Shutdown periods and forced leave: are you familiar with your business’ obligations?
May 2023 |
For the past 13 years, many employers have relied upon terms in modern Awards, which permitted employers to:
- Shut down their business, or a part of their business, typically over the Christmas/New Year period;
- Direct employees to take accrued annual leave during any such shutdown period; and
- Require employees to take unpaid leave if they had insufficient accrued annual leave to cover the shutdown period.
As a result of changes to modern Awards which came into effect on 1 May 2023, employers no longer have the same powers to direct employees to take annual leave or leave without pay during shutdown periods, and should start planning ahead now for the Christmas/New Year period and any other shutdown periods contemplated in future.
What has changed?
The Fair Work Commission (FWC) has made significant changes to the way in which shutdown periods are treated in modern Awards1 by inserting a model clause which provides that:
- An employer must give affected employees at least 28 days’ written notice of the employer’s intention to temporarily shut down all or part of its operations for a particular period (subject to any shorter period of notice agreed by the employer and affected employees);
- If a new employee is hired after the notice of proposed shutdown has already been communicated, and the new employee will be affected by the shutdown, the employer must give the new employee written notice of the proposed shutdown as soon as reasonably practicable after the new employee is hired;
- If an employee has accrued sufficient annual leave to cover the shutdown period, the employer may direct the employee in writing to take annual leave during the shutdown period, provided that the direction is reasonable;
- If an employee has not accrued sufficient annual leave to cover the shutdown period, the employer and an individual employee may agree in writing for the employee to take leave without pay during that part of the shutdown period for which insufficient annual leave is accrued;
- An employee may apply to take annual leave in advance during a shutdown period in accordance with the applicable Award provisions dealing with annual leave in advance.
It is important to note that the changes to modern Awards will not apply to businesses which currently have an enterprise agreement in place2. However, any future enterprise agreements lodged for approval with the FWC will likely need to incorporate the new shutdown provisions, noting the better off overall test will be difficult to satisfy if there is a risk of employees being directed to take leave without pay during a shutdown period.
For employees who are covered by neither an Award nor an enterprise agreement, it may be possible for businesses to rely upon the terms of an employment contract, which allow for an employer to stand down an employee without pay during a shutdown period. While this is yet to be tested in the Courts, the FWC observed that section 524 of the Fair Work Act 2009 (Cth) (FW Act) ‘discloses a legislative intention that the stand down of employees without pay may only occur in the circumstances prescribed in s524(1), or in any wider circumstances as authorised by an enterprise agreement or a contract of employment’3. In circumstances where the FWC found that a direction to take leave without pay during a shutdown period is ‘tantamount to a stand down’4, contractual provisions which provide employers with the power to direct employees to take leave without pay, or to stand down employees without pay, during shutdown periods may well remain enforceable against Award-free employees.
How can I ensure my business complies?
For those businesses which employ Award-covered employees, the practical impacts of the changes include:
- If the business intends to implement a Christmas/New Year shutdown period, drafting of the communication to employees should commence by no later than mid November in order to ensure compliance with the 28 day notice period;
- Any direction to an employee to take a period of accrued annual leave during a shutdown period must be reasonable. This “reasonableness” requirement might mean that businesses cannot shut down for an extended period, noting that any direction to take annual leave for a lengthy period may be found to be unreasonable5;
- It is no longer possible to direct employees to take leave without pay during a shutdown period. While employees might agree to take leave without pay, there is arguably little incentive for employees to agree in circumstances where an employee who declines to take leave without pay is entitled to either be allocated suitable duties to perform during the shutdown period, or to be stood down on full pay for the duration of the shutdown period;
- All requests for annual leave should be carefully considered in order to ensure that any approval of a mid-year annual leave request will not result in an employee having insufficient annual leave to cover any shutdown period. While employers must not unreasonably refuse a request for annual leave, the FWC recognised that it would likely be reasonable for an employer to refuse an annual leave request in these circumstances. Further, if an employee wishes to take an extended period of annual leave (for example, to get married or take an overseas trip), it would arguably be reasonable for an employer to grant the leave request only on the condition that the employee agrees to take unpaid leave during any subsequent shutdown period for which insufficient annual leave is accrued;
- Businesses which hire new employees between June and December will be particularly exposed to the risk of employees having insufficient annual leave to cover a Christmas/New Year shutdown period. Strategies for managing this risk include employing staff on a casual basis until after the shutdown period, or seeking the employee’s agreement in advance to take a period of leave without pay over the shutdown period (ensuring that any such agreement is not presented as a condition of employment, and that the employee is given a genuine choice to enter or not enter into the agreement).
