Australia: Federal Court resolves long-running uncertainty over annual leave payments on termination

In Centennial Northern Mining Services Pty Ltd v Construction, Forestry, Mining & Energy Union (No. 2) [2015] FCA 136 (27 February 2015), the Federal Court determined that annual leave payable on termination of employment must be paid at the rate equivalent to the amount the employee would have been paid if they had taken annual leave during their employment. This means that, where applicable, payments such as annual leave loading should be included in termination pay calculations.


This decision resolves a number of years of uncertainty about the operation of the provision in the National Employment Standards (NES) concerning annual leave payments on termination. Since at least December 2010, the Fair Work Ombudsman (FWO) has publicly taken the view that accrued but untaken annual leave needed to be paid out at the higher rate. A legislative amendment to deal with this issue, in order to allow annual leave to be paid at an employee's base rate of pay, was recommended by the former Labor Government's Fair Work Act Review in 2012. However, subsequent legislation introduced by Labor before it lost office did not implement this recommendation.

The Federal Court ruling in Centennial delivers an employee-friendly outcome, finding in favour of the interpretation supported by unions and the view of the FWO. This outcome is likely to increase termination payments payable to employees in a number of industries. Importantly, there are 29 modern awards in operation which either explicitly or implicitly provide that annual leave will be paid out at the lower rate - provisions that are now inconsistent with the Federal Court's interpretation of the NES.


The first technical question to be determined by the Court concerned the operation of section 90 of the Fair Work Act 2009 (FW Act), which states:

"90. Payment for Annual Leave

If, in accordance with this Division, an employee takes a period of paid annual leave, the employer must pay the employee at the employee's base rate of pay for the employee's ordinary hours of work in the period.

If, when the employment of an employee ends, the employee has a period of untaken paid annual leave, the employer must pay the employee the amount that would have been payable to the employee had the employee taken that period of leave."

(our emphasis)

In many industries, annual leave is paid at a rate higher than the employee's base rate and therefore more favourably than the section 90(1) NES standard. The question was whether section 90(2) only operated in relation to the minimum base rate of pay required to be paid under section 90(1), or whether it had broader application and meant that payment on termination had to be at any higher rate applicable to leave taken during employment.

Centennial applied to the Court seeking a declaration that its enterprise agreement (EA), which provided for payment on termination for untaken annual leave at an employee's ordinary weekly rate of pay, was consistent with the NES (and therefore not in breach of section 55 of the FW Act). The rate at which annual leave was paid when taken during employment under the EA was higher than the ordinary weekly rate of pay (reflecting the inclusion of a 20% annual leave loading, or rostered overtime, shift and weekend penalty payments).

In dealing with the application, the Court referred to the Explanatory Memorandum (EM) to the Fair Work Bill 2008 and, in particular, the statement that payment under subsection 90(2) "will be equivalent to the amount that the employee would have been paid if the employee had taken the annual leave". Justice Buchanan found that this statement in the EM:

... lends support to the argument that s 90(2) (unlike s 90(1)) is not confined to a statement of minimal obligation, but is a statement to the effect that an employee should not suffer a reduction in the value of unpaid annual leave if employment comes to an end while paid annual leave remains untaken.1

The effect of this finding was that the EA provision for payment out of annual leave at the lower rate had no effect because it was inconsistent with the NES.


The decision in Centennial also dealt with a second area of uncertainty, namely an EA provision restricting retrenchment pay based on what an employee would have received had they remained in employment until the age of 60 years. Centennial's EA clause reflected an historic standard that, in the context of the coal industry, dated back to earlier awards made in the 1980s.

The Court found that this restriction would have a dramatically different effect on a long serving employee retrenched at age 60 or over, as compared to someone retrenched at less than that age. That disadvantageous effect was produced as a result of the employee's age and, therefore, the clause was discriminatory and (on that basis) an unlawful term under section 195 of the FW Act.


The annual leave aspect of the Centennial decision could be addressed if a proposed amendment currently before Parliament is passed. The Abbott Government's Fair Work Amendment Bill includes a provision seeking to implement the recommendation of the 2012 Fair Work Act Review referred to above.

In the meantime, the decision will have a significant impact on termination costs in a number of industries. Recommended steps to respond to these impacts include:

  • Review enterprise agreements in relation to the payment of annual leave upon termination, and confirm whether those provisions are consistent with the Federal Court's interpretation of section 90(2). If not, any such agreement provisions are unenforceable and termination payments should instead be made in accordance with the FW Act.
  • Review termination pay calculations to ensure that accrued but untaken annual leave is paid to employees on the same basis as if they took the leave.
  • In the negotiation of new enterprise agreements, consider including language that can pick up any legislative changes that may have the effect of permitting annual leave to be paid at a lower rate.
  • Review agreements for any potentially discriminatory clauses relating to the basis on which retrenchment payments are to be made.


1[2015] FCA 136 at [34].

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Most awarded firm and Australian deal of the year
Australasian Legal Business Awards
Employer of Choice for Women
Equal Opportunity for Women
in the Workplace (EOWA)

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions