Accrued Leave Must Be Paid on Termination Day, Federal Court Rules

A recent Federal Court decision has clarified the timing for paying out accrued leave upon employee termination, resulting in a $17,000 fine for an employer who delayed this payment. This ruling sets a crucial precedent for employers.

The case involved an employee who received their accrued annual leave payment three months after termination.

The Federal Court found this delay violated section 90(2) of the Fair Work Act (FW Act), which mandates that accrued but untaken annual leave must be paid on the termination day. The employer was fined $17,000, approximately 25% of the maximum penalty, and an additional $10,000 in general damages was awarded to the employee for the financial distress caused by the delay.

Ignorance of the Law is No Excuse

The employer argued that the delay was due to limited knowledge of Australian employment law and concerns about the accuracy of leave records. However, the Court emphasized that all employers must understand their obligations under the FW Act, and ignorance is not a valid excuse.

The Court stressed the importance of employers taking steps to verify entitlements and seek expert advice if uncertain.

Legal Implications

This decision aligns with another Federal Court ruling on the timing of notice payments upon termination. The Court held that under section 117(2)(b) of the FW Act, payment in lieu of notice must be made before the dismissal takes effect.

This ruling clarifies that notice payments must not occur after the employment end date to be considered lawful.

These decisions are significant as they are likely to serve as binding authorities for junior courts, such as the Federal Circuit and Family Court of Australia, where most termination entitlement disputes are heard. It is also probable that redundancy payments will follow the same reasoning.

Ensuring Compliance

Terminating an employee is a challenging process that requires a thorough understanding of obligations under the FW Act and any applicable awards or agreements.

Non-compliance can result in penalties.

Employers must practice procedural fairness, provide written notice of termination, and ensure all owed entitlements, including outstanding wages, notice, accrued annual leave, long service leave, and redundancy pay, are paid on the termination day.

Key Takeaway

Employers must be diligent in understanding and fulfilling their legal obligations regarding termination entitlements to avoid penalties and ensure compliance with the FW Act.