Annual shutdowns over the Christmas/New Year period are common feature in Australian workplaces. In many industries, the holiday period is traditionally a time of low customer demand, and many employees choose to take leave to spend time with family. In those circumstances, it can make good sense to close down the business for a while.
However, before making the decision to close down the business, it is important to be aware of the provisions of the National Employment Standards (NES) and how they regulate a shutdown period.
Annual shutdowns are generally periods where all or most employees in a business are directed to take annual leave.
The NES contain provisions allowing employers to direct an employee to take a period of annual leave in some circumstances. However, how the NES provisions operate can be complex. The ability to direct annual leave is not the same for all employees and depend on whether the employee is covered by a modern award, an enterprise agreement, or is award/agreement free. In addition, the ability to direct annual leave is subject to a general obligation that the direction be reasonable.
Most (approximately 78) modern awards contain a model annual leave shutdown clause (Model Clause). The Model Clause was introduced in 1 May 2023 and allows employers to direct an employee to take annual leave during a temporary shutdown period where:
Note that some awards have slightly different requirements, for example the Meat Industry Award 2020 requires employers to provide 3 months’ written notice of a shutdown, rather than the usual 28 days. It is important to always check the relevant award.
A Notice of annual shutdown letter is available to assist members when providing notice of a shutdown.
Where an enterprise agreement applies to an employee, any direction to employees to take leave must comply with the terms of the enterprise agreement.
The terms of different enterprise agreements can vary considerably from each other, and even vary considerably from the modern award clause. Employers are advised to refer to the terms of their enterprise agreement and seek assistance if required.
Not all modern awards and enterprise agreements contain provisions about shutdown periods.
Employers covered by an enterprise agreement or award that does not contain a shutdown clause (such as the Social, Community, Home Care and Disability Services Industry Award 2010) are recommended to contact Ai Group to discuss what options are available.
The NES allows an employer to direct an award/agreement free employee to take annual leave, provided that the requirement is reasonable. A note in the NES suggests that a direction to take annual leave could be reasonable if the business is being shut down for a period, such as Christmas and New Year period.
Unlike the modern award clauses, the NES do not contain prescriptive requirements like a particular period of notice. However the length of notice provided to an employee is likely to be considered if there is any dispute about the reasonableness of the direction.
The NES require that directions to take annual leave must be reasonable, both when an award/agreement applies, or the employee is award/agreement free.
Unfortunately, it is not possible to say whether a particular direction will be reasonable in all scenarios. What is reasonable will depend on the individual circumstances of both employees and the employer. When considering what is reasonable, the Explanatory Memorandum to the Fair Work Bill 2008 suggests the following factors should be considered:
Knowing your obligations as an employer, as well as communicating employee responsibilities, is essential in ensuring that the various forms of leave available to employees is managed effectively.
Our Managing Leave Handbook provides helpful and practical information on how to manage all the different forms of leave in the workplace and explains the interaction of the NES with modern awards, enterprise agreements, contracts and any relevant state legislation
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In an ideal world, an employer has managed employees’ requests for annual leave in a way that ensures they have enough leave left over for an annual close down. But sometimes an employee will not have enough accrued annual leave.
Maybe the employee recently started with the company, or maybe someone during the approval process miscalculated how much leave an employee had when considering an earlier request for leave.
Not having enough annual leave can cause significant complexity when trying to manage an annual shutdown. In this scenario employers may need to either:
Ai Group Members are encouraged to contact Ai Group on 1300 55 66 77 to discuss their individual circumstances. However, some potential options for employers to mitigate the impact of employee’s having insufficient leave to cover a shutdown period are discussed below.
Employers can mitigate the impact of the Model Clause by managing annual leave approvals to ensure that existing employees maintain enough leave to cover a future shutdown period. Section 88(2) of the FW Act allows an employer to refuse an employee’s request for annual leave if the refusal is reasonable.
The Fair Work Commission (FWC) has expressed a view that an employer’s refusal of a request for annual leave may be reasonable if it would result in the employee having insufficient leave to cover a proposed shutdown.
Members are encouraged to review any workplace policies that deal with the approval of leave to ensure that employees, and managers with authority to approve leave, are aware of any expectation that an employee should retain sufficient annual leave balances to cover a future period of shutdown.
Where an employee does not have sufficient annual leave accrued to cover the entire period of a shutdown, the employee might agree to use other forms of paid absence to cover that period.
For example, a shortfall in accrued annual leave might be managed by an agreement to access:
While the use of other forms of absence may resolve the issue of an employee having insufficient annual leave to cover a period of shutdown, it is important to appreciate that it is common for modern awards and enterprise agreements to require that an employee must provide their agreement to using one of the entitlements listed above.
Where only a part of an employer’s business is being shut down for a period, an employer may be able to direct an employee to perform alternative duties during that period to those which they would ordinarily perform.
Whether an employee can be directed to perform alternative duties will depend on the individual circumstances of the employee. Employers should consider whether the applicable contract of employment, modern award or enterprise agreement contain terms relating to an employer’s ability to direct an employee to perform alternative duties (see for example clause 29 of the Manufacturing and Associated Industries and Occupations Award 2020).
An employer can make an enterprise agreement with its employees that provides terms dealing with shutdowns that differ from the relevant modern award. Alternatively, employers may seek to vary an existing enterprise agreement to ensure that it contains shutdown provisions that meet the requirements of their organisation. This could include, for example, a clause that allows an employer to direct employees to take a period of unpaid leave, or a clause that provides for accrued rostered days off to be used during a shutdown period.
The feasibility and merit of seeking to either make or vary an enterprise agreement to deal with shutdown arrangements will depend upon an employer’s individual circumstances. Ai Group Workplace Lawyers can provide organisations with advice and assistance in relation to such matters.
In circumstances where an employee does not have sufficient annual leave to cover a shutdown period, the requirement to pay an employee for that period may be subject to the terms of the employee’s contract of employment.
Employers may wish to consider the feasibility of including terms in employment contracts that specifically deal with shutdown periods, particularly for new employees who will not have the opportunity to accrue sufficient leave before the shutdown commences. This could encompass terms that require an employee to take a period of unpaid leave during a shutdown.
For assistance with your workplace matters, Members of Ai Group can contact us or call our Workplace Advice Line on 1300 55 66 77 for further information.
Ai Group Workplace Lawyers can assist organisations with:
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