Leave unraveled: the fly-in, fly-out challenge in leave accrual

Leave entitlements can be deceptively complex. Although the average employee is well aware of their entitlement to four or five weeks off each year for annual leave, and 10 days for personal leave, operationalising that entitlement in a payroll system in the form of leave accruals can cause a headache for employers.

Since the High Court’s 2020 decision in Mondelez Australia Pty Ltd v AMWU^[1], there has been some relief. It is now clear that a ‘day’ or a ‘week’ of leave is calculated by reference to the employee’s ordinary hours of work, as defined in the relevant industrial instrument. However, determining those ordinary hours is not always straightforward, particularly when they are worked according to a work cycle comprising of on- and off-swing periods. Getting it right is particularly critical for employers given the significant penalties (now including the threat of criminal sanction) that can attach to contraventions of industrial instruments and the National Employment Standards (NES).

The Federal Court recently grappled with this issue in relation to FIFO employees on the Iron Bridge Project in CEPU v SIMPEC Pty Ltd [2025] FCA 470. Under the terms of the relevant enterprise agreement, Justice Colvin found annual leave and personal leave accrued on ordinary hours worked during the on-swing, but not during the off-swing. This was on the basis that the enterprise agreement authorised SIMPEC to treat the off-swing as unpaid authorised leave, which does not count towards a period of service under the Fair Work Act 2009 (Cth) (FW Act), and therefore does not accrue leave entitlements.

Key takeaways

• The arrangement is permitted by the NES. The R&R clause of the SIMPEC Pty Ltd Agreement 2019 deemed that off-swing period was ‘authorised unpaid leave’. In accordance with the FW Act, such leave is an ‘excluded period’ and does not count towards a period of service. Since annual leave accrues progressively during a ‘year of service’, it could not accrue during the period of unpaid authorised leave (the off-swing).
• The terms of the Agreement are relevant. In the absence of the R&R clause, there was no power for SIMPEC to treat the off-swing period as unpaid authorised leave. Subject to the employee working ordinary hours in accordance with the enterprise agreement during the off-swing period, leave entitlements would continue to accrue.  
• No blanket approach. The decision in SIMPEC is specific to the terms of the Agreement. Employers should review the terms of the relevant agreement to determine the ordinary hours of employees on work cycles and how off-swing periods can be treated for the purpose of continuous service. Ensuring enterprise agreements clearly define ‘Ordinary Hours’ and use the term consistently is helpful to ensure obligations are understood within the organisation.
• Implications for bargaining. Although Justice Colvin found the arrangement was legally permissible, he expressed concern that the practical effect was that full-time employees would accrue the same annual leave and personal leave entitlements of part-time employees who were working 75% of the ordinary hours of a full-time employee. In particular, he was concerned ‘all of this was possible without any terms of the [Agreement] expressly exposing that consequence to the employees’. Inclusion of similar terms in enterprise agreements are likely to be subject to scrutiny and care should be taken to ensure they are adequately explained to employees during the access period.

Background

The Union brought proceedings alleging that certain SIMPEC employees had not been afforded their full leave entitlements under the Agreement. The relevant employees were communications technicians and electricians employed full-time on a fly-in, fly-out basis (FIFO Employees).

Under the Agreement, full-time employees were entitled to work 38 ordinary hours per week. Accordingly, the FIFO Employees were entitled to be compensated for 152 ordinary hours during the four-week roster cycle. However, this was modified by the R&R clause in the Agreement. This provided that where an employee was working a ‘system of work’ in the form of a roster cycle, the cycle would include a period of Rest and Recreation Leave, usually consisting of unpaid authorised leave, RDOs and any paid leave. In order to meet the 38 ordinary hour entitlement, the FIFO Employees ‘worked’ 38 ordinary hours during the off-swing period, which was deemed unpaid authorised leave. 

