It’s the most wonderful time of the year – but for businesses seeking to shut down over the festive period, Christmas can bring the unwanted gift of navigating additional legal do’s and don’ts when it comes to requiring employees to take leave.
To ensure compliance with legal obligations, it’s crucial to understand ahead of time how to handle these shutdowns effectively. This guide provides practical steps and considerations for mandating leave during holiday closures.
From 2010 until 2023, many employers 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.
Now is the time to start planning ahead for the Christmas/New Year period, and any other shutdown periods that may be on the horizon.
What were the most recent changes?
In May 2023, the Fair Work Commission (FWC) significantly changed how shutdown periods are treated in modern Awards by inserting a model clause which provides that:
- An employer must give affected employees at least 28 days’1 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 do not apply to businesses which currently have an enterprise agreement in place.
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’. In circumstances where the FWC found that a direction to take leave without pay during a shutdown period is ‘tantamount to a stand down’, 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 businesses with Award-covered employees, the practical impacts of the changes include:
- If the business intends to shut down over the Christmas/New Year period, start drafting communications to employees by mid November at the latest to ensure compliance with the 28 day notice period (or by mid-October if the Award applicable to your industry requires a 2 month 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 unreasonable;
- 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 to ensure 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).
For those businesses contemplating a full or partial closure over the Christmas and New Year period, now is an ideal time to review your legal obligations regarding shutdown periods, and to familiarise yourself with what is needed to ensure any directions to take leave are compliant.
1 Under some Awards, the model clause has been altered to require a longer notice period. It is therefore important to check the Award which applies to your workforce. For example, under the Building and Construction General On-site Award, and the Joinery and Building Trades Award, the minimum notice period is two months.
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.
