Annual shutdown provisions

Annual shutdown provisions

The Fair Work Commission (FWC) recently made a decision as part of their 4 yearly review of modern awards that the current provisions for annual shutdown rules in the modern awards are likely to be amended. The decision raised some questions about the validity and lawfulness of employees being required to take leave without pay during that shutdown period.


What is an annual shutdown?

In its simplest term, the annual shutdown is the closure of a business during the holiday periods or due to seasonal breaks for that particular business. This is a synonym for a time when employees are required to take annual leave or unpaid time off. Typically, this is something that is organisation wide, or in some cases, only specific departments will close and run-on skeleton staff.


The most common time for this to take place is during the festive season, more specifically Christmas and New Year, but in some industries, it can be an occurrence during different periods of the year. For example, there are specific industries that only have seasonal products or services, and they shutdown during months of no activity.


The Fair Work Commission is primarily looking into the decision of requiring that employees take leave without pay.


Modern awards and shutdown clauses

Not all existing modern awards include this clause and when they do, there are significant variations. There are a number of variations in the modern awards such as the number of weeks in advance employees need to be notified by, in some cases, it could be weeks and in others, it could be months. Furthermore, in some modern awards, employers have the ability to request employees to take leave without pay to cover the annual shutdown period. This is the main area of concern for the FWC and hence the amendments.


The proposed shutdown clause that the FWC is proposing would entail –

1. Limitations to when an employer can shut down and require employees to take annual leave.

2. Removal of the option for employers to require employees to take leave without pay if the employees don’t have sufficient annual leave accruals to cover the shutdown period.

3. In the circumstances where employees don’t choose to take leave without pay and don’t have sufficient annual leave accruals, they will be paid for the shutdown period.

4. The inclusion of a minimum notice period of 28 days for any shutdown period.


What is all of this going to change for employers?

The proposed changes by the FWC are yet to be implemented, however, it would be advisable for businesses to verify their modern awards for applicable obligations regarding shutdown periods and the relevant notice periods that might apply. If the modern award doesn’t contain a shutdown and /or closedown clause, employees can’t be required to take annual leave.


The employer and employee could, however, mutually agree to annual leave and/or a combination of annual leave and leave without pay. In some instances, the employee might also have excessive leave accruals as per the definition under the modern award and can be directed to take leave. The definition of “excessive leave accrual” should be defined in the applicable modern award and as an example in the Clerks – Private Sector Award 2020 is defined as more than 8 weeks’ paid annual leave.


Furthermore, it would also be advisable to stay up to date with the proposed changes by the FWC if your modern award contains a clause for shutdown and/or closedown. Notwithstanding the above, other awards might also be reviewed in the future to include these clauses.


Can I direct my employees to take annual leave in case of a shutdown?

In some circumstances, you can direct your employees to take annual leave and/or leave without pay for a period of shutdown. As outlined above, there are however some considerations that need to be evaluated such as the modern award provisions for the notification period and whether the award allows for annual leave or leave without pay for shutdown periods.


If the award is silent on shutdown and/or closedown periods, then a mutual agreement with the employee to take a combination of annual leave and leave without pay can be attempted. However, the employee cannot be directed to take either annual leave or leave without pay if the award doesn’t have a provision for it.


As an example of a notification period, the Hospitality Industry (General) Award 2020 requires an employer to give employees at least 4 weeks’ notice in case of a shutdown. The ideology is to make sure that employees can plan in advance and prepare for when a shutdown happens. Employers should always consider this to be important in their business efforts to ensure a supportive environment.


Insufficient annual leave to cover the shutdown period

Referring to the modern award is the appropriate response in this situation to seek clarity on what can or can’t be done. Different modern awards will have different provisions about what can be done based on the circumstances of insufficient annual leave to cover the shutdown period.


As an example, Clause 34.7 of the Manufacturing and Associated Industries and Occupations Award 2020 states the following:

“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.”


The FWC is questioning the lawfulness and validity of directing employees to take leave without pay. In turn, modern awards will need to be amended in order to ensure this is rectified.


How does this impact casuals?

If you employ casuals in the true term of the definition as per the Fair Work Act 2009 – Sect 15A, then team members are employed on a pay-to-play arrangement and if casuals aren’t rostered due to a period of shutdown, it shouldn’t be an issue.


Final thoughts on annual shutdown provisions

It is very clear that one of the main things that employers should always consider when dealing with employees’ leave is their obligations under the law. Employers need to ensure that they comply with the legislation, employment laws, Fair Work Act 2009, and modern awards.


At HR Expertise, our team of HR Consultants provides HR Consulting in Melbourne and across Australia to help navigate you through the process, call us today if you need assistance, we would love to work with you.