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The “substantial connection” test

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NSW Court of Appeal redefines the approach to long service leave in NSW

In NSW, employees are entitled to long service leave after 10 years of continuous service with their employer. A recent decision of the NSW Court of Appeal has redefined the entitlement to long service leave in circumstances where part of their service has been completed outside of NSW.

In NSW, employees are entitled to long service leave after 10 years of continuous service with their employer. A recent decision of the NSW Court of Appeal (the Court of Appeal) has redefined the entitlement to long service leave in circumstances where part of their service has been completed outside of NSW.

Traditionally, the position in NSW has included an assessment of whether at the time of termination or cessation of employment, the employee’s service outside of NSW had a “substantial connection” to NSW.

Following the decision of Wipro Limited v State of New South Wales [2022] NSWCA 265, the Court has now narrowed this approach by clarifying that the entirety of an employee’s service, both inside and outside of NSW, must have a substantial connection to NSW to count towards continuous service for the purposes of calculating long service leave.

Wipro Limited (the Employer), a company registered in Australia as a foreign corporation, maintains an Indian-based workforce that it deploys globally using “deputation” agreements.

An employee subject to such deputation agreement commenced employment with the Employer in India where he worked for approximately six years before transferring to NSW for approximately five years. On resignation, the employee requested payment of his long service leave entitlement in NSW on the basis that he had more than 10 years of continuous service with the Employer (including his service in India).

The question for the Court was whether the employee’s service in India counted as part of his continuous service with the Employer for the purposes of calculating long service leave. If the answer was ‘yes’, the employee’s continuous service exceeded the qualifying period of 10 years which would entitle him to long service leave.  

The Employer relied on the decision handed down by the Victorian Court of Appeal in Infosys Technologies Ltd v State of Victoria (2021) 64 VR 61 (Infosys) in submitting that the employee did not meet the qualifying period because his service in India had no relevant connection to NSW.

Conversely, the employee relied on the traditional approach of the courts in NSW in submitting that he was entitled to long service leave because at the time of his resignation, his employment had a substantial connection to NSW.

Departing from the long-standing position in NSW, the Court found that employees who have service outside of NSW and who cannot demonstrate a substantial connection with NSW during that time, will not have that part of their service recognised for the purposes of long service leave.

The Court stated that the performance of service within NSW is an “obvious connecting factor” but, there may be other factors connecting the service to NSW such that there would clearly be a substantial connection. The Court cited examples such as the relevant contract being made in NSW or if the employee, based originally in NSW, is directed to work outside of NSW.

The Court went on to note at [43]:

It makes sense for the existence or otherwise of a “substantial connection” between the “continuous service” to be assessed by reference to the service when it occurs rather than retrospectively on cessation of the service…

Thus, where there are discrete periods of employment in different locations or distinct from each other by reason of other circumstances, their connection to New South Wales can each be assessed.

In the present case, the Court considered the employee’s employment consisted of a “discrete period” of years in India before his employment came to have any connection with NSW. Therefore, the Court held that the employee’s employment in India was not to be counted for the purposes of calculating the employee’s entitlement to long service leave.

The Court of Appeal acknowledged that while this approach may be difficult to apply in some circumstances, it will assist employees in understanding their long service leave entitlement as the service accrues, rather than on termination of employment. The Court also emphasised the importance of employers to keep proper records of long service leave liability.

Lessons for employers

This decision significantly narrows the circumstances in which an employee with service interstate or overseas will be entitled to long service leave in NSW. It should be noted that this decision now brings the NSW position in line with that of Victoria in the decision of Infosys.

Employers should now turn their minds to reviewing how they calculate long service leave, especially in instances where it may have employees who have moved to or moved from NSW in the course of their employment.

Information provided in this blog is not legal advice and should not be relied upon as such. Workplace Law does not accept liability for any loss or damage arising from reliance on the content of this blog, or from links on this website to any external website. Where applicable, liability is limited by a scheme approved under Professional Standards Legislation.

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