Closure Countdown – Annual Leave and Shutdown Rule Changes

 

With Christmas less than 90 days away, employers should be turning their mind to planning and confirming their Christmas/New Year shutdown arrangements.

What is a “shutdown”?

A shutdown, sometimes referred to as a close down, occurs when an employer’s business (or part of the business) temporarily shuts down for a period of time. Shutdowns usually occur during holiday periods such as Christmas/New Year, when there is a decrease in general business activity or at other times when the specific business is not in demand.

As part of the plain language review of modern awards, the Full Bench proposed a draft model clause in relation to annual leave shutdown provisions in modern awards.

Previously, the modern awards contained different rules in relation to providing notice of taking annual leave during a shutdown and whether or not an employer could direct an employee to take annual leave in advance or leave without pay if there is insufficient accrued annual leave.

In May 2023, many modern awards were amended to insert the model clause to replace existing shutdown clauses in 78 awards (with minor amendments to individual awards).

Shutdown model clause

The model clause, and the new shutdown rules provide that if an employer intends to temporarily shut down all or part of its operation and wants affected employees to take annual leave during that period then:

  • The employer must give affected employees 28 days written notice of the temporary shutdown period (or shorter period agreed between the employer and majority of relevant employees).
  • The employer may direct employees to take a period of accrued annual leave during the temporary shutdown period. The direction must be in writing and must be reasonable.
  • If an employee does not have sufficient annual leave accrued, then the employer and employee may agree to take leave without pay, or to take annual leave in advance.

Employers should refer to the applicable modern award for the specific shutdown provisions.

Importantly the new shutdown rules will require employers to manage annual leave requests during the year to ensure that there is sufficient leave to cover the shutdown period. Otherwise, there must be agreement for an employee to take leave in advance or leave without pay.

Modern award and enterprise agreement-free employees

For employees who are not covered by a modern award or enterprise agreement, the Fair Work Act 2009 (Cth) (FW Act) will apply.

Section 94(5) of the FW Act provides that an employer can require an employee to take a period of paid annual leave but only if the requirement is reasonable.  “Reasonableness” includes the employer’s enterprise being shut down for a period (for example, between Christmas and New Year).

Under section 94(6) of the FW Act, an employer an employee may agree on when and how paid annual leave may be taken – including taking paid annual leave in advance of accrual.

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