Navigating requests for unpaid leave can introduce legal and practical challenges for employers. Keep these four legal considerations in mind when assessing and responding to a request.

Requests for unpaid leave often raise tough questions for employers about how to balance compassion and flexibility with operational demands. 

A refusal, even when justified, can leave an employee feeling unsupported and may even spark claims of unfair treatment – especially in instances where businesses have historic examples of offering leniency to other employees.

A recent case heard by the Fair Work Commission (FWC) shows how quickly these situations can escalate. 

The case involved a long-serving federal government employee who claimed she had been constructively dismissed after her employer refused her request for unpaid leave. 

The employee, who had recently returned from 18 months of study leave, submitted a request for a further two-to-three years of unpaid leave to pursue a bachelor’s degree in emergency management. She also proposed voluntary redundancy or part-time work arrangements to complete the degree over six years as alternative options.

After her employer declined the request, she submitted a resignation letter, citing an “absence of support for [her] professional development” and also highlighting that she didn’t feel her recent contributions in her role had been recognised.

She then lodged a general protections application with the FWC, claiming her employer’s actions had compelled her to resign. However, the commission rejected her claim, finding that she had resigned voluntarily and that the employer was justified in refusing her unpaid leave request.

The case underscores how easily these situations can escalate, and why organisations need clear, consistent approaches to managing unpaid leave requests.

“There are certain circumstances where employers do actually need to accommodate these requests,” says Aaron Goonrey, Partner at Pinsent Masons. (See below for examples).

“But in cases like this, where it’s a period of unpaid study leave, unless there’s a contractual obligation or a policy that could give rise to an entitlement claim by an employee, these requests can usually be dealt with fairly by the employer [at their discretion] based on the circumstances of the case.”

Below, Goonrey offers four legal considerations HR and employers should keep in mind when assessing and responding to a request for unpaid leave. 

When are employers obliged to grant a request for leave without pay?

Unlike annual leave, which is a statutory entitlement, unpaid leave requests are more complex, and whether employers are obliged to consider them depends heavily on the circumstances.

The following forms of unpaid leave are statutory entitlements under the National Employment Standards: 

• Community service leave (generally unpaid, with the exception of jury duty) 
• Extended parental leave (up to 12 months, with a possible extension to 24 months if the employer agrees)
• Carer’s leave
• Compassionate leave.

Employers are required to grant requests for these types of leave when an employee meets the relevant eligibility criteria – for example, having completed 12 months of continuous service for unpaid parental leave, or being able to demonstrate a need for time away to care for a family or household member.

Meanwhile, unpaid leave for activities like study or extended travel is generally granted at the employer’s discretion.

“The advice I’d give to employers is not to exercise that discretion in an arbitrary way, and to consider the request based on the merits of that particular case,” says Goonrey.

In the case mentioned above, the FWC found that the employer had no obligation to grant the applicant’s request for unpaid leave or role adjustments. The ruling stated that the employer’s refusals were “reasonable management decisions, particularly in circumstances where the applicant had only recently returned from 18 months [of] study leave.”

Even when a request doesn’t fall within one of the statutory categories, Goonrey says it’s often worth considering whether granting unpaid leave could be reasonable in the circumstances. Doing so can help preserve goodwill, support employee wellbeing and, in some cases, retain valuable talent.

“Applying a standard of reasonableness to any situation will always keep you in good stead,” he says. “If someone says, ‘I need to take a period of leave,’ and that period is reasonable given their particular circumstances, then subject to business requirements, my [general] advice would be to grant it.”

“The advice I’d give to employers is not to exercise [their] discretion in an arbitrary way, and to consider the request based on the merits of that particular case.” – Aaron Goonrey, Partner, Pinsent Masons

Do employers need a specific policy around unpaid leave?

A specific policy or contractual term on unpaid leave isn’t always necessary, says Goonrey. What matters more is having a fair internal process for handling requests.

“It depends whether or not an employer wants to encourage leave without pay – if they do, then I would have a policy. But does every company need one? I don’t think so,” he says. “Having a very linear rule about how you’re going to deal with such instances may not necessarily be helpful.”

Rather than an employee-facing policy, he suggests having an internal checklist to refer to when an employee requests unpaid leave. This checklist might include the following questions:

1. What is the purpose of the leave – does the reason for the request make sense in the context of the employee’s circumstances?
2. Will the leave benefit the employee’s wellbeing, professional development and/or their long-term engagement with the organisation?
3. Can the employee’s work be covered without undue disruption to operations or team performance?
4. Is the period of leave clearly defined, and is there a clear expectation that the employee will return to work?

If the answer to most of these questions is ‘yes’, the request can generally be accommodated. If the answer is ‘no’ or uncertain, employers likely have reasonable grounds to refuse the request.

“This is a fair and reasonable approach, so you can [demonstrate that] you haven’t acted in an arbitrary, capricious, unfair or unconscionable way,” says Goonrey.

How does leave without pay impact benefits and entitlements?

Granting unpaid leave isn’t just a question of whether the role can be held open – it also raises questions about the employee’s salary and entitlements. 

For instance, employees requesting unpaid leave may not be aware how that leave might impact their superannuation or paid leave accruals.

According to Goonrey, superannuation contributions generally pause during unpaid leave unless the employer opts to continue them. Likewise, annual and personal leave accruals generally stop. Whether or not long service leave continues to accrue depends on state-specific legislation.

Employers should clearly communicate these impacts before granting leave so there are no surprises on the employees’ end, as they may have only accounted for the pause in their usual salary.

Study leave can also prompt reconsideration of remuneration and progression, adds Goonrey.

“Say, for instance, they took a lengthy period of study leave – you may not be paying for it, but the study might add some value to the business.”

In this instance, HR should prepare managers to have conversations about a potential pay increase, as the employee might come to them requesting one if they feel they are now bringing more skills to the business.

How can employers avoid claims of unfairness if one request is granted and another is refused?

Inconsistent decision-making around unpaid leave requests can sometimes open the door to discrimination or adverse action claims.

For that reason, Goonrey says employers should clearly document their reasons for approving or denying an unpaid leave request to protect themselves in the event of a legal dispute. 

“If the business is not sure it can accommodate a request, my inclination would be to explain to the employee why it can’t be accommodated in detail,” he says. “I would be doing this both in person or virtually, and then in writing, so that there’s no ambiguity.”

If the employee points to another instance where a colleague’s request for unpaid leave was approved, Goonrey advises against going into too much detail on why that was.

“Explain [the importance of] confidentiality, and that you don’t speak about other employees’ arrangements because of the unique nature of the employment relationship,” he says.

Instead, employers should make it clear that each request is assessed on its own merits and does not create a precedent for future decisions.

“If you are writing to an employee to say yes or no to their request, I would be saying in that confirmation, ‘Please note that we deal with each of these requests on a case-by-case basis.”

Taking these steps helps ensure that unpaid leave decisions are made fairly, consistently and with the right legal safeguards in place. 

The aim isn’t simply to avoid disputes, says Goonrey, but to handle each case with a balanced view of both the employee’s circumstances and the organisation’s needs.

All information, content and materials available on this site are for general informational purposes only. The contents of this article do not constitute legal advice and should not be relied upon as such.

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