Entitlement of employees to accrue annual leave when absent from work on workers compensation leave

[1] I heard this application on 1 November 2005. The application was lodged as an application pursuant to Section 99 of the Workplace Relations Act 1996 (the Act), but was amended by consent to become a joint application pursuant to Section 111AA of the Act.

(a) the Commission is exercising powers of conciliation in relation to a particular matter; and

(b) all the parties request the Commission to conduct a hearing and make recommendations about particular aspects of the matter on which they are unable to reach agreement (which may be all aspects of the matter); and

(c) the Commission is satisfied that all the parties:

(i) have made a genuine attempt to agree about those aspects of the matter; and

(ii) have agreed to comply with the Commission's recommendations;

the Commission must conduct a hearing and make recommendations about those aspects of the matter."

[3] Mr Endacott appeared for the Construction, Forestry, Mining and Energy Union - the Mining Division (the CFMEU) and Mr B Dudley of Freehills, Solicitors, appeared for Cooks Construction Pty Ltd (the company).

[4] I am satisfied that the parties made a genuine attempt to agree about the question which has been referred to me and that the parties agreed to comply with my recommendation.

[5] I have been asked to answer the following question:

"Is Cook's Construction Pty Limited required to accrue annual leave entitlements for an employee in relation to periods during which the employee does not attend for work but is receiving workers compensation payments?"

[6] The certified Agreement between the parties is the Cook's Construction (Donaldson Mine) - CFMEU Certified Agreement 2003-2006 (the Agreement). The applicable Award is the Coal Mining Industry (Production and Engineering) Consolidated Award 1997 [1] (the Award).

[7] The Agreement is due to expire on 2 February 2006 but, by its terms, continues to apply until a new Agreement is negotiated.

[8] Subclause 14.1.1 of the Agreement is as follows:

"14.1.1 Employees are entitled to five (5) weeks (twenty five (25) days) annual leave for each completed year's service at the Employer which shall accrue at 3.3654 days for each completed week's service".

[9] The terms "completed year's service" and "completed week's service" are not defined in the Agreement.

[10] The company submits that the words of the Agreement are not ambiguous and the answer to the question referred to me is "No". In the alternative the company submits that should I find that the Agreement is ambiguous as to the question referred to me, that the appropriate course is for the CFMEU to make a separate application to remove the ambiguity.

[11] The CFMEU submits that the answer to the question referred to me is "Yes".

[12] The company submits that employees absent from work on workers compensation are not performing "service" for that period and therefore, should not accrue annual leave. This argument is based on a distinction between the use of the term "employment" in the annual leave provision of the Award and the term "service" in a similar provision in the Agreement. The Company contends that the use of different terminology in the Agreement was deliberate and significant, manifesting an intention to override the Award provision in relation to the accrual of annual leave, and to exclude time not spent in "actual service".

[13] In support of this proposition the company referred to a line of cases that it submitted maintained a distinction between the concepts of service and employment in calculating leave entitlements. Mr Dudley directed my attention to F C Bermingham and C J Francis [2] (a decision of the President of the Queensland Industrial Court), Australian Journalist Association v. The Advertiser Newspaper[3], and re Restaurant Keepers Award[4] (a decision of President Westwood of the Tasmanian Industrial Commission).

[14] The CFMEU submits that the operation of subclause 14.1.1, and in particular, the terms "completed year's service" and "completed week's service", provide for the accrual of annual leave entitlements to employees in receipt of workers compensation payments. That is, an employee on workers compensation is in the "service" of the employer.

"(1) Subject to this section, a certified agreement prevails over terms and conditions of employment specified in a State law, State award or State employment agreement, to the extent of any inconsistency.

(2) Provisions in a certified agreement that deal with the following matters operate subject to the provisions of a State law that deals with the matter:

[16] The relevant New South Wales legislation dealing with workers compensation for coal miners is the Workers Compensation Act 1987 (NSW) (the 1987 Act**)** and the Workplace Injury Management and Workers Compensation Act 1998 (NSW) (the 1998 Act). The two Acts (the Workers Compensation Acts) operate in conjunction with one another, with the 1998 Act prevailing to the extent of any inconsistency [5].

