Annual Leave accrues while on WorkCover

Key points

• Precedent established in Victoria
• Injured workers now accrue annual leave while off work and receiving WorkCover weekly payments
• Potential for major cost implications for employers
• Retrospective claims could go back as far as 2009

The way it was

For many years, the answer to the question of whether employees receiving workers compensation should accrue annual leave was ‘no’. WorkSafe generally deferred the topic to the Fair Work Commission. And section 130 of the Fair Work Act 2009 (Cth) says an employee on workers compensation is not entitled to take or accrue annual leave unless it is permitted by a compensation law. The Victorian WorkCover legislation says nothing about an employee’s entitlement to accrue annual leave. The absence of a reference to such an entitlement in the WorkCover legislation was interpreted as meaning it is not ‘permitted’.

It was commonplace that employees would accrue annual leave when they worked (even when on light duties) but would not when receiving WorkCover benefits. For example, a full-time employee who had returned to light duties working two full days per week (and receiving compensation payments to replace the other three days’ lost wages), would only accrue annual leave on the two days they worked.

What happened in NSW

In 2015 the Federal Court ruled that an employee who had been off work on workers compensation for two years was entitled to accrue annual leave during this period of absence. They further ruled that the leave was to be paid out upon her termination from employment. The court found that ‘…the word “permitted” in s 130(2) of the FW Act should be construed in the sense of not prevented, prohibited or restrained’.

So, since the workers compensation legislation did not expressly prohibit the accrual of annual leave, it was therefore permitted. And, according to the FW Act, if it’s permitted, then the employee is entitled to it.

The end result was that injured workers in NSW now accrue annual leave while on workers compensation benefits.

Precedent in Victoria

Considering the FW Act is Commonwealth legislation, the above case led many commentators to speculate on how this case would affect other states. But, as workers compensation legislation varies by state, there would need to be a precedent set in Victorian courts before any major change would be observed.

In September 2017 two separate cases were heard by the Fair Work Commission (which you can find here and here). The situations were similar to the NSW case but both WorkCover claims arose in Victoria, paving the way for a precedent here. The conclusions in both cases stated that the employees were ‘permitted to take or accrue annual leave whilst in receipt of workers compensation payments’. Both employers were required to accrue annual leave entitlements for the periods their respective employees were in receipt of workers compensation.

On the question of whether annual leave accumulates during workers compensation in Victoria, the Fair Work Ombudsman’s website now states ‘Yes. Annual leave accumulates during workers compensation’.

What about other types of leave?

Sick leave accrual

According to the Fair Work Ombudsman, sick leave does not accrue while on workers compensation.

The taking of sick or annual leave

The same page referenced above states that annual leave can be taken (even paid on top of the workers compensation benefits) but sick leave cannot be taken while on workers compensation.

Long service leave

Long service leave continues to accrue while on workers compensation. An absence from work due to a workplace injury is not considered to have broken continuous employment as per information published by the Victorian government.

Implications for employers

Calculating entitlements

Victorian employers must accrue annual leave for employees if they are still employed, have an accepted WorkCover claim, and are receiving WorkCover weekly compensation payments.

Retrospective claims

The cost implications for employers could be monumental. Some employers may experience an influx of queries from employees (or even ex-employees) who were previously injured seeking a review of their leave balance or termination payment. Injury compensation law firms may view this as a new revenue stream.

Timing for decisions to terminate employment

This entitlement to annual leave accrual raises the future costs attached to injured employees. Previously, many employers were in no hurry to end the employment of their long-term injured workers – even when they had surpassed the employer’s 52-week obligation period. But now, for every 3 months an injured worker remains on the books as an employee, the employer must budget for an extra week’s termination payment in the form of accrued annual leave. This raises the urgency for employers to make timely decisions regarding terminations of employment and could correlate with more injured workers losing their jobs than before.

Additional questions

This precedent naturally raises a number of questions for employers. But it’s possible the answers will remain unclear until a further precedent is established by the Fair Work Commission or WorkSafe Victoria. I put some questions to the Fair Work Ombudsman and can report back to you the following:

• How will this ruling be applied retrospectively? The view of the relevant provisions of the Fair Work Act 2009 has been applicable since the Act’s commencement. The Act took effect on 1 July 2009. This suggests to me that a worker could theoretically claim retrospective accrual back to this date.
• If an employee receives WorkCover benefits at a reduced rate (eg. 80% of their pre-injury earnings), at what rate do they accrue annual leave? The Fair Work Ombudsman told me ‘an employee’s entitlement to annual leave accrues progressively during a year of service according to the employee’s ordinary hours of work. There is no linkage between rate of workers compensation payments and rate of accrual of annual leave under the NES’. I see this as meaning that if a worker receives WorkCover benefits at the normal rate (eg. 80%), their annual leave should accrue at the normal rate (eg. 4 weeks per year).
• Is the Fair Work Ombudsman accountable for the additional liability created by this precedent considering it is in contrast to their advice over the last 9 years? Taking responsibility for oversight of a complex and ever-changing area is a daunting commitment to say the least. The Fair Work Ombudsman has addressed with this in their Customer Service Charter, specifically under point 5 ‘Accountability’ which reads follows:

If the FWO provides incorrect advice about minimum wages or conditions of employment, and that advice is relied on and followed in good faith, the FWO:

• will not pursue a penalty for not paying the correct entitlements before the person is advised of the mistake
• will assist in any dispute to resolve concerns about outstanding entitlements
• may require that outstanding entitlements be paid and that correct entitlements are paid once the incorrect advice is identified
• will accept legal liability for incorrect advice in accordance with the law.