As the Christmas and New Year period approaches, many Australian businesses plan an annual shutdown. While this can be a practical solution during times of low demand, employers must ensure their approach complies with workplace laws, particularly if a modern award covers employees.

Failing to follow the correct process can lead to disputes, compliance breaches, and unnecessary costs. Here’s what you need to know.
 

How Are Shutdowns Implemented?

Under the National Employment Standards (NES) and relevant modern awards or enterprise agreements, employers may direct employees to take annual leave during a shutdown period. However, the rules vary depending on the employee’s coverage.

The NES permits employers to require employees to take annual leave in certain circumstances, but the process can be complex. The approach differs based on whether an employee is:

  • Covered by a modern award

  • Covered by an enterprise agreement

  • Award/agreement-free

In all cases, any directive to take annual leave must be reasonable. 
 

Shutdowns and Modern Award Provisions

Most awards include a model annual leave shutdown clause (Model Clause), which was introduced in May 2023. This clause, introduced in 78 awards, enables employers to mandate that employees take annual leave during temporary shutdown periods, provided the following conditions are met:

  • Note requirements: Employers must provide at least 28 days' written notice of the shutdown period, or a shorter period if agreed upon by the majority of employees.

  • Leave balance:  Employees must have sufficient annual leave to cover the shutdown period.

  • Reasonable direction: The direction to take annual leave must be reasonable.

Note: It is important to note that some awards may have slightly different requirements, so it is essential to double-check the