Changes to long service leave: when will an international employee accrue leave?

By Aaron Dearden and Alexander Connolly

The way the courts view long service leave when it comes to overseas service may have shifted, at least in Victoria, following a recent Supreme Court of Appeal decision. We examine the case and what it means for employers more broadly.

Long service leave is an established entitlement in Australia, which rewards an employee's lengthy and loyal service with a particular employer, usually accruing after seven to ten years of continuous service (depending on your State/Territory).

The courts have previously held that where an employee works across international borders, they can still be entitled to accrue long service leave if they are employed by the same body corporate, with a sufficient connection to the relevant State or Territory.^[1]

But this position has changed with the decision in Infosys Technologies Ltd (ACN 090 591 209) v State of Victoria [2021] VSCA 219.

Recognising overseas service?

Two international employees sought long service leave payments for their continuous employment performed both in India and while on secondment in Victoria. The case was brought on their behalf by the state of Victoria.

Despite previous authority, the court unanimously rejected the claim for long service leave, on the basis that the 'central conception' of long service leave under the Victorian legislation required continuous employment performed 'in and of Victoria'.

Accrued long service leave entitlements often make up a significant part of an employer's ongoing liabilities on their balance sheets. In some instances, employers have not considered the impact of overseas service on an employee's entitlement to long service leave and have faced significant additional cost having to recognise that service. The Supreme Court's decision is good for employers in Victoria and means that many instances of unconnected service overseas will not be considered service under the Long Service Leave Act 2018 (Vic) (LSL Act). It remains to be seen whether other states' respective long service leave legislation will now be interpreted similarly.

Background

Ms Anbalagan and Ms Thankappan were employees of Infosys Technologies Limited (Infosys), a company incorporated in India and registered in Australia, with on average 2,000 employees in Victoria. Both employees commenced their employment in India, before relocating to Victoria and separately resigning in 2019.

Both employees made complaints to the Wage Inspectorate Victoria claiming that they had not been paid the correct long service leave payments on termination because their service in India should be counted with their service in Victoria on the basis they had both met the requirements of s6 of the LSL Act.

The LSL Act relevantly provided at s6, that an employee began accruing long service leave 'after completing 7 years of continuous employment with one employer'.

Infosys contended that the employees were not entitled to long service leave, as their employment in India lacked sufficient connection to Victoria to be 'continuous employment'.

The State of Victoria brought the present proceedings on behalf of the employees.

The 'central conception'

The court was asked to determine the territorial reach and operation of the LSL Act. Both parties relied on section 48(b) of the Interpretation of Legislation Act 1984 (Vic) (Interpretation Act), which relevantly states:

In an Act or subordinate instrument, unless the contrary intention appears – (b) a reference to a locality, jurisdiction or other matter or thing shall be construed as a reference to such locality, jurisdiction or other matter or thing in and of Victoria. [Our emphasis added].

To determine the relevant 'other matter or thing', the parties agreed that the court had to determine the 'central conception of the legislation' to determine how it was connected to Victoria.

Infosys contended that the central conception was the requirement under s6 of the LSL Act, being '7 years of continuous employment with one employer'. The State of Victoria contended that long service leave required certain 'events' to transpire in order to activate the entitlement. These events included the termination of employment, acceptance of a long service leave claim, or receipt of a direction by an employer to take long service leave.

The court held that the requirement for seven years of continuous employment was 'indispensable' to the entitlement to long service leave, noting that sections 11, 12, 13 and 14 were all hinged on this concept of 'seven years of continuous employment with one employer'.

The court agreed with Infosys that the ‘central conception' was the requirement under section 6, being an employee is entitled to long service leave 'after completing 7 years of continuous employment with one employer'. In doing so, the court rejected the State's submissions, finding instead that the ‘events' which were contended as being key to activating the entitlement to long service, actually only regulated the entitlement after the leave already accrued.

With this 'central contention' in mind, the court concluded that to meet the 'continuous employment' requirement, a worker did not have to have performed all seven years of their service in Victoria, but rather that the entitlement to long service leave could arise whenever employment was continuous 'in and of Victoria', consistent with s48(b) of the Interpretation Act.