- Click here for a list of affected Awards
1. Aboriginal and Torres Strait Islander Health Workers and Practitioners and Aboriginal Community Controlled Health Services Award 2020 (clause 22.3)
2. Aircraft Cabin Crew Award 2020 (clause 19.4)
3. Airline Operations–Ground Staff Award 2020 (clause 22.6)
4. Alpine Resorts Award 2020 (clause 25.3)
5. Aluminium Industry Award 2020 (clause 22.4)
6. Ambulance and Patient Transport Industry Award 2020 (clause 22.7)
7. Animal Care and Veterinary Services Award 2020 (clause 22.5)
8. Aquaculture Industry Award 2020 (clause 22.9)
9. Asphalt Industry Award 2020 (clause 21.8)
10. Banking, Finance and Insurance Award 2020 (clause 22.5)
11. Black Coal Mining Industry Award 2020 (clause 24.9)
12. Broadcasting and Recorded Entertainment Award 2020 (clause 18.6)
13. Building and Construction General On-site Award 2020 (clause 31.3)
14. Business Equipment Award 2020 (clause 23.5)
15. Car Parking Award 2020 (clause 24.6)
16. Cemetery Industry Award 2020 (clause 19.3)
17. Cement, Lime and Quarrying Award 2020 (clause 22.8)
18. Cleaning Services Award 2020 (clause 21.4)
19. Clerks—Private Sector Award 2020 (clause 32.5)
20. Coal Export Terminals Award 2020 (clause 20.7)
21. Commercial Sales Award 2020 (clause 20.6)
22. Concrete Products Award 2020 (clause 22.6)
23. Contract Call Centres Award 2020 (clause 22.10)
24. Educational Services (Post-Secondary Education) Award 2020 (clause 22.5)
25. Electrical Power Industry Award 2020 (clause 21.8)
26. Electrical, Electronic and Communications Contracting Award 2020 (clause 21.5)
27. Fitness Industry Award 2020 (clause 21.3)
28. Food, Beverage and Tobacco Manufacturing Award 2020 (clause 25.11)
29. Gardening and Landscaping Services Award 2020 (clause 20.9)
30. Gas Industry Award 2020 (clause 20.7)
31. General Retail Industry Award 2020 (clause 28.4)
32. Graphic Arts, Printing and Publishing Award 2020 (clause 31.12)
33. Hair and Beauty Industry Award 2020 (clause 24.3)
34. Health Professionals and Support Services Award 2020 (clause 26.5)
35. Higher Education Industry—General Staff—Award 2020 (clause 24.4)
36. Horse and Greyhound Training Award 2020 (clause 18.6)
37. Hospitality Industry (General) Award 2020 (clause 30.4)
38. Hydrocarbons Industry (Upstream) Award 2020 (clause 25.7)
39. Joinery and Building Trades Award 2020 (clause 27.9)
40. Journalists Published Media Award 2020 (clause 20.8)
41. Legal Services Award 2020 (clause 22.7)
42. Local Government Industry Award 2020 (clause 23.5)
43. Manufacturing and Associated Industries and Occupations Award 2020 (clause 34.7)
44. Meat Industry Award 2020 (clause 25.8)
45. Mining Industry Award 2020 (clause 22.7)
46. Mobile Crane Hiring Award 2020 (clause 24.6)
47. Miscellaneous Award 2020 (clause 21.4)
48. Nursery Award 2020 (clause 22.12)
49. Nurses Award 2020 (clause 22.7)
50. Oil Refining and Manufacturing Award 2020 (clause 24.6)
51. Pest Control Industry Award 2020 (clause 23.9)
52. Pharmaceutical Industry Award 2020 (clause 21.5)
53. Plumbing and Fire Sprinklers Award 2020 (clause 24.4)
54. Poultry Processing Award 2020 (clause 21.5)
55. Premixed Concrete Award 2020 (clause 22.8)
56. Professional Employees Award 2020 (clause 18.4)
57. Racing Clubs Events Award 2020 (clause 23.5)
58. Racing Industry Ground Maintenance Award 2020 (clause 21.5)
59. Real Estate Industry Award 2020 (clause 20.5(a))
60. Registered and Licensed Clubs Award 2020 (clause 25.4)
61. Restaurant Industry Award 2020 (clause 25.4)
62. Road Transport (Long Distance Operations) Award 2020 (clause 20.4)
63. Road Transport and Distribution Award 2020 (clause 24.9)
64. Salt Industry Award 2020 (clause 23.10)
65. Seafood Processing Award 2020 (clause 21.11)
66. Security Services Industry Award 2020 (clause 21.4)
67. Silviculture Award 2020 (clause 22.5)
68. Storage Services and Wholesale Award 2020 (clause 24.5)
69. Sugar Industry Award 2020 (clause 31.5)
70. Supported Employment Services Award 2020 (clause 32.3)
71. Surveying Award 2020 (clause 22.7)
72. Telecommunications Services Award 2020 (clause 22.9)
73. Textile, Clothing, Footwear and Associated Industries Award 2020 (clause 32.6)
74. Timber Industry Award 2020 (clause 28.10)
75. Vehicle Repair, Services and Retail Award 2020 (clause 29.6)
76. Water Industry Award 2020 (clause 22.4)
77. Wine Industry Award 2020 (clause 24.9)
78. Wool Storage, Sampling and Testing Award 2020 (clause 23.5)
1. 78 modern Awards are affected by the changes. A list of the affected Awards, and the clauses in which the shutdown provisions can be found, is available in the drop-down list above. The modern Awards which are not affected by the changes did not contain terms permitting shutdown periods, so no changes were required to those modern Awards.
2. Provided that the enterprise agreement operates to the exclusion of the applicable Award.
3.  FWCFB 161 at .
4.  FWCFB 246 at .
5. According to the explanatory memorandum to the Fair Work Act, the factors which must be taken into account in assessing the reasonableness of a direction to take annual leave include:
(a) the needs of both the employee and the employer’s business;
(b) any agreed arrangement between the employee and the employer;
(c) the custom and practice within the business;
(d) the timing of the direction to take leave; and
(e) the reasonableness of the period of notice given to the employee to take leave
This article may provide CPD/CLE/CIP points through your relevant industry organisation.
The material contained in this publication is in the nature of general comment only, and neither purports nor is intended to be advice on any particular matter. No reader should act on the basis of any matter contained in this publication without considering, and if necessary, taking appropriate professional advice upon their own particular circumstances.