’s Newstan Coal Mine. Centennial contended that, where there is accrued but untaken annual leave, in addition to their ordinary weekly rate of pay employees are only entitled to receive payment for their “average bonus” and, in contrast to what happens when annual leave is taken during the employment, there is no component for rostered overtime, shift allowances, weekend penalty rates or leave loadings. It relied for this proposition on the terms of cl 19 of the Centennial Northern Mining Services Enterprise Agreement 2011 (“the Agreement”). In substance, the CFMEU’s position was that, to the extent that cl 19 precluded employees on termination from receiving the same entitlements to payment for accrued leave as they would have received had they taken the leave during their employment, the clause contravened s 90(2) of the Act and, to that extent, had no effect.

The enterprise agreement

3    Clause 19 of the Agreement relevantly provides:

19.    ANNUAL LEAVE

…

19.5    On termination of employment an employee is paid for accrued but untaken annual leave at their hourly rate of pay applicable to their ordinary weekly rate of pay as prescribed in Clause 13.1 plus average bonus.

Payment for Annual Leave

19.6    An employee taking annual leave must be paid the greater of:-

(a)    the employee’s ordinary weekly rate of pay plus a loading of 20% of that rate: or

(b)    the employee’s ordinary weekly rate of pay plus rostered overtime, shift allowance, weekend penalty rates and bonus.

The legislation

4    As the primary judge observed, s 90 appears in Pt 2-2 of Chapter 2 of the FW Act. Part 2-2 contains the National Employment Standards, which are “minimum standards” of employment, providing a safety net for employees. Although they may be supplemented or enhanced in a modern award or enterprise agreement, they cannot be displaced to the detriment of an employee, even by an enterprise agreement containing terms substantially to the same effect: FW Act, s 61(1). An enterprise agreement must not exclude any provision of the National Employment Standards (FW Act, s 55) and, to the extent that it does, a term of an enterprise agreement has no effect (FW Act, s 56).

5    The National Employment Standards relate to a range of matters, including hours of work, notice of termination, payment on redundancy, public holidays and various types of leave, among them annual leave. Division 6 of Pt 2-2 contains the terms relating to annual leave, of which s 90 is one.

6    Division 6 applies to employees other than casual employees: FW Act, s 86. Section 87 deals with the entitlement to annual leave (in general four weeks but five for certain categories of shiftworkers). It specifies in subsection (2) that the entitlement to paid annual leave accrues progressively during a year of service according to the employee’s ordinary hours of work and accumulates from year to year. Paid annual leave may be taken for a period agreed between the employer and employee: FW Act, s 88(1). An employer must not unreasonably refuse to agree to a request by an employee to take annual leave: FW Act s 88(2).

7    Section 90 provides:

90    Payment for annual leave

(1)    If, in accordance with this Division, an employee takes a period of paid annual leave, the employer must pay the employee at the employee’s base rate of pay for the employee’s ordinary hours of work in the period.

(2)    If, when the employment of an employee ends, the employee has a period of untaken paid annual leave, the employer must pay the employee the amount that would have been payable to the employee had the employee taken that period of leave.

8    “Paid annual leave” is defined (unhelpfully) as “paid annual leave to which a national system employee is entitled under section 87”: FW Act, s 12. “Base rate of pay” is the rate of pay payable to the employee for his or her ordinary hours of work, but not including incentive-based payments and bonuses, loadings, monetary allowances, overtime or penalty rates, or any other separately identifiable amounts: FW Act, s 16. “Ordinary hours of work” is defined in s 20 in the case of award or agreement free employees, but not otherwise.

9    For an employee subject to an award or agreement, annual leave must not be cashed out, save in accordance with terms in a modern award or enterprise agreement which provide for it: FW Act, s 92. Subsection 93(2) states:

(2)    The terms must require that:

(a)    paid annual leave must not be cashed out if the cashing out would result in the employee’s remaining accrued entitlement to paid annual leave being less than 4 weeks; and

(b)    each cashing out of a particular amount of paid annual leave must be by a separate agreement in writing between the employer and the employee; and

(c)    the employee must be paid at least the full amount that would have been payable to the employee had the employee taken the leave that the employee has forgone.

