What happened?
In the landmark decision of Infosys Technologies Limited v State of Victoria [2021] VSCA 219 (Infosys), the Victorian Court of Appeal has provided long-awaited certainty regarding the recognition of overseas service for the purposes of calculating long service leave in Victoria.
What did the Court decide?
The Court held, in effect, that an employee's overseas service is not counted under the Long Service Leave Act 2018 (Vic) (LSL Act), unless the service has a sufficient connection to Victoria at the time the service is undertaken.
The case concerned 2 employees who were employed by Infosys in India – and, in the case of one of the employees, also the UK – prior to relocating to work for Infosys in Victoria on a 'deputation'. The employees worked for Infosys in Victoria for periods of approximately 2 years and 8 months and 2 years and 2 months respectively before resigning from their employment. Based on the employees' combined Victorian and overseas service, each employee had more than 7 years' service with Infosys and claimed an entitlement to payment in lieu of long service leave. The Court held the employees' overseas services had no connection to Victoria and rejected their claims.
Why does it matter?
Until now, the general view – and the position of the Wage Inspectorate Victoria, which regulates the LSL Act – had been that overseas service, including service with a related body corporate, counts as service for the purpose of calculating long service leave, provided there is a substantial connection with Victoria at the time the entitlement to long service leave crystallises. An entitlement to long service leave crystallises, or is triggered, where an employee's employment terminates after 7 years' service; an employee becomes entitled to take long service leave after completing 7 years' continuous employment; or an employee is directed to take long service leave by their employer after they have completed 7 years' continuous employment. If an employee was employed on a permanent basis in Victoria at the time the entitlement to long service leave crystallised, there would generally be a sufficient connection with Victoria.
This approach, which was based on lower court authorities in New South Wales, could result in anomalous outcomes. For example, it could result in an employee with a long period of overseas service becoming entitled to long service leave immediately upon, or shortly after, relocating to Victoria.
The Court of Appeal decision overturns this approach. It held that the correct approach is to determine whether there is a connection between a period of continuous employment and Victoria at the time the service is undertaken, not at the time of the event which triggers, or crystallises, the entitlement. This approach requires that a period of service must be 'in and of Victoria' to be counted as 'continuous employment with one employer' for the purpose of long service leave entitlements.
The result of the decision in Infosys is that where an employee has prior overseas service – either with the same employer or a related body corporate – that has no connection to Victoria at the time it is undertaken, that service will not be counted as 'continuous employment' for the purposes of the LSL Act.
Does this mean service outside Victoria is never counted?
No, this does not mean that service outside Victoria (overseas or interstate) can never count as Victorian service for the purposes of the LSL Act.
The Court of Appeal made it clear that there may be circumstances where service outside Victoria will have a sufficient connection with Victoria to count as 'continuous employment' for the purposes of the LSL Act. It will generally be enough if there is 'a close identification between the continuous employment and Victoria'. The Court helpfully gave a number of examples where service performed by an employee outside Victoria may still be 'in and of' Victoria, including where:
- an employee employed under a contract formed in Victoria is required to manage a Victorian company's business operations in another state;
- employment is performed outside Victoria 'in obedience to a direction emanating from Victoria';
- an employee of a Victorian company is seconded to work for a related body corporate outside Victoria. (The LSL Act includes a number of deeming provisions which have the effect that in some circumstances an employee's service will be regarded as being continuous service with one employer, even though ‘in a strict legal sense’ that is not the case. One such circumstance is where an employee is employed by one employer and subsequently becomes employed by a related body corporate (as defined in the Corporations Act 2001 (Cth)) of that employer (see section 11(2)). Although the two employers are separate legal entities, the employee's service with the first employer is deemed to be continuous employment with the second employer.)
What should employers do now?
If an employer has:
- employees who will be relocating from overseas or interstate, we recommend they undertake an assessment of all the circumstances of the service to determine whether it has a sufficient connection to Victoria to be service 'in and of' Victoria. If not, the service can be disregarded.
- made provision for long service leave for employees with overseas or interstate service, they should review the circumstances of that service to determine whether it had a sufficient connection to Victoria at the time it was undertaken to be service 'in and of' Victoria. If not, the service can be disregarded.
- employees who have taken or been paid in lieu of long service leave on the basis that their overseas or interstate service was to be counted, consider seeking advice on whether it may be possible to recover any payment or set-off the leave taken against future leave accruals.