[17] An examination of both the 1987 and 1998 Acts reveals that the only specific reference to the applicability of annual leave provisions to employees on workers compensation is s49 of the 1987 Act. It provides:

"49 Weekly compensation payable despite holiday pay etc (cf former s7 (2B))

(1) Compensation is payable under this Division to a worker in respect of any period of incapacity for work even though the worker has received or is entitled to receive in respect of the period any payment, allowance or benefit for holidays , annual holidays or long service leave under any Act (Commonwealth or State), award or industrial agreement under any such Act or contract of employment…. "

[18] Annual leave is provided for in New South Wales by the Annual Holidays Act 1944 (NSW), which provides at s3(1):

"Except as otherwise provided in this Act, every worker shall at the end of each year of the worker's employment by an employer become entitled to an annual holiday on ordinary pay."

[19] It is the unambiguous meaning of "employment" in this provision, which ensures annual leave provisions apply to employees on workers compensation leave in NSW, rather than any express provision in the workers compensation legislation "deeming" time spent on workers compensation as "service".

[20] The workers compensation and annual leave legislation in New South Wales may constitute a legislative scheme which amounts to the "…… provisions of a State law ……" within s170LZ of the Act. However, given my conclusions regarding the meaning and effect of subclause 14.1.1 of the Agreement I do not need to determine that matter.

[21] Cases involving a consideration of s.49 of the 1987 Act and its predecessor, s7(2B), have recognised that the purpose of this provision is to protect an employee's entitlement to both annual leave and workers compensation payments during a period of "incapacity for work" as defined by the Workers Compensation Acts.

[22] In BWIU v Master Builders' Association (NSW) and Anor [6], a case which considered whether or not an employee was entitled to annual leave payments in full for public holidays whilst in receipt of workers compensation payments, Evatt J noted:

"..there should be no reading down of clear and express provisions of an Act [7] by reason of some suggested absurdity or anomaly resulting in what might be called a 'double payment'…Again, s s7(2B) of the NSW Workers' Compensation Act expressly contemplates the prospect of workers' compensation payments being made in addition to award or statutory rights when the contract of employment subsists during any period of incapacity arising from injury."[8]

[23] The effect of s49 of the 1987 Act is that employees on workers compensation leave are prima facie entitled to the ordinary rights and incidentals arising from their employment, on the basis that their "contract of employment subsists" during that time [9]. This is predicated on the right to annual leave being "clear and express".

[24] In the current matter before me the entitlement to annual leave, and the circumstances in which it is accrued under the Agreement, are in dispute.

[25] I have first to consider whether the words of subclause 14.1.1 contain an ambiguity.

[26] Whether there is an ambiguity requiring determination was considered by Gray J in Printing & Kindred Industries Union & another v. Davies Bros Ltd (PKIU) [10]:

"There appears to be no clear test laid down for determining when an ambiguity exists. At one extreme is the statement of Isaacs ACJ in Pickard v. John Heine & Son Ltd [1924] HCA 38; (1924) 35 CLR 1, at 9, where his Honour said, in interpreting an award: 'Personally I see no ambiguity. But as the interpretation I favour was disputed at the Bar, it must be because there is such ambiguity.' At the other extreme is the statement of Viscount Simonds in Kirkness v. John Hudson and Co Ltd [1955] AC 696, at 711-712, with reference to an earlier decision of the House of Lords interpreting a statute:

'In this case Lord Buckmaster was of opinion, as had been at least one of the members of the Court of Appeal, that the first contention of the Crown was right, and that the words of the earlier Act had the meaning they sought to put upon them. The other noble and learned Lords thought otherwise. It would have been easy then to say that, since judicial opinion differed as to the meaning of these words, there was such an ambiguity as to justify recourse to a later Act to resolve it. But the decision of this House was unanimously to the contrary. That means that each one of us has the task of deciding what the relevant words mean. In coming to that decision he will necessarily give great weight to the opinion of others, but if at the end of the day he forms his own clear judgement and does not think that the words are "fairly and equally open to diverse meanings" he is not entitled to say that there is an ambiguity. For him at least there is no ambiguity and on that basis he must decide the case.'

