Employers should review how they track long service leave (LSL) entitlements for employees who have performed work interstate or overseas following a recent decision of the Court of Appeal in New South Wales (NSW).
The Long Service Leave Act 1955 (NSW) (LSL Act) provides employees with an entitlement to long service leave when they have completed ten years of “continuous service” with the employer or in some circumstances, a pro-rata entitlement on the termination of employment.
As long service leave is determined by the legislation in each State or Territory, it is important that employers are aware of what laws apply to their employees.
The previous test for whether an employee was entitled to LSL involved looking at whether the employee had (1) “continuous service” and (2) whether their continuous service, as a whole, was “substantially connected” with NSW.
Historically, Courts have held that employees who had service outside NSW (for example, 3 years in Queensland) and partial service in NSW (for example, 7 years), had a “substantial connection” to NSW and would be entitled to long service leave on their 10-year anniversary, or on the termination of their employment.
New Approach following Court of Appeal Decision
In Wipro v State of New South Wales (Wipro) the Court of Appeal assessed whether an employee’s service in India was to be counted as part of his “continuous service” for the purposes of section 4 of the LSL Act.
The employee was a citizen and resident of India who was offered and accepted employment in India. His service totalled 10 years, 8 months and 22 days:
- He worked for the Company in India from 16 February 2009 to 5 February 2015 pursuant to the terms of a contract of employment made in India (and governed by the laws of India). This period of service was equal to 5 years, 11 months, 20 days.
- He then agreed to work in New South Wales under a Deputation Agreement dated 3 February 2015 and did so from 6 February 2015 until 8 November 2019, when he resigned from his employment. This period of service was equal to 4 years, 9 months, 2 days. The employee’s Deputation Agreement also stated, in part: “Long Service Leave (‘LSL’) legal provisions [will] not be applicable to you as the term of your deputation is temporary and you are expected to return to India”.
Ultimately, the Court of Appeal held that the employee was not entitled to LSL entitlements under the LSL Act.
The three key points from the decision are:
- The employee’s “initial period of employment in India was a discrete period which did not have the requisite connection with New South Wales.”
- “The performance of service within New South Wales is an obvious connecting factor” but there may be other factors connecting the service to the State. For example, the contract might have been made in NSW, or the employer in NSW might have directed the employee work outside the State.
- “A ‘substantial connection’ between the ‘continuous service’ [is] to be assessed by reference to the service when it occurs rather than retrospectively on cessation of the service.” The employee in this case had two separate periods of employment: six years overseas, and four years in NSW. To determine his long service leave, only his four years of service in NSW counted.
Wipro follows a recent decision of the Victorian Court of Appeal in Infosys Technologies Ltd v State of Victoria (Infosys) where the Court held that two employees who completed the first part of their service overseas were not entitled to LSL in Victoria, as this service did not have a “close connection” to Victoria.
The Wipro and Infosys decisions clarify that clear and distinct periods of service interstate or overseas are unlikely to be counted towards an employees’ continuous service.
Even though each State and Territory have their own legislation relating to LSL, it is likely that they will follow suit.
What should employers do?
This decision will most likely affect employers with related entities either overseas or interstate who have employees moving between jurisdictions. It is important that employers review how they treat LSL for employees who transition between these jurisdictions.
It is worth noting however that this does not mean that service outside of NSW will never be counted for LSL purposes. A “substantial connection” to NSW may be found where an employee for example, has a contract formed in NSW or an employee who works in NSW is seconded out of NSW temporarily, in which case they may have a substantial connection to NSW.
Employers should ensure they keep track of any service performed interstate or overseas.
If you require further guidance on when an entitlement to LSL arises, please contact us.