10    While “full rate of pay” is a defined term (see FW Act, s 18), the Act contains no definition of “the amount that would have been payable” (the expression in s 90(2)) or “the full amount that would have been payable” (the expression in s 93(2)(c)).

The proceeding before the primary judge

11    In the Court below, (amongst other orders which are not presently relevant) Centennial applied for a declaration that cl 19.5 of the Agreement does not contravene s 55 of the FW Act. The primary judge dismissed the application.

The primary judge’s reasons

12    The primary judge noted that there was no dispute about the principles to be applied, referring to Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at [69]-[71]. At [69] McHugh, Gummow, Kirby and Hayne JJ explained:

The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute. The meaning of the provision must be determined "by reference to the language of the instrument viewed as a whole" [picking up what was said by Mason and Wilson JJ in Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297 at 320]. In Commissioner for Railways (NSW) v Agalianos, Dixon CJ pointed out that "the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed". Thus, the process of construction must always begin by examining the context of the provision that is being construed.

(Footnotes omitted.)

13    At [71] their Honours noted that a court construing a statutory provision must strive to give meaning to every word in it.

14    In this case the primary judge observed that a construction to the effect that s 90(2) protects the whole entitlement to annual leave could certainly not be excluded. His Honour then turned for assistance to the Explanatory Memorandum to the Fair Work Bill 2008 (Cth), which states:

Clause 90 – Payment for annual leave

370.    Subclause 90(1) entitles an employee to be paid at their base rate of pay (as defined in clause 16) for the employee’s ordinary hours of work for the period of their absence on leave.

(The meaning of ordinary hours of work and base rate of pay are outlined at the beginning of this Part.)

371.    This is a minimum entitlement and would not prevent an employer and employee from agreeing to, or an award or enterprise agreement providing for, more generous payment terms.

372.    Subclause 90(2) provides that, on termination of employment, an employee is entitled to receive a payment in respect of any untaken paid annual leave. The payment will be equivalent to the amount that the employee would have been paid if the employee had taken the annual leave.

(Emphasis and italics added.)

15    His Honour said that “this lends support to the argument that s 90(2) (unlike s 90(1)) is not confined to a statement of a minimum obligation, but is a statement to the effect that an employee should not suffer a reduction in the value of unpaid annual leave if employment comes to an end while paid annual leave remains untaken”.

16    He therefore rejected the construction for which Centennial was contending, saying that he was “not prepared, in effect, to read down s 90(2) in the face of the expectation stated in the Explanatory Memorandum when that construction is plainly open on the terms of s 90(2) itself”.

17    On his Honour’s construction, cl 19.5 purports to confer an entitlement that is less than the minimum entitlement for which s 90(2) of the Act provides. He stated that “cl 19.5 [operates] on its face (“an employee is paid”) in a way which excludes the operation of s 90(2)”. Having regard to the terms of s 55(1) of the Act, which, it will be recalled, prohibits an enterprise agreement from excluding any provision of the National Employment Standards, his Honour held, that cl 19.5 had no effect.

The appellant’s arguments

18    Centennial claims the primary judge made two appealable errors:

(a)    finding that s 90(2) is not confined to a statement of minimum obligation to the effect that an employee should not suffer a reduction in the value of unpaid annual leave if his or her employment comes to an end while annual leave remains untaken; and

(b)    finding that cl 19.5 of the Agreement confers a lesser entitlement than that which is granted by s 90(2) of the Act.

19    The finding challenged in para (b) above follows inexorably from the finding in (a), with the result that Centennial directed its arguments to para (a) only. In other words, Centennial accepts that if the primary judge was not in error in his construction of s 90(2), the appeal must be dismissed.

20    Centennial advanced five reasons to support its contention that the primary judge erred in the way it alleged.

21    First, it submitted that his Honour erred in concluding, in effect, that its argument involved a reading down of the text.

22    Secondly, it submitted that its argument was “the natural reading of the text, read in the context of Division 6 of Part 2-2 of the FW Act”.

