Christmas Shutdowns – A Timely Reminder About Annual Leave

Shutdowns are a common business practice during the Christmas and New Year period.

With the festive season fast approaching, businesses that have not done so should turn their mind to staff leave arrangements.

Some employers may need to direct staff to take annual leave for the shutdown period. Employers should be mindful that the requirements for directing employees to take annual leave during a shutdown may have changed in their industry.

New shutdown provisions

In a decision issued on 22 December 2022, the majority of the Full Bench of the Fair Work Commission determined that a new model clause would replace existing shutdown clauses in 78 Awards.¹  These changes came into effect from 1 May 2023.

The new model clause addresses how employers can direct employees to take annual leave during a shutdown. It includes the following key requirements:

• employers may direct employees to take accrued paid annual leave during a temporary shutdown;
• employers must give at least 28 days’ written notice of the shutdown to employees, unless agreement for a shorter notice period is reached with the majority of affected employees;
• the direction to take annual leave must be reasonable; and
• an employee who does not have sufficient paid annual leave to cover the whole period might form an agreement with their employer for the days not covered, such as: (1) taking annual leave in advance in accordance with the applicable Award; or (2) taking leave without pay by written agreement.

Amongst the many awards that have been varied are the Clerks—Private Sector Award 2020, the General Retail Industry Award 2020 and the Miscellaneous Award 2020.

The model clause has been adapted to some Awards to incorporate some existing prescriptions. For example, the Building and Construction General On-Site Award 2020 still requires employers to give two months’ written notice when directing employees to take paid annual leave during a Christmas shutdown.

Employers should now carefully review any shutdown terms in the Award or Awards that cover their business.

No ability to direct employees to take unpaid leave

Historically, some employers directed employees to take leave without pay where the employee did not have sufficient annual leave to cover a shutdown period.

Importantly, the new model shutdown clause does not allow employers to ‘direct’ employees to take unpaid leave.  

The majority of the Full Bench was not satisfied that the Commission had the power to insert Award terms allowing for employees to be directed to take unpaid leave during a shutdown. It was held that existing terms that allowed employees to be directed to take leave without pay were beyond the power of the Fair Work Act 2009 (Cth) (FW Act).

Some employer groups have raised concerns about how the new shutdown clause will operate in practice. Employees might not have a sufficient leave balance to cover the holiday shutdown. In the past, these employees may have been directed to take unpaid leave.

In response, the majority noted that section 88 of the FW Act already provides scope for employers to manage employee leave requests during the year. The majority observed:  

[I]t would be unlikely that a refusal to agree to a [annual] leave request which would leave the employee with insufficient accrued leave to cover the shutdown period would be unreasonable within the meaning of [the FW Act] unless there were some strong countervailing factors pertaining to the individual concerned.²

This suggests employers may need to proactively monitor employee leave balances throughout the calendar year to ensure employees have sufficient accrued annual leave to cover an end of year shutdown period. Alternatively, businesses may reach an agreement with employees about the taking of annual leave in advance or leave without pay to cover a shortfall.  

However, if an employee covered one of the 78 impacted Awards does not have a sufficient annual leave balance, and no other agreement exists to address the shortfall, the employer could find themselves in the legal situation where it must:

• allow the employee to work; or
• pay the employee for the period for which annual leave cannot be taken.

Employees cannot be directed to take unpaid leave under the changes.

Award free employees

Some employees, such as certain managerial and professional employees, may not be Award covered.

Businesses with Award-free staff should familiarise themselves with section 94 of the FW Act.

Under this section, an employer may require an Award free employee to take a period of paid annual leave, but only if the requirement is ‘reasonable’. A requirement to take annual leave may be reasonable if the business is being temporarily shut down for the Christmas and New Year period.

Section 94 of the FW Act also permits employers to agree with employees about how leave may be taken, such as taking annual leave in advance.

Conclusion

None of the changes prevent employees and employers from mutually agreeing on taking leave, whether paid or unpaid, during a shutdown. Indeed, the model Award terms contemplate this. For many employers, this may be the simplest solution.

However, some businesses may need to issue a direction to staff to take annual leave during a Christmas shutdown if their operations require this.

It is important that employers ensure any directions they issue comply with obligations under the relevant award, the Fair Work Act 2009 (Cth) or applicable industrial instrument.

Businesses that are unsure of their obligations should reach out for assistance.

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‍¹ 4 yearly review of modern awards—Plain language—Shutdown provisions [2022] FWCFB 246.

² Ibid [70].

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‍This article in no way constitutes legal advice. It is general in nature and is the opinion of the authors only. You should seek legal advice tailored to your individual circumstances before acting on anything related to this article.‍