A Full Bench of the Fair Work Commission has ruled that provisions dealing with the transfer of employment and service for annual leave purposes which are contained in 11 Australian modern awards must be amended because the provisions are inconsistent with the National Employment Standards (NES) contained in the Fair Work Act 2009.

The decision was handed down as part of the Full Bench’s review of modern award terms which are inconsistent with the NES, as part of the Commission’s 4 yearly modern award review process.

Generally, where there is a “transfer of business” between two companies (that is, a transfer of employees in association with, for example, a transfer of assets or an outsourcing), the period of service of the employees with the old employer will be deemed by the Fair Work Act to count as service with the new employer.

However, section 91 of the Fair Work Act (which forms part of the NES) provides that the new employer may decide not to recognise service for the purpose of annual leave entitlements – that is, choose not to accept the employees’ accrued annual leave balances – provided that the old employer and new employer are non-associated companies.

Despite this, the Full Bench noted, a number of modern awards contain provisions which automatically deem a transferring employee’s service with the first employer to be service with the second employer for the purposes of annual leave entitlements – that is, they provide that the second employer cannot choose whether or not to accept the accrued annual leave balances of the transferring employees.

For example, the Full Bench cited clause 34.10 of the Food, Beverage and Tobacco Manufacturing Award 2010, which provides:

“34.10 Transfer of business

Where a business is transferred from one employer to another, the period of continuous service that an employee had with the old employer must be deemed to be service with the new employer and taken into account when calculating annual leave. However an employee is not entitled to leave or payment instead for any period in respect of which leave has been taken or paid for.”

Similar provisions are contained in other major awards, such as the Airport Employees Award 2010, the Manufacturing and Associated Industries and Occupations Award 2010, the Timber Industry Award 2010 and the Wine Industry Award 2010.

These provisions, the Full Bench ruled, are inconsistent with section 91 of the NES as they require an employer to accept accrued annual leave balances of transferring employees, even where the two companies are non-associated companies.

As such, the relevant modern awards must be rewritten to remove the inconsistent provisions.

The Commission will publish draft variations to the 11 awards, and provide the industry bodies and unions who are parties to the case 14 days to comment on the proposed variations.