23    Thirdly, it submitted that the primary judge’s interpretation is “not harmonious with the text, nature and purpose of the provisions dealing with the NES more generally within the FW Act”.

24    Fourthly, it submitted that the primary judge’s interpretation “stands in marked contrast to other provisions in the FW Act dealing with leave entitlements”, each of which provides for payment of leave at the base rate of pay for ordinary hours of work. Centennial pointed to s 99 (personal/carer’s leave), s 106 (compassionate leave), s 111(2) (jury service leave) and s 116 (public holidays). In this context, Centennial argued, it was “disharmonious with the statutory scheme” to construe s 90(2) as “creating a quite different type of entitlement – extending beyond the base rate of pay for ordinary hours or work”. It also emphasised that the Act was concerned with establishing minimum entitlements, that is to say, (pointing to the definition of “minimum” in the Macquarie Dictionary) “the least quantity or amount … allowable”.

25    Fifthly, Centennial submitted that the primary judge placed too much significance on [372] of the Explanatory Memorandum to the Fair Work Bill.

The primary judge was not in error

26    We are not satisfied that the primary judge erred in his construction of s 90(2).

27    In determining the meaning of words in a statute one begins with the text (Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory) (2009) 239 CLR 27 at [47]), albeit that the text must be read in context (Cooper Brookes (Wollongong) Proprietary Limited v Federal Commissioner of Taxation (1981) 147 CLR 297 at 304 (Gibbs CJ), 319-320 (Mason and Wilson JJ)). The primary judge began in this way.

28    When one starts with the text — “the amount that would have been payable to the employee had the employee taken that period of leave” — Centennial correctly points out that that raises the question: pursuant to what obligation? According to Centennial, the answer is: pursuant to the obligation found in s 90(1) and that necessarily means that the amount payable is the base rate for the ordinary hours worked for the period in question. Centennial argued that this does not involve any reading down of the words in the subsection and the primary judge effectively leaned against adopting its construction, by which we understood it to mean that his Honour was predisposed against it or that he somehow misunderstood its argument. Neither inference is open.

29    Centennial contended that the “notes” to ss 55(4) and (6) support its interpretation of the text.

30    Despite s 13(1) of the Acts Interpretation Act 1901 (Cth), which provides that all material in an Act is part of the Act, the effect of s 40A of the FW Act is that “[n]o marginal note, footnote or endnote … shall be taken to be part of the Act.” Centennial submitted, however, that the notes can be taken into account as part of the text (relying on One.Tel Ltd (in liq) v Rich (2005) 190 FLR 443 at [54] per Bergin J) or, in the alternative, as part of the extrinsic material. We assume without deciding that this is so. Be that as it may, the notes do not provide any assistance.

31    Section 55(4) states

A modern award or enterprise agreement may also include the following kinds of terms:

(a)    terms that are ancillary or incidental to the operation of an entitlement of an employee under the National Employment Standards;

(b)    terms that supplement the National Employment Standards;

but only to the extent that the effect of those terms is not detrimental to an employee in any respect, when compared to the National Employment Standards.

32    There are three notes to the subsection. Centennial’s submission related to the first two:

Note 1:    Ancillary or incidental terms permitted by paragraph (a) include (for example) terms:

(a)    under which, instead of taking paid annual leave at the rate of pay required by section 90, an employee may take twice as much leave at half that rate of pay; or

(b)     that specify when payment under section 90 for paid annual leave must be made.

Note 2:    Supplementary terms permitted by paragraph (b) include (for example) terms:

(a)    that increase the amount of paid annual leave to which an employee is entitled beyond the number of weeks that applies under section 87; or

(b)    that provide for an employee to be paid for taking a period of paid annual leave or paid/personal carer’s leave at a rate of pay that is higher than the employee’s base rate of pay (which is the rate required by sections 90 and 99).

33    Centennial relied on the references to s 90, pointing to the lack of any distinction in these notes between s 90(1) and s 90(2). In Centennial’s submission, there is an implicit assumption (and presumably therefore a legislative intention) that the rate in s 90(2) is the same as the rate in s 90(1). We do not agree.

