International or interstate employees – Are they entitled to Long Service leave?

It is a question that comes up more frequently than one might think. That is, if an employee works for the same or a related entity over a number of years in different states and even countries, does all their service count for the purposes of long service leave?

Recent decisions from the full bench of the Federal Court of Australia and the Supreme Court of Victoria Court of Appeal have left many employers scratching their heads as to how long service leave entitlements are calculated when an employee has performed work outside of their home state or territory.

Long Service Leave Entitlements

Employees have an entitlement under the National Employment Standards to accrue and take long service leave when they have worked for the same employer for a specified minimum period of service. Unlike most employee entitlements, which are prescribed by Commonwealth legislation, each state and territory has jurisdiction-specific legislation dealing with long service leave. Very broadly, the following provisions apply in each jurisdiction:

Each of the above Acts also make provisions for an entitlement to pro-rata payment in lieu of long service leave if the employment ends for a particular reason after a minimum threshold period of employment.

While the legislation in each state and territory differs, it is a common feature that “service” for more than one employer may count for the purposes of calculating long service leave entitlements. Service is likely to transfer from one employer to another if the second employer is deemed to be a related body corporate of the first, or may be agreed when the business of one entity is transferred to another.

Similarly, the calculation of “service” for the purposes of long service leave entitlements may include work performed in another state or territory, or even for work performed overseas. The critical factors in determining entitlements under such circumstances formed the key issues in two recent, but conflicting, decisions.

When does overseas service count for long service leave entitlements?

The position in New South Wales was established in the decisions of Australian Timken Pty Ltd v Stone (No 2) [1971] AR (NSW) 246 (“Timken’s case”) and International Computers (Australia) Pty Ltd v Weaving (1981) 2 NSWLR 64 (“Weaving”). In both of these decisions, the employee had worked overseas for periods while employed by a related company, and consequently claimed long service leave entitlements for the entire period of service; while the employer argued that the periods of overseas service did not have a sufficient connection to the employment in New South Wales and should not apply.

In both cases, the employee’s argument was successful. The Court held in Timken’s case “that the benefits provided for in the Act accrue if at the time of the occurrence of the cessation of service, the service which was being performed had a substantial connection with the State of New South Wales”. This approach emphasises the circumstances at the end of employment, and allows for entitlements to accrue even if employment starts overseas and is transferred to the same or a related company in New South Wales at some point in time.

In essence this case found that even of you had for instance spent 10years in London and then arrived in Australia, and left your employment here after one year, all your service would count  and you would be entitled to Long Service Leave.

The Federal Court Decision

The Full Bench of the Federal Court recently applied the decisions of Timken’s case and Weaving to the long service leave entitlements of a Victorian worker in Cummins South Pacific Pty Ltd v Keenan [2020] FCAFC 204 (“Keenan”). In this decision, the employee had performed the following work for the employer or a related body corporate:

• 14 years in the United Kingdom, for a company related to the employer;
• 12 years in Victoria, for the employer;
• Six years in the United States, seconded to work for a company related to the employer; and
• 1.5 years in Victoria, for the employer.

Upon termination, the employee claimed an entitlement under the Long Service Leave Act 1992 (Vic) for the entire period of employment with the employer and the related companies. The employer agreed that the period of secondment would count as service, but argued that the initial period in the United Kingdom had no connection to his subsequent employment in Victoria, and therefore should not count towards his long service leave entitlements. The employee’s argument was preferred at first instance, and the employer appealed the decision.

The Court dismissed the employer’s appeal, referring to Timken’s case and Weaving and observing that the Victorian legislation was not relevantly distinguishable from the NSW legislation in relation to this issue. The Court relevantly held as follows:

“Both [cases] strongly emphasise that whether a “substantial connection” exists, is to be assessed at the time that the liability to provide the long service leave entitlement arises. Those authorities also emphasise that it is the service provided by the employee as a whole, rather than each component of that service assessed individually, that must have a “substantial connection” with the territory.”

This reasoning was not supported by the whole Court, however; with Justice Anastassiou dissenting from the majority decision. His Honour considered that a substantial connection to Victoria could not be found for the period of employment in the United Kingdom, and found that it was “absurd” to interpret the legislation in such a manner that did count this period.

The Victorian Court of Appeal Decision

The question of entitlements accruing during a period of overseas service was again raised in the decision of Infosys Technologies Ltd v State of Victoria [2021] VSCA 219 (“Infosys”). This decision related to two employees who had worked periods of around nine years with related companies of the employer in India and the United Kingdom, before working a period of around two years with the employer in Victoria. A similar argument was pursued by the State, on behalf of the employees, as that put forward in Keenan.

This decision involved an interpretation of the Long Service Leave Act 2018 (Vic) (“2018 Act”), which had superseded the previous legislation that was considered in Keenan. While the 2018 Act made significant amendments with respect to the minimum threshold period, accrual of entitlements on unpaid parental leave, and the periods of leave taken, the provisions regarding “service” with an interstate company remained similar in effect.

In this case, the Court preferred the employer’s argument, and found that the employees did not have an entitlement to long service leave. The Court considered the decision in Keenan to be “plainly wrong”, and that the question of whether there is a “substantial connection” between the employment and Victoria must be asked of each significant period of employment – rather than assessing this only at the time the entitlement is claimed.

Where to now?

Employers must remain mindful of the fact that each state and territory has its own legislation governing long service leave entitlements. The decision in Infosys, has not essentially created different rules for Long Service Leave in Victoria than is currently the case in NSW and other states. This anomaly may have very unfair consequences, as two very similar employees brought to Australia to work form an international company will have different long service leave rights depending on whether they work in NSW or Victoria.

The position established in Timken’s case and Weaving remains the present approach to calculating long service leave entitlements in New South Wales. The emphasis in this jurisdiction is that there is a substantial connection between the employment and New South Wales at the time an entitlement is claimed – and consequently, service in another state or overseas for the same company or a related company is likely to count when calculating long service leave entitlements.

Conversely, the decision in Infosys is likely to be the preferred approach under the new legislation in Victoria. It is likely that each period of employment must be assessed individually, rather than the employment as a whole, and certain periods of employment may not count as service for the purpose of long service leave entitlements if there is not a substantial connection between the employment and Victoria for this period. As such, while an arrangement such as a secondment of a worker who is already employed in Victoria to another state or country is likely to still count towards service as the employment relationship in Victoria continues to exist, there is unlikely to be a connection for any service that has been performed prior to work being performed in Victoria. While the decision of Infosys is very fresh and is not binding on other states and territories, it is possible that other jurisdictions prefer to adopt this approach in the future.

Employers, particularly those that are related to enterprises both interstate and overseas, should consider reviewing their policies surrounding long service leave entitlements to confirm they are consistent with their state’s legislation. Taking a proactive approach in reviewing policies and auditing staff records can significantly reduce the risk of being subject to expensive proceedings in the future.

If you wish to discuss any aspect of this client alert or require specialist advice or assistance in relation to an employment law matter, please do not hesitate to contact us.

This alert is not intended to constitute, and should not be treated as, legal advice.