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Important case dealing with the accrual of annual leave during period of workers compensation leave

There has not been clarity about whether an employee in NSW is entitled to accrue and take annual leave while receiving workers’ compensation benefits.

This is because the Fair Work Act 2009 (Cth) (FW Act) provides that a worker cannot take or accrue annual leave unless permitted by relevant state / territorial workers’ compensation legislation.  Section 130 of the FW Act states:

Restriction on taking or accruing leave or absence while receiving workers’ compensation

(1) An employee is not entitled to take or accrue any leave or absence (whether paid or unpaid) under this Part [referring to the NES] during a period (a compensation period) when the employee is absent from work because of a personal illness, or a personal injury, for which the employee is receiving compensation payable under a law (a compensation law) of the Commonwealth, a State or a Territory that is about workers’ compensation.

(2) Subsection (1) does not prevent an employee from taking or accruing leave during a compensation period if the taking or accruing of the leave is permitted by a compensation law.

(3) Subsection (1) does not prevent an employee from taking unpaid parental leave during a compensation period.

In other words, s.130(1) of the FW Act sets up the general rule, but this rule can be displaced by s.130(2) of the FW Act, which allows employees to take or accrue leave during a period of compensation period if the taking or accruing of the leave is permitted by a relevant workers’ compensation law.

Section 49 of the Workers’ Compensation Act 1987 (NSW) (“the WC Act”) provides as follows:

Weekly compensation payable despite holiday pay etc

(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.

(2) The amount of compensation so payable is the amount which would have been payable to the worker had the worker not received or been entitled to receive in respect of the period any such payment, allowance or benefit.

[Emphasis added]

This section has been interpreted by the Courts to mean that, in circumstances where the employee has already been paid annual leave, and then they are found to be entitled to workers’ compensation payments, the workers’ compensation is still payable in respect of any period of incapacity even though the employee has already received payment by way of annual leave.[1]

Whether a NSW employee is entitled to take or accrue annual leave while on workers’ compensation has until now, remained unclear.  It was open to employers not to approve annual leave during that period and not to accrue annual leave entitlements.

WorkPac Pty Ltd v Bambach [2012] FWAFB 3206 found the workers’ compensation based absence of 12 months counted towards his continuous service period and therefore he was not excluded from the unfair dismissal jurisdiction.  However, s.130 of the FW Act meant that during this continuous period of service the entitlement to accrue and take leave under the NES was “switched off.”

Last week Judge Emmett of the Federal Circuit Court found that NSW employees are entitled to accrue annual leave while receiving workers’ compensation benefits (see NSW Nurses and Midwives’ Association v Anglican Care [2014] FCCA 2580 (11 November 2014)).

Judge Emmett said that while the NSW Act did not create a “right” to receive annual leave payments while on workers’ compensation, it provided the “opportunity” for a worker to receive both benefits.

“In that sense, on a beneficial construction, s.49 permits receipt of those payments by the worker.  The FW Act provides to the worker the benefit of the accrual of annual leave”.

This means that until the case is successfully appealed, employees on workers’ compensation benefits in NSW will accrue annual leave entitlements.  This will significantly increase the costs of employers who have employees on long term workers’ compensation claims.

Judge Emmett’s decision may also be impacted by the Coalition’s Fair Work Amendment Bill.  The House of Representatives passed the Bill on August 27 2014.  It provides that employees do not accrue annual leave while on workers’ compensation.  The Bill has not yet been debated by the Senate.

Our recommendation:  Until Judge Emmett’s decision is dealt with on appeal or by law, employers must now accrue annual leave for workers’ on workers’ compensation benefits.  If employers are having rounds of redundancies that impact workers’ on workers’ compensation benefits, they will need to add annual leave accruals into their calculations.

Watch this space as we will let you know of new developments.

[1] Milburn v Veolia Environmental Services (Australia) Pty Ltd [2012] NSWWCCPD 26 (23 May 2012)