34    Properly understood, the references to s 90 in the notes to s 55(4) are references to s 90(1). They each deal with the taking of leave during employment and are not directed to what is to occur upon termination. That issue is dealt with discretely in s 90(2).

35    Section 55(6) states:

Enterprise agreements may include terms that have the same effect as provisions of the National Employment Standards

To avoid doubt, if a modern award includes terms permitted by subsection (4), or an enterprise agreement includes terms permitted by subsection (4) or (5), then, to the extent that the terms give an employee an entitlement (the award or agreement entitlement) that is the same as an entitlement (the NES entitlement) of the employee under the National Employment Standards:

(a)    those terms operate in parallel with the employee’s NES entitlement, but not so as to give the employee a double benefit; and

(b)    the provisions of the National Employment Standards relating to the NES entitlement apply, as a minimum standard, to the award or agreement entitlement.    

36    The note reads as follows:

Note:    For example, if the award or agreement entitlement is to 6 weeks of paid annual leave per year, the provisions of the National Employment Standards relating to the accrual and taking of paid annual leave apply, as a minimum standard to 4 weeks of that leave.

37    Centennial submitted that this demonstrates that the National Employment Standard is “the minimum, it’s the floor, separate from the award or agreement entitlement”.

38    It is undoubtedly true that the National Employment Standards are minimum standards. Centennial was also right when it argued that s 90 must be read as a whole and in the context of the National Employment Standards. But there is no reason to conclude that the primary judge did not do this. Nor does it necessarily advance Centennial’s case to read the section in this way. Section 90(1) creates the minimum standard: payment at the base rate for ordinary hours worked. The effect of s 90(2) is that if that is the rate at which the employee is paid when he or she takes annual leave, then that is the minimum amount that must be paid for any accrued untaken annual leave. If, on the other hand, there is a modern award or enterprise agreement which provides for payment at a higher rate for annual leave that is taken, then s 90(2) stipulates that that is the rate which is payable where annual leave has accrued but has not been taken. This is the natural way to read the section and there is nothing in the legislative context which would require a different interpretation.

39    The context in which s 90(2) must be construed includes the existing state of the law, that is to say, the state of the law at the time of the enactment: CIC Insurance Limited v Bankstown Football Club Limited (1997) 187 CLR 384 at 408.

40    The precursor to s 90 of the FW Act was s 235 of the Workplace Relations Act 1996 (Cth) (“WR Act”), which was part of the Australian Fair Pay and Conditions Standard in Pt 7 of the Act. It read as follows:

235    Annual leave – payment rules

(1)    If an employee takes annual leave during a period, the employee must be paid a rate for each hour (pro-rated for part hours) of annual leave taken that is no less than the rate that, immediately before the period begins, is the employee’s basic periodic rate of pay (expressed as an hourly rate).

(2)    If the employment of an employee who has not taken an amount of accrued annual leave ends at a particular time, the employee must be paid a rate for each hour (pro-rated for part hours) of the employee’s untaken accrued annual leave that is no less than the rate that, immediately before that time is the employee’s basic periodic rate of pay (expressed as an hourly rate).

41    Centennial argued that there is nothing in the FW Act or the extrinsic materials to suggest that the Parliament intended to change the payment rules as laid down in the WR Act. This argument must be rejected. One cannot ignore the fact that the references to “basic periodic rate of pay” appearing in both subsections of s 235 of the WR Act have re-emerged as “base rate of pay” only in s 90(1) of the FW Act. That manifests a legislative intention not to confine “the amount that would have been payable…” to the base rate of pay. If the intention were otherwise, one would expect to see “base rate of pay” in both subsections of s 90 or, at least a reference in s 90(2) to the rate prescribed by s 90(1).

