The long and the short of it: Victorian Government announces new long service leave legislative scheme

On 23 August 2017, the Victorian Minister for Industrial Relations introduced to the Victorian Parliament the Long Service Leave Bill 2017. The Bill will repeal the current Long Service Leave Act 1992 and replace it with a new Act.

It is likely to be passed before the end of the year and once passed, while the rate of accrual is unchanged, it will introduce some significant changes to most other aspects of LSL, impacting on Victorian employers, who should be aware of the proposed changes to ensure compliance if the Bill becomes law.

Reducing the minimum leave to be taken

Under the current scheme, long service leave must be taken in one period, although the first 13 weeks may be split into two or three separate periods, and any further leave may be split into two separate periods. Under the new Bill, an employee may take a minimum of one day long service leave (much like annual leave).

Allowing leave to be taken after seven years

The current Act gives employees a pro rata entitlement upon termination to long service leave after the employee has completed seven years' continuous service with their employer. However, during employment the employee cannot access this leave until they reach 10 years' continuous service.

Under the new scheme, an employee may take long service leave after seven years' service, and an employer may only refuse the request on reasonable business grounds. The new rules will apply to leave that has accrued prior to when the Bill is passed (so for example, an employee who commenced employment in January 2012 and has had continuous service since then would be entitled to take long service leave in January 2019).

Expanding transmission of long service leave entitlements

Currently, when a business is sold or its assets are transferred to a different business and the second business continues the employment of an employee, the incoming business takes on responsibility for a transferring employee's long service leave entitlements. The employee's service with the old employer is counted when calculating the employee's long service leave entitlement with the new employer.

"Assets" is currently defined as including land, plant and equipment. The new Bill removes those specific examples, and replaces the definition with an inclusive definition of "tangible and intangible assets". As such, the situations where long service leave entitlements will carry across to a new employer because of a transfer of assets appears to be considerably wider under the proposed Bill.

Treatment of parental leave

Under the current Act, an employee's employment is regarding as continuous despite periods of annual leave, long service leave, absences from work because of illness or injury, and any other approved absence from work including carer's leave (whether paid or unpaid). However, parental leave is excluded from this and therefore does not count towards an employee's service. Under the proposed Bill, parental leave will not break an employee's service and will count as service where it is paid parental leave and for the first 12 months of unpaid parental leave.

The change applies only in relation to parental leave taken after the commencement of the new Act. That is, even if an employee is on parental leave when the Act takes effect, only the portion of the leave taken after commencement counts as service.

Casual employees

Casual employees are currently entitled to long service leave where they meet the continuous service eligibility requirements. However if there is more than a three-month break between engagements their continuity of service is broken. The new Bill retains these features, however an exemption to the break in continuity of service is provided where a casual employee takes up to two years of parental leave.

Averaging of hours of work

Currently, the average hours of work used when calculating the entitlement to long service leave is based on the greater of the average hours worked over the previous 12 months or the previous five years. The new Bill retains this, but also adds a further method, which is the average hours worked over the whole period of continuous service. Employees will then be entitled to the greater of the three methods of calculation provided by the Bill.

… but the new Bill doesn't address some unclear issues

The current Act generally does not apply to employees who are entitled to long service leave under an enterprise agreement, if in the opinion of the Industrial Division of the Magistrates' Court, the entitlements under the enterprise agreement are more favourable than those under the Act. It is not clear whether an employer must apply to the Magistrates' Court to be excluded from the Act, or if this section operates as a defence should an employee bring a claim in the Magistrates' Court. We consider the better view is that it operates as a defence.

It is also not clear when provisions would be considered more favourable, if some but not all aspects of long service leave are better under the enterprise agreement. Unfortunately, the proposed Bill replicates this wording, and so these issues remain.

Employers should prepare for changes to long service leave entitlements

The proposed Bill considerably expands employees' entitlements to long service leave, both in the way in which leave accrues (based on expansions to what is meant by continuous service), how the leave is calculated (based on average hours of work), and when (after seven years) and for how long the leave can be taken (as little as a day). To prepare for this employers should start planning, including:

• seeking legal advice regarding how the changes will affect your business;
• preparing to reconfigure your payroll system as required;
• amending relevant policy documents to reflect the changes and ensure consistency.