Care must be taken, of course, not to create an ambiguity by bringing into consideration external factors which may be used legitimately to resolve an ambiguity if one exists. If I were to apply the test laid down by Viscount Simonds, I should hold that no ambiguity arises in the present case, because the word 'employees' bears its ordinary, natural and unrestricted meaning in the context of the SEM Agreement and the Newspaper Printing Agreement 1979. On the other hand, if I were to apply the test applied by Isaacs ACJ, I should hold that an ambiguity arises because of the rival contentions of counsel. Perhaps in a case such as this I should hold that an ambiguity does exist, and to see where the application of extrinsic aids to interpretation leads in the construction of the document." [11]

[27] In considering the application of the above cases, the Full Bench in Re Victorian Public Transport Enterprise Agreement 1994 concluded:

"Accordingly the Commission would generally err on the side of finding an ambiguity or uncertainty in circumstances where there are rival contentions advanced before it and an arguable case can be made out for more than one contention." [12]

[28] Whilst there are rival contentions regarding this question before me I do not believe that the ordinary and natural meaning of the words in subclause 14.1.1 contains a relevant ambiguity. The words are not open to diverse meanings.

[29] The interpretation of an Agreement begins with a consideration of the natural and ordinary meaning of its words. The words are to be treated as a whole and in context.

[30] Contrary to the company's submissions the absence of an express provision deeming workers compensation leave as "service" in the Workers Compensation Acts does not necessarily mean that such time is not service or should not be treated as service [13].

[31] There is no doubt that the annual leave entitlement in the Agreement was intended to be different from that in the Award. So much is clear from subclause 14.1.1 of the Agreement, which provides a universal rate of accrual of annual leave, which is directly inconsistent with the roster-based rates provided for in subclause 29.2.1 of the Award.

[32] The company submits the use of the term "completed year's service" in subclause 14.1.1 of the Agreement is significant, arguing it is a term used with deliberation to distinguish this clause from subclause 29.1 of the Award which uses the term "anniversary of that employee's employment". This difference, so the Company argues, demonstrates that subclause 14.1.1 "wholly excludes the operation of the annual leave provisions because it makes provision for annual leave in a manner which is inconsistent with the Award provision. [14]

[33] This distinction is contrived, particularly as these two clauses have different work to do. Clause 29 of the Award is headed "Credit of annual leave" and deals with timing: annual leave is to be credited "on each anniversary of that employee's employment..". In contrast, subclause 14.1.1 of the Agreement deals with quantum of entitlement: annual leave is to be calculated at 5 week's leave "for each completed year's service", and would appear to be overriding the "roster-based" calculations in subclause 29.2.1 of the Award.

[34] I am not persuaded that the failure to include annual leave in the list of unchanged Award clauses in subclause 4.3.4 of the Agreement or the failure to apply an Award plus exceptions approach is significant and indicates an intention to oust the Award. Firstly this is because the Award entitlement was going to be altered in the Agreement in any event as to the method of accrual and secondly because of the operation of subclause 4.3.2 and s170LY(1)(a) of the Act.

[35] The term "completed year of service" as it is used in subclause 14.1.1, appears elsewhere in the Agreement in relation to retrenchment pay. In contrast, the accrual of sick leave in the Agreement is calculated via the "employment anniversary date". The Company submits that this is a deliberate strategy : "there is a clear distinction between the way in which sick leave accrues and the way in which annual leave accrues…Different words are used in the Agreement to reflect the difference in approach, and it is patent that the two concepts are intended to differ".