42    Centennial also submitted, in effect, that the construction preferred by the primary judge is unlikely to be correct because it would give rise to uncertainty. It argued that the words “would have been payable” refer to a liability for a future event and, if the liability is to include such matters as rostered overtime, shift allowances, weekend penalty rates and bonuses, these will vary from time to time. Centennial maintained that only its construction offers certainty because it ignores all these variable components. In our view, this argument is a furphy. The intention of the legislation is that untaken annual leave is payable at the rate at which it would have been paid had the employee taken it at the time the employee was eligible for it. If the intention were to require untaken annual leave to be paid at the base rate, then, as we have observed, in the light of the legislative history one would expect a statement to this effect in the subsection.

43    Centennial’s reliance on the terms of the other leave provisions in the National Employment Standards is misplaced. Rather than supporting its argument, the express reference to “base rate of pay” in each of them supports the primary judge’s interpretation. In any case, as the CFMEU pointed out, the provisions in question deal only with the amounts payable when the leave is taken and in this respect are comparable to s 90(1), not s 90(2). The primary judge’s construction is not out of harmony with the text, nature and purpose of the provisions dealing with the National Employment Standards.

44    Centennial drew attention to the provisions for cashing out annual leave in ss 93(2)(c) and 94(4), each of which requires employers to pay employees “at least the full amount that would have been payable to the employee had the employee taken the leave that the employee has forgone”. These provisions enable an employer and an employee to agree to the employee cashing out a particular amount of the employee’s accrued paid annual leave over and above four weeks. A similar provision appears in s 101(2)(c) in relation to personal/carer’s leave.

45    Contrary to Centennial’s submission, we do not consider the absence of the adjective “full” before “amount” in s 90(2) (in contrast to ss 93(2) and 94(4)) to be of any consequence. Both ss 93(2)(c) and 94(4) are concerned with cashing out of accrued leave entitlements. They assume that an employee has accrued more than four weeks leave and may wish to cash out some or all of the excess entitlement. Read in that context, “full” is employed to prevent an agreement under which the employee may be willing to accept a part payment in respect of an excess accrued period of leave. No such issue arises on termination when all accrued entitlements must be paid to wipe the slate clean.

46    Finally, there is no justification for the submission that his Honour fell into appealable error by placing too much weight on what was said in [372] of the Explanatory Memorandum. All his Honour said was that it supports the interpretation which is “plainly open” from the text itself.

47    Centennial relied on the Explanatory Memorandum, too, but confined its submission in this regard to the statements made in the regulatory analysis offered in its opening pages. According to the regulatory analysis, which is concerned with the implications of the legislative changes for employers, employees and the wider community, “[a] key change under the NES is a simpler manner of accrual and the concept of ‘service’ for calculating the entitlement. Paid annual leave will accrue and then be taken on the basis of an employee’s ordinary hours of work”. Centennial made much of the statements that “[t]he NES will not change the coverage or quantum of the annual leave entitlement” (in r 57) and that “the major regulation change under the NES is to simplify complex rules around annual leave accrual” (in r 58). Its point was that these passages indicate that there was never any intention to change the status quo. But none of this assists Centennial. The term “quantum” is ambiguous. Read in context, it appears to relate to hours of work, rather than the amount payable. In any event, the Court is not concerned with what the Government might subjectively have intended. The legislative intention is “the ‘intention manifested’ by the legislation”: Saeed v Minister for Immigration and Citizenship (2010) 241 CLR 252 at [31] (original emphasis), referring to Wik Peoples v Queensland (1996) 187 CLR 1 at 168-9 per Gummow J. As French CJ, Gummow, Hayne, Crennan and Kiefel JJ went on to observe in Saeed:

Statements as to legislative intention made in explanatory memoranda or by Ministers, however, clear or emphatic, cannot overcome the need to carefully consider the words of the statute to ascertain its meaning.

48    Furthermore, “through oversight or inadvertence”, the intention of the Parliament might not be reflected in the legislation. If that happens, the Court must “give effect to the will of the Parliament as expressed in the law”. See Re Bolton; Ex parte Beane (1987) 162 CLR 514 at 518 (Mason CJ, Wilson and Dawson JJ) cited in Saeed at [32].

Conclusion

49    The appeal must be dismissed. Having regard to the terms of s 570 of the FW Act, there should be no order as to costs.

Associate:    

Dated:    23 July 2015