Accordingly, SIMPEC’s practice was for annual leave and personal leave to accrue only during the on-swing period. Although the FIFO Employees worked in excess of 152 hours during that period, their annual leave and personal leave entitlements were calculated on the basis that they worked 114 ordinary hours in each on-swing (38 hours each week for three weeks). Significantly, any hours worked in excess of the 114 ordinary hours were paid at the overtime rate under the Agreement.

The union alleged that on the proper construction of the Agreement, the leave entitlements should be calculated on the basis of 152 ordinary hours per swing. This was because the FIFO Employees were engaged on a full-time basis, working a roster which compressed the four weeks of ordinary hours for a full-time employee into the three weeks of the on-swing, and should therefore be entitled to the same annual leave and personal leave entitlements as regular full-time employees. The union sought declaratory relief, compensation and pecuniary penalties.

Decision and reasoning

Justice Colvin ruled in favour of SIMPEC, finding that the exclusion of the off-swing hours from the calculation of leave entitlements was a course expressly authorised by the R&R provisions of the Agreement.

Pursuant to the FW Act, annual leave and personal leave accrue progressively during a ‘year of service’ according to the employee’s ordinary hours of work. Section 22 of the FW Act sets out that a year of service does not include any ‘excluded period’ which relevantly includes any period of unpaid leave or unpaid authorised absence. While these excluded periods do not break continuous service, they do not count towards the length of service.

On this basis, Justice Colvin found the ordinary hours that would otherwise have been worked in the off-swing period did not count towards the accrual of annual leave or personal leave because they were deemed an unpaid authorised absence. By contrast, periods of annual leave and personal leave are not ‘excluded periods’ for the purpose of the FW Act, and so will count towards the accrual of further annual leave and personal leave.

If no such clause appeared in the Agreement, or if the employer had not ‘exercised’ its rights to treat the off-swing as unpaid authorised leave, the FIFO Employees would have been entitled to continue accruing annual and personal leave during their off-swings because they could not have been made to take unpaid authorised leave. Of course, the leave would only accrue if the employees actually worked ordinary hours during the off-swing period. In the absence of the R&R clause, the FIFO Employees would have been entitled to work 38 hours per week, making cycle work impermissible under the Agreement. This indicated the intention of the R&R clause was to make cycle work permissible under the Agreement, lending weight to SIMPEC’s interpretation.

Justice Colvin also observed the interpretation contended for by the union could not be correct because the Agreement did not permit the allocation of 152 ordinary hours in the 21 days on-swing. The Agreement was prescriptive as to the span (6 am – 6 pm) and amount (8 hours per day) of hours that ordinary hours could be performed in. Any hours performed outside of the span or in excess of the limit were to be paid at overtime rates. If the union’s interpretation were adopted, it would in effect allow the same hours to be counted as both ordinary hours and overtime hours.

Because SIMPEC had exercised the right in the R&R clause to stipulate that the off-swing was a period of unpaid authorised leave, annual leave and personal leave would not accrue during that period. Although the employees would not accrue a year of leave entitlements under the NES (because they had not completed a period of service of 12 months), in return, they were paid many more hours at overtime rates than if they had worked the ordinary hours under the Agreement. Accordingly, the application was dismissed.

Other recent consideration of leave issue for FIFO employees

Managing the operational disruption that arises during annual leave absences can be difficult, particularly for small and specialised workforces with limited or no ability to ‘flex’. Employers have sought to mitigate such disruption by providing for the automatic acquittal of annual leave during off-swing periods under the terms of enterprise agreements. This arrangement provides operational efficiencies to support continuous operations, particular in the maritime and energy & resources industries.

The authorities have taken different approaches to the question of whether these arrangements are permissible under the FW Act. There are two key issues in this respect:

1. whether the arrangement offends the entitlement of an employee to agree to take a period of paid leave in section 88 of the FW Act; and
2. whether the requirement to take annual leave is reasonable in accordance with section 93(3) of the FW Act. 