[36] There is little to support this approach. On the company's rationale, employees on workers compensation leave would accrue sick leave and long service leave, but not annual leave. All are entitlements incidental to the earning of wages under a contract of employment. Short of an express provision indicating otherwise, there is no objective reason why the approach to the accrual of each entitlement should differ and from an operations viewpoint it is inconsistent and impractical.

[37] This is supported by the similarity of approach towards long service and annual leave in the Award. Subclause 36.2.1 of the Award provides that "continuous service" for the purposes of long service leave "is not broken by .. Any absence on account of compensable injury..", thereby ensuring that those on workers compensation leave continue to accrue long service leave. The operation of the Award is such that this also applies to the accrual of annual leave under the Award. There is no express provision in the Agreement to indicate an intention to change this state of affairs, or to distinguish between the definitions of "continuous service" for long service leave, and "service" for annual leave. "Continuous service" is a term used frequently in the Award and it has a clearly understood meaning which is synonymous with continuous employment. There is no indication that the frequently defined phrase with its clearly defined meaning is intended to be used in the Agreement in regard to annual leave with a different meaning. There is no definition of continuous service in the Agreement which supports the company's position.

[38] In these circumstances, and in the absence of any specified exclusion in the Agreement, I am not persuaded that the use of "service" in the Agreement is the product of "careful drafting" designed to ensure annual leave only accrues during periods of "actual service". Service in this context appears to me to mean employment with the difference derived from a re-phrasing of the Award provisions to incorporate the intended changes to the rate of accrual.

[39] Further, the authorities I have reviewed support the proposition that the meaning of "service" is wider than "actual" work, and that periods spent on authorised leave constitute service.

[40] In Automatic Fire Sprinklers and Anor v Watson [15] (Watson), Dixon J examined the connection between service and wages in the contract of employment:

"A contract for the establishment of the relation of master and servant .. is..commonly understood as involving no liability for wages or salary unless earned by service, even though the failure to serve is a consequence of the master's wrongful act… The common understanding of a contract of employment at wages or salary periodically payable is that it is the service that earns the remuneration and even a wrongful discharge from the service means that wages or salary cannot be earned however ready and willing the employee may be to serve and however much he stand by his contract and decline to treat it as discharged by breach" [16].

What amounts to "service" however, is less certain:

" Some difficulty has been felt in saying what is the service which carries wages. The wages are incident to the subsisting relationship of master and servant. A master who sends his servant upon a holiday upon full pay can be sued for wages under the contract although not on a common count for work and labour done. They also serve who only stand and wait. Difficulties too, arise from the fact that a refusal to work on the part of the servant, who neither leaves his master's service nor is discharged, may disentitle him to wages for the period of the refusal. That is for non-fulfilment of the conditions by which wages are earned. But, broadly speaking, it is enough to say that wages are for the service reasonably demanded under a subsisting relationship of master and servant. " [1946] HCA 25; (1946) 72 CLR 435 at 466 per Dixon J

[41] In Watson, an employee's mere readiness to perform his job in the face of the employer's wrongful repudiation was held to not constitute remunerable "service". But Watson should not be treated as establishing the principle that service always requires actual work to be performed. As Jordan CJ pointed out in Watson, that is "……correct only in cases in which, by the contract of employment, the actual doing of work is made a condition precedent to the right of wages" [17] . What may be regarded as "service" therefore depends on what an employee is required to do in order to satisfy their conditions of employment. That may include, as Dixon J notes, "…… those who stand and wait".

