A recent decision of the Fair Work Commission (FWC) means that changes to current annual shutdown rules in modern awards is likely. The decision also casts doubt on the lawfulness of provisions that allow for employees to be required to take leave without pay during annual shutdowns.
The FWC recently carried out a review of the existing annual leave shutdown clauses in modern awards. As a result of the review, the FWC has put forward a proposed model shutdown term which, should the FWC confirm its initial view, will replace the pre-existing shutdown terms included in some modern awards.
How do shutdown clauses in modern awards currently operate?
The purpose of “shutdown” or “closedown” clauses in modern awards are to enable employers to direct their employees to take annual leave during a particular period or periods in the year where a business ceases to operate. Typically, this would be the Christmas or New Year’s period.
Not all modern awards include such a clause, and where they do, the wording varies considerably. For example, some awards require employees be given a number of weeks’ notice of a closedown, in others it is a period of months. Furthermore, some awards allow employers to direct employees who do not have sufficient annual leave to cover the shutdown period to be required to take leave without pay. It was this, in particular that caused concern to the FWC.
Proposed introduction of a model shutdown clause
The recent decision of the FWC has cast doubt on whether clauses in awards that allow employers to direct employees to take leave without pay if they do not have sufficient annual leave available to cover a shutdown period, offend the terms of the Fair Work Act 2009.
As a solution to this issue the FWC has proposed to introduce a model shut down clause into awards that currently contain shutdown provisions, which will mean:
- There will be limits on the circumstances in which employers can choose to temporarily shut down and direct employees to take annual leave.
- Employees will no longer be able to be stood down or required to take leave without pay if they do not have the required annual leave to cover the whole period of the shutdown.
- Employees who do not have sufficient accrued annual leave to cover the shutdown period will be entitled to wages during the shutdown period if they do not elect to take pay without leave.
- A minimum 28 days written notice of the temporary shutdown period must be provided.
The model term is proposed to be adapted for certain awards, where appropriate.
What does that mean for employers?
With the silly season just around the corner, employers need to consider their rights and obligations in respect of shutdowns. The newly proposed model shutdown term has not yet been implemented, however the comments from the FWC cast doubt on whether clauses currently in modern awards which allow for employees to be directed to take leave without pay where they do not have sufficient annual leave accrued to cover the shutdown are lawful. We would recommend seeking our advice before seeking to direct an employee to take such unpaid leave.
Businesses who are planning to close down for the Christmas period should also check whether any award that applies to their business allows for employees to be directed to take annual leave in an annual closedown and their obligations to provide a period of notice. A number of modern awards require a minimum notice period of two months to be given to employees. These include:
- Building and Construction General On-site Award
- Electrical, Electronic and Communications Contracting Award
- Joinery and Building Trades Award
- Plumbing and Fire Sprinklers Award
Employees who are covered by any of these awards will need to be notified of Christmas period shutdowns within the coming few weeks.
Where an award does not contain a shutdown / closedown clause, employees cannot be directed to take annual leave in these circumstances.
We set out some other common questions below.
Can I require employees to take annual leave if I am closing down for the Christmas period?
Employees that are covered by a modern award or enterprise agreement can only be required to take annual leave if this is permitted by an award or enterprise agreement, as long as the employer follows the procedure set out in the award/agreement. These often require a mandatory notice period to be given to employees.
For example, clause 30.4 of the Hospitality Industry (General) Award states:
a) Clause 30.4 applies if an employer:
(i) intends to close down its operations at all or part of a workplace for a particular period (temporary close down period); and
(ii) wishes to require affected employees to take paid annual leave during that period.
b) The employer must give the affected employees at least 4 weeks’ notice of a temporary close down period.
c) The employer may require any affected employee to take a period of paid annual leave during a temporary close down period.
Virtually identical provisions are found in the Restaurant Industry Award 2020, the General Retail Industry Award 2010 and the Clerks – Private Sector Award 2010.
Awards or agreements such as the Fast Food Industry Award 2010 which do not have shutdown clauses mean that employees cannot be required to take annual leave during Christmas period close downs. However, employers may be able to agree with employees that they will take a period of annual (or unpaid) leave. Alternatively, employees may be required to take annual leave under the “excessive leave accruals” provisions in modern awards (generally, if they have more than 8 weeks accrued).
For employees who are not covered by an award or agreement, the Fair Work Act 2009 provides that an employee may only be required to take annual leave when it is reasonable to do so. A requirement to take annual leave due to a Christmas shutdown would usually be found to be a reasonable requirement.
What happens if employees do not have enough annual leave to cover the period the business is closed?
For employees covered by an award or agreement, the award/agreement may include clauses addressing this concern.
For example, the Manufacturing and Associated Industries and Occupations Award states at clause 34.7(c):
“an employee who has not accrued sufficient leave to cover part or all of the close down, is allowed paid leave for the period for which they have accrued sufficient leave and given unpaid leave for the remainder of the closedown.”
As noted above, the lawfulness of such a provision has now been called into question.
For awards or agreements that are silent on this matter, it is not possible to direct employees to take unpaid leave. Employers may wish to consider trying to agree with employees to take unpaid leave or to take annual leave in advance (so long as this is not prohibited by the award or agreement).
If agreement cannot be reached, employees will be entitled to their usual wages for this period.
For employees not covered by an award or an agreement, there is no general right to require employees to take unpaid leave where they do not have sufficient leave accrued. Where no agreement can be reached, employees should be paid their usual wages during the closedown.
What about casuals?
Casual staff are not entitled to annual leave, therefore not rostering them during a Christmas shutdown (and not paying them for this time) should not be problematic.
About EI Legal
EI Legal is a specialist employment law firm focused on providing comprehensive employment solutions to SMEs and corporate clients. At EI Legal, we live and breathe employment law. All our lawyers are specialist employment lawyers, rather than generalists who dabble in this area.
The information provided in these blog articles is general in nature and is not intended to substitute for professional/legal advice. If you are unsure about how this information applies to your specific situation we recommend you contact EI Legal for advice.