Foreign owned subsidiaries and mobile workforces should take note of a recent case clarifying long service leave entitlements under Victorian Law. The Supreme Court of Victoria has handed down a judgement regarding the operation of the Long Service Leave Act 2018 (Vic) (LSL Act) for corporations that partially operate outside of Victoria.

The decision clarifies whether corporations employing individuals outside of the State should be considered “one employer” and whether a connection to Victoria is required for long service leave entitlements under the LSL Act.

The decision is of particular significance for two reasons:

1. firstly, because it rejects arguments by the Victorian regulator based upon previous decisions dealing with cases concerning similar long service leave legislation in other States; and
2. secondly, with similar applicable long service leave legislation in other States and Territories, it potentially provides useful guidance and precedence for employers in those other States.

two overseas workers deployed to Victoria seeking long service leave

Two employees of Infosys contacted Wage Inspectorate Victoria (WIV) regarding non-payment of their long service leave entitlements by Infosys after resignation from their employment.

One employee had first been engaged as an Engineer in India, then assigned to the United Kingdom before returning to India. The employee was then deployed to Victoria as a “deputee” for 2 years and 2 months.  The employee had worked for Infosys for 9 years and 3 months prior to resigning from her employment in January 2019.

The second employee was engaged as an Engineer in India for approximately 10 years until she was deployed to Victoria as a deputee for 2 years and 8 months.  She had worked for Infosys for more than 12 years prior to resigning from her employment in September 2019.

WIV argues both workers owed long service leave for continuous work

The WIV demanded payment of the employees’ long service leave entitlements arguing that because both employees had served more than 7 years’ continuous service with one employer in accordance with the LSL Act, they were entitled to payment of their accrued long service leave entitlements upon cessation of their employment.

employer argues 7 years of continuous service not undertaken in Victoria

Infosys refuted such argument and sought a declaration from the Court that it had no such obligation to pay the entitlements as the employees had not undertaken 7 years of continuous service in Victoria in accordance with the LSL Act.

court finds connection to the State insufficient and therefore not covered by LSL Act

In coming to their decision, Justices Richard Niall, Maree Kennedy and Michael McDonald considered the provisions of the LSL Act against section 48 of the Interpretation of Legislation Act 1984 (Vic) (ILA).

In accordance with section 48 of the ILA, the Court held that although the LSL Act did not specify the need for a connection to Victoria nor articulate what the connection must be, legislation passed by the Victorian Parliament must be construed as dealing with matters or things in, or connected to, Victoria.

As a result, the Court rejected the WIV’s argument that the employees met the continuous service test under the LSL Act because there was a sufficient connection between the event which triggered the entitlements under the LSL Act and Victoria.

The Court held that there was no connection between the employees’ employment in India and Victoria nor did their continuous employment in India form part of their continuous employment for the purposes of the LSL Act.

court considers ramifications of granting long service leave

Justices Kennedy and McDonald stated that the WIV’s interpretation of the LSL Act would lead to “improbable and absurd outcomes”. By way of example, an employee could argue that having worked for more than 7 years for an employer before arriving in Victoria, they are immediately entitled to payment of their long service leave upon commencing employment in Victoria.

The Court also rejected the interpretation of the Long Service Leave Act 1992 (the 1992 LSL Act (Vic)) based upon a decision of the Full Court of the Federal Court. The decision had decided that, whether the relevant connection exists, was to be assessed globally by identifying a period of employment with the one employer and asking whether that period taken, as a whole, had a substantial connection to Victoria.

In the Court’s view, such an approach retrospectively ascribed a connection to Victoria for past employment where there was none.

implications for employers: what you can do

This decision makes the position in Victoria quite clear in relation to long service leave entitlements for employees who have been employed, for a continuous period, by one employer and across different countries. Put simply, the LSL Act, and entitlements under that Act, will only apply to an employee’s continuous service that has a connection to Victoria.

Whilst it remains untested at this stage, this decision may set a precedent for long service leave legislation in other states and territories.

In the meantime, employers should develop a clear process for recording and keeping track of employees who are transferred (interstate or internationally) to related companies and their entitlements to long service leave. Employers will need to do so bearing in mind that contracting out of long service leave is specifically prohibited in most of the other States.

seek advice to clarify long service leave entitlements

If you are unsure of employee entitlements to long service leave or whether an entity may be classified as a related corporation for the purpose of long service leave entitlements, you should seek legal advice.

This landmark decision and the implications that follow are particularly relevant to foreign owned subsidiaries and their typically mobile workforces.