[42] This is reflected in other cases which have considered the definition of "service" and its exclusions. "Standing by" or being required to be ready, willing and able to work has been held in circumstances to equate to "work" [18], and therefore, requiring payment. In MacPherson v Metropolitan Board of Water Supply and Sewerage[19] Curlewis J held that an employee at home "on standby" over the weekend is at "work", and entitled to payment for that time. His Honour considered that "work" should be accorded its ordinary and customary meaning, unless there is something in the Award inconsistent with this meaning:

"Now, in my opinion, the ordinary actual meaning of work does include standing-by at the orders of a master or employee for the purpose of being prepared to do duty which the employer requires"(at 54). [20] That is, readiness to "……do duty which the employer requires" is commonly recognised as remunerable within the employment relationship.

[43] Absences from work or active service which have been deemed to be excluded from "continuous service" include those absences where employees were on strike [21]. These exclusions appear to be based on the rationale that unauthorised absences amount to the kind of non-fulfilment of the conditions by which wages are earned, as described in Watson.

[44] Graham v Baker [22] dealt with the common law basis of an employee's entitlement to wages while absent from duty due to illness. Dixon, Kitto and Taylor JJ held that the proper characterisation of the amounts paid to an employee whilst on sick leave were "wages" (at 345). They also noted:

"..we are concerned with a contract pursuant to which, generally speaking, the employee was bound to work for his wages. But the contract contemplates the possibility that circumstances of a defined character may arise and prevent the employee from performing his duties. In those circumstances, he is entitled to absent himself on sick leave and, subject to specified limits, to receive 'full pay' whilst on leave. In our view, the company's contract says no more and no less than that, if he becomes unable by reason of sickness or other specified causes to perform his ordinary duties, nevertheless his right to 'full pay' or, in other words, his ordinary wages, shall continue to be payable, subject to the limits specified , during the period of his absence." 345-346

[45] An employee who is injured and as a consequence is entitled to workers compensation leave, is often required to take part in a rehabilitation regime, which may include an obligation to perform work within their physical capacity. In those cases, the requirements of "service" are modified for the period of workers compensation leave to accommodate the employee's injury. In order to meet these requirements, the employee need only be ready willing and able to perform work to the extent that their injury will allow. Even if the employer has no work within the employee's partial capacity for work, so long as the employee abides by his other statutory obligations under the Acts, they are performing "service" sufficient to entitle them to remuneration and attendant entitlements, including the accrual of annual leave. Such a situation is distinguishable from a worker who is, in some circumstances, absent on leave without pay, unapproved leave or absent on strike or another form of industrial action, as a result of which no obligation to wages would arise.

[46] From a practical perspective, it would follow from the company's argument that employees in receipt of workers compensation who are able to perform some modified duties would be deemed to be providing "service", whereas those who might be more seriously injured and completely incapacitated for work would not. Such a distinction is artificial and should be rejected.

[47] Workers absent on workers compensation leave are workers absent on a special kind of sick leave - one which has additional attendant obligations for the employee and employer. Workers compensation payments and leave are referred to as an entitlement in the Agreement and are in fact legislative entitlements for an injured worker in New South Wales. The company's submission involves a basic misapprehension as to what constitutes service. Even if Mr Dudley's submission on behalf of the company was correct and the use of the word "service" was deliberate, there is no interruption to the provision of service by a worker who accesses his entitlement to workers compensation leave any more than there is an interruption to the provision of service by an employee who is on sick leave or any other authorised leave. Such an employee, on workers compensation leave, is in actual service.

[48] Employees on workers compensation leave are on an "authorised absence" as a result of their injury and, as long as they meet the requirements of the workers compensation regime, they continue to fulfil the conditions by which their wages are earned. The fact that these conditions have been altered by legislation to accommodate their physical incapacity does not detract from the fact that they are performing "service" as it has been defined in Watson. An absence on workers compensation leave is not a failure to serve.

[49] In Bennington and Francis [23] Matthews J said that:

"… 'continuous service' meant service which is given in accordance with the contract of service without interruption and, if the service required was rendered for the requisite period and continued throughout that period it could not be said that there was any relevant interruption of it.

