Long Service leave – is it time for harmonization?

In the current long service leave framework, inconsistencies regarding entitlements can cause frustration for employers and employees, particularly when entitlements differ in the same workplace. | 13 Sep 2013 11:30 AM
The introduction of long service began during colonial times offering public servants in Australia the opportunity to return to England after an extended period of service. Currently all national system employees hold entitlements (providing they remain employed for the relevant period) via the National Employment Standards (NES) in the Fair Work Act.
However inconsistencies with the current framework can cause tension between employers and employees, particularly when entitlements differ in the workplace. The major challenge employers face is establishing which point of reference provides for an employee’s entitlements to long service leave. The NES provides the direction as to where the entitlements will derive from in different instances. This may include:
  • State / territory based legislation (which is distinctly different in each state)
  • An enterprise agreement
  • A pre-reform award
  • A pre-reform Australian Workplace Agreement (AWA)
Each of the above can (and do) have distinctly different entitlements and conditions. To further complicate the matter, there are also certain industry funds, which cover employees working in a specific industry. As such, the process of determining the required period of service, the amount of leave an employee is entitled to and the value of the leave can be a very complex and challenging task.
The most common point of reference to apply is state legislation; however employers must first check that no other applicable instrument contains long service leave provisions. State legislation may be viewed as a ‘default’ or ‘safety net’.
The next most common is preserved entitlements from a pre-reform award (created before 2010). The difficulty with these is that for aspects such as long service leave, they effectively continue to exist alongside the ‘modern awards’, implemented in 2010. Under the provisions of the Fair Work Act, modern awards cannot contain long service leave provisions. This creates further confusion for employers who may inadvertently look to the current (modern) award, underpinned by the ‘default’ state legislation as the ‘complete reference for these kinds of entitlements, which would have been the case in the past.
An additional challenge facing employers is that more than one set of entitlements can apply in the one workplace. An employee may be entitled to take long service leave after 15 years while a colleague in a different department may be entitled to take it after only 10 years causing confusion, conflict and frustration for employees and management.
The interaction with severance pay entitlements in the NES is also worth noting. The NES contains a table outlining an employee’s entitlement to severance pay in the event they are made redundant. This extends to up to 16 weeks of pay depending on the years of continuous service reached. An anomaly created by historical conditions, is that these entitlements peak at nine years of continuous service, at which point an employee is entitled to 16 weeks of severance pay. After this point, when the employee has been employed for 10 years or more, the entitlement drops back to 12 weeks of severance.
Historically, this reduction was created because under most entitlements, an employee would have become entitled to be paid out their long service leave after 10 years of service. This would increase the overall quantum paid out at the time of redundancy. However, with some entitlements being amended, others no long applicable and new ones being introduced, this scale can produce inconsistent outcomes (it is not uncommon for employees to be better off being made redundant after eight or nine years than if they were made redundant after 10 or 11 years).
There are also differing outcomes under complex transfer of business rules for employers taking on staff after the purchase of a business. These relate to when and how the prior service with the first employer will be treated. Another grey area for employers, for which there is little guidance from case law, is how to properly treat service that commence outside of Australia or, in some cases, work undertaken in different states.
Many employment laws are experiencing a period of continuing reform including the introduction of the Fair Work Act in 2009, the consolidation of awards into a federal ‘modern award’ system in 2010 and the current attempts to harmonise health and safety legislation into a national standard. While amending and expanding the NES to provide one unified long service leave entitlement would probably assist the many businesses working across state boarders, it comes with the risk of increased costs for business because of the inevitable concerns about reducing employee entitlements. The experience of award modernisation has been that harmonizing employee entitlements invariably leads to the highest common dominator being adopted as the new minimum entitlement.
If you requite any further information on Long Service leave entitlements or assistance with human resources activities, please do not hesitate to contact the Access HR team, we are always happy to hear from you.
Source: Business Excellence Magazine, Autumn 2013