We canvass key developments below.

HNZ Australia: No agreement to take leave

In AFAP v HNZ Australia Pty Ltd,^[2] the Full Bench of the Fair Work Commission considered a clause under an enterprise agreement which provided FIFO pilots working an equal time roster would acquit their annual leave during each off-swing. The Full Bench considered whether the clause offended section 88 of the FW Act, which provides:

1. paid leave may be taken for a period agreed between an employee and their employer; and
2. an employer must not unreasonably refuse to agree to a request by an employee to take paid annual leave. 

The Full Bench found that the clause did offend the section because it had the effect of denying the pilots the opportunity to reach an agreement with their employer about when annual leave may be taken and the duration of leave. Because the clause was detrimental to the employees compared to the NES, it was not permitted by section 55(4) of the FW Act and was of no effect. Further, the Full Bench found that the requirement was unreasonable because it compelled the pilot to take annual leave on touring days off without any regard to the personal needs of the employee. In particular, it was unreasonable to require an employee to take leave on days on which they would not otherwise be working.

Surveillance Australia: Whether an employee can ‘agree’ to take leave under a contract

The Full Bench reached a different view in Surveillance Australia Pty Ltd v AFAP,^[3] albeit in a slightly different context. The dispute related to rostering terms set out in employment contracts with the FIFO pilots. The contract sought to explain to the FIFO pilots how the provisions of the enterprise agreement applied to their employment. Relevantly, it provided annual leave entitlements would be acquitted during off-duty periods.

The Full Bench found the term to be consistent with section 88 because it involved an agreement between the employee and employer about when leave would be taken. In making this finding, it observed that the annual leave provisions of the NES attempt to balance the entitlement to take annual leave against the business, operational and organisational needs of the employer by permitting reasonable refusals. Although the term resulted in a loss of flexibility to choose the time, duration or banking of annual leave, it did not mean the benefit of the NES had been lost or diminished because nothing in the term prohibited the employee from requesting a period of paid annual leave other than during the off-swing.  

WA Industrial Magistrates Court: Reasonableness of the requirement to take leave

There have been a series of decisions in the Western Australian Industrial Magistrates Court which have upheld annual leave acquittal practices. Two of the decisions concerned an annual leave acquittal clause in an enterprise agreement,^[4] with the third concerning a similar provision under the Hydrocarbons Industry (Upstream) Award 2010.^[5] In each of these cases, it was found that the employees had agreed to the arrangement in accordance with section 88 of the FW Act, including by their conduct. Accordingly, the issue was whether the requirement to take leave in the off-duty period was reasonable.

The practice was upheld in each of the cases. The factors weighing in favour of reasonableness included:

1. the prevalence of such arrangements in the industry and the practicalities of the industrial context;
2. the union had bargained for many enterprise agreements in which such arrangements appear without complaints;
3. the employee’s off-duty period exceeded the time off that would ordinarily be provided by the period of annual leave;
4. the employee’s own evidence that they were well-rested due to their off-duty period, indicating the arrangement met the requirement for rest while on pay; and
5. there was flexibility under the agreements if the employee wished to take extended annual leave outside of the off-duty period.

Watch this space

Although the Industrial Magistrates Court’s decisions are decisions of an inferior court, they show encouraging signs. They indicate the court is willing to uphold annual leave acquittal clauses where it is clear that FIFO employees receive sufficient breaks from duty, in keeping with the purpose of annual leave entitlements.

To solidify annual leave acquittal clauses, we recommend:

1. including wording in contracts and, where appropriate, enterprise agreements to the effect that the employee acknowledges and agrees to acquit their annual leave during their off-swing;
2. ensuring this is reflected in business practices, such as annual leave records on pay slips and the rostering of annual leave;
3. providing flexibility for employees to take annual leave during their on-swing, depending on personal and business circumstances; and
4. ensuring, overall, employees receive sufficient time to rest and recuperate during their off-swing.