Does unpaid parental leave affect redundancy pay?

Q&A

Does unpaid parental leave affect redundancy pay?

Does unpaid parental leave count as service when calculating redundancy entitlements? Paul Munro explains.

Does unpaid parental leave count as service when calculating redundancy entitlements?

This question was recently sent to our Ask an Expert service.
 
Q Our company will make an employee’s position redundant at the end of the financial year. The employee has been consulted and has been offered post-employment assistance. In discussions with the employee, it was decided her employment would continue until 30 June, when she will be paid the equivalent period in lieu of notice. The employee has been employed by more than five years, but took 12 months' unpaid parental leave several years ago.

The appropriate period of notice (or payment in lieu) is based on the employee’s years of continuous service with the employer. The definition of service under the Fair Work Act does not count unpaid leave as service. Our understanding therefore is that an employee’s absence on unpaid parental leave does not count as service.

As parental leave is unpaid leave, does this mean the company is only required to pay three weeks’ pay in lieu of notice (based on four years’ continuous service with the employer)?
 
A In this case, the employee would be entitled to receive four weeks’ pay in lieu of notice on termination. The period of unpaid parental leave counts as service for the purpose of determining the appropriate period of notice of termination to be given by the employer.

The Fair Work Act (s.22(4)) provides a different definition for “service” with respect to notice of termination. The only absence excluded from service for the purposes of the appropriate amount of notice of termination (or payment in lieu) is any period of unauthorised absence, such as periods of industrial action engaged in by employees or any other absence from work contrary to the direction of the employer.

Parental leave provided under the National Employment Standards would be considered ‘unpaid leave’; consequently, unpaid parental leave would count as service with the employer.
 
In this case, the employee is deemed to have served a total of more than five years' continuous service with an employer (including the period of unpaid parental leave) and would be entitled to receive four weeks’ pay in lieu of notice of termination.
 
An employee with at least two years' continuous service with the employer and who is aged over 45 years is entitled to an additional one week’s notice (or payment in lieu).
 
The different definition of ‘service’ under Section 22(4) of the Fair Work Act applies to flexible working arrangements, parental leave and related entitlements, and notice of termination or payment in lieu.
 
The bottom line: The Fair Work Act (s.22(4)) provides a different definition for ‘service’ with respect to notice of termination. The only absence excluded from service for the purposes of calculating the amount of notice of termination required to be given by an employer to an employee is any period of unauthorised absence, such as unprotected industrial action.
 

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