Absence of contrary intention

Noting the Court's finding as to the central contention of the LSL Act, the State of Victoria submitted that the LSL Act expressed an intention which was contrary to the 'in and of Victoria' interpretation. The State submitted that the intention of the LSL Act was to reward long and loyal employment service, and that requiring continuous service to be 'in and of Victoria' was inconsistent with this purpose.

The Court agreed that the implicit purpose of the LSL Act was to reward long and loyal employment, but rejected the State’s submission on the basis that the State was objecting to the interpretation: ‘continuous service in Victoria with one employer'. Instead, what the Court was suggesting was the interpretation: ‘continuous employment with one employer'.

‘When construed in this way, employment ‘in and of Victoria’ may include employment performed inside Victoria, or in obedience to a direction emanating from Victoria, as well as employment formed in Victoria (as Infosys accepts).’ [85]

Therefore, there was no inconsistency between what Infosys was proposing – as accepted by the Court – and the purpose of the LSL Act.

Employment must be 'in and of Victoria'

The Court concluded that the central conception of section 6 of the LSL Act, when read in light of section 48(b) of the Interpretation Act, means: ‘continuous employment with one employer in and of Victoria’.

The Court expanded on this by accepting authority that the phrase 'in and of' 'requires a close identification between the continuous employment and Victoria'. While the Court did not consider it necessary to exhaustively define when a 'close identification' might arise, it did conclude that the employment of Ms Anbalagan and Ms Thankappan in India did not meet the requirement, on the basis that their respective service in India had no connection to Victoria at the time it was performed.

Divergence from the full Federal Court

The Court then found it necessary and appropriate to consider its findings in light of the earlier decision of the full Federal Court in Cummins South Pacific Pty Ltd v Keenan [2020] FCAFC 204 (Keenan).

Briefly, Mr Keenan worked in the UK for 14 years, then moved to Victoria and worked 12 years for a related entity (being Cummins South Pacific). Mr Keenan sought to have his employment in both the UK and Victoria considered in the assessment of his long service leave, with the majority finding that Keenan was entitled to do so.

The Court considered that the majority judgment in Keenan formulated its conclusions based on the presumption that Cummins was submitting that only the time Mr Keenan actually spent working locally in Victoria should be counted.

In rejecting this argument, the majority in Keenan instead held that so long as there is a substantial connection to Victoria arising from the employment as a whole, time spent working overseas could be counted for long service leave.

The Court diverged from this conclusion. Justice Niall in particular, in a separate judgment, noted that the approach of taking the employment as a whole produced 'anomalous results that did not sit well with the LSL Act'. For instance:

• an employee might technically begin accruing long service leave entitlement at a time when their employment has no immediate or intended connection with Victoria;
• likewise, even though a worker has been employed for the requisite length of time in Victoria, they might still not be entitled to long service leave if the totality of their employment lacks a sufficient connection to Victoria.

The Court noted that the majority in Keenan reached its conclusions based on 'largely undeveloped' submissions from Cummins. In contrast, the present court considered itself to have had the benefit of extensive and detailed submissions on these points.

Therefore, it was held that the conclusions reached by the majority in Keenan were plainly wrong.

Takeaway for employers

The Infosys decision has changed the way long service leave is calculated for a number of employees who work, or have worked at some point in the past overseas but still under the same corporate body. Now, employers will need to consider whether the international work has a 'close identification' to Victoria.

The Victorian Supreme Court declined to further define what a 'close identification' might entail, so at the moment there is some ambiguity for employers on whether their internationally-based employees will still be accruing long service leave entitlements.

In the Infosys case, two employees were seconded by their Indian company to work in its Victorian office, but were nonetheless held to have insufficient connection between their service in India and their entitlement to long service leave in Victoria.

It may fall to the courts in subsequent decisions to provide more clarity on where exactly the 'close identification' like will be drawn, but for now, employers will need to closely consider their employees' entitlements to long service leave.

[1] See Cummins South Pacific Pty Ltd v Keenan [2020] FCAFC 204.