[50] An employee who is absent on workers compensation leave is providing service in accordance with the contract of service and it is service without interruption because the leave on which the employee is absent is properly authorised leave in accordance with the contract of service. The actual performance of work as such is not a condition precedent to the right of wages for employees who are injured in the course of their employment. They are entitled as a result of their injury to payment of their wages and leave as dictated by the Workers Compensation Acts.

[51] The approach to the interpretation of an Award or certified Agreement should take into account its function as a practical instrument. I have considered that function. As Street J said in Geo A Bond & Co Ltd (in liq) v McKenzie [1929] AR(NSW) 498 at 503:

".. it must be remembered that awards are made for the various industries in the light of the customs and working conditions of each industry, and they frequently result…from an agreement between parties, couched in terms intelligible to themselves but often framed without that careful attention to form and draughtsmanship which one expects to find in an Act of Parliament. I think, therefore, in construing an award, one must always be careful to avoid a too literal adherence to the strict technical meaning of words, and must view the matter broadly".

[52] The words of the Agreement are not ambiguous. They are clear, and the answer to the question referred to me is "yes".

[53] If I had been persuaded that the words of the clause were ambiguous my answer would have been the same. Ambiguity may be resolved by reference to the context, history and subject matter of the instrument under consideration and consideration of these matters would in any event have persuaded me that the answer to the question was "yes".

[54] The application of the Agreement in the past, the context of the Agreement, the evidence as to the parties' intentions when forming the Agreement, the conduct of the parties at the certification of the Agreement and the evidence of the parties at the certification before Commissioner Roberts all indicate that there was no intention to alter and reduce the Award entitlements in relation to annual leave.

Printed by authority of the Commonwealth Government Printer

[3] (1982) 3 IR 144

[4] (1998) 78 IR 340

[5] s.2A Workers Compensation Act 1987 (NSW)

[6] (1987) 20 IR 226

[7] In this case, the Annual Holidays Act 1944 (NSW)

[9] See also Amalgamated Footwear and Textile Workers' Union of Australia v Coats Patons Handknittings [1990] Print J2706 5 July 1991 (unreported), where an employee who was on worker's compensation on his rostered day off was held to be entitled to dual compensation

[10] (1986) 18 IR 444 at 449

[11] Applied in Re Victorian Public Transport Enterprise Agreement 1994, Print M2454 7 June 1995 per Ross VP, Polites SDP and Grimshaw C , p.3

[12] Print M2454 p.4. Whilst this conclusion was made in the context of varying agreements for the purpose of removing ambiguity or uncertainty, the cases on which this conclusion was based dealt with resolving ambiguity generally, and therefore, this approach is applicable.

[13] Submissions of Cook's Construction Pty Limited, para. 39

[14] See Submissions of Cook's Construction Pty Limited, para 22

[15] [1946] HCA 25; (1946) 72 CLR 435

[16] [1946] HCA 25; (1946) 72 CLR 435 at 465

[17] (1946) 46 SR (NSW) (in the NSW Court of Appeal) at 342. These conclusions were undisturbed by the decision on appeal - see Latham CJ at 452, Dixon at 465 in [1946] HCA 25; (1946) 72 CLR 435

[18] In these circumstances, "work" can be equated with "service", in that it entitles the employee to receive remuneration, which is the framework used in Watson.

[19] (1922) 52 AR 53

[20] Note that Kinsella J in Tweed District Hospital v Miller (1948) 90 AR(NSW) warned against regarding McPherson as establishing principle of law of general application, but that each case should be decided on its own facts. In Tweed, an engineer required to reside at the hospital and be "on call" 24 hours a day was held to be "on duty" until the completion of his final duty at night, but not for the period overnight when he was "off duty but liable to be recalled to duty".

[21] The Wire Workers Wire Fence and Tubular Workers Union of Australia and Ors v Ryland Bros. (Aust) Lty ltd and Ors (1944) 53 CAR 180, Australian Journalists Association v Advertiser Newspapers Ltd 3 IR 144

[22] [1961] HCA 48; (1961) 106 CLR 340