Does annual leave accrue when an employee is on workers’ compensation?

Each employment relationship is different, and may be subject to multiple pieces of legislation and other industrial instruments that interact with each other. Finding answers to very specific employment law questions is not always an easy task, and the laws in this area are dynamic. Care needs to be taken as even seemingly simple questions can lead to surprising outcomes. Anglican Care recently learnt this the hard way.

1. What is the law?
The Fair Work Act 2009 provides the following:
S 130(1) – Restriction on taking or accruing leave or absence while receiving workers’ compensation:
“an employee is not entitled to take or accrue any [annual] leave or absence (whether paid or unpaid) under this Part during a period (a compensation period) when the employee is absent from work because of personal illness, or 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.”

In NSW, that “compensation law” is the Workers Compensation Act 1987, and, until recently, it was considered by most practitioners that the NSW Act did not permit the accrual of annual leave whilst on workers’ compensation. However, the recent Federal Circuit Court decision of NSW Nurses and Midwives’ Association v Anglican Care [2014] found that employees who are on workers’ compensation leave in NSW are entitled to accrue annual leave. This decision has caused many annual leave balances to be adjusted upwards – in some cases by a very significant degree.
Typically employers will take out workers’ compensation insurance which, once all paid sick leave has been exhausted, will cover the remaining time taken. Employers now need to be mindful that these periods of workers’ compensation do, in fact, come with a cost in the form of annual leave accrual. Importantly, this can cause a significant increase in termination pay outs for those employees who have had lengthy absences on workers’ compensation. Where a Modern Award provides for annual leave loading to be paid out open termination, the cost of such accruals to employers can increase by 17.5%.

2. Watch this space
With each new government, industrial relations are placed under a new spotlight – and the Abbott government is no exception.
The Coalition’s Fair Work Amendment Bill 2014, which was passed by the House of Representatives on 27 August 2014, includes an amendment that prevents employees from accruing annual leave whilst receiving workers’ compensation. Consequently, if the Senate passes the Amendment Bill then the effect of the decision in NSW Nurses and Midwives Association v Anglican Care will be reversed, and many employers with long-term workers compensation recipients can breathe a sigh of relief.
In the interim, employers in NSW should be aware that, when employees are on compensation leave, their annual leave continues to accrue.

3. Further advice and guidance
Employment law is a complex field that is constantly subject to change. Entitlements can be given or taken away, often without proper notice to the general public, and employers can be caught out even when they have previously had good advice on their obligations.
Danny King Legal is an employment law firm, and we frequently advise clients on all aspects of the complex relationship and recruiting obligations between employers and employees. Get in touch to discuss your situation, get advice on how to get the most out of your investment in wages, and minimise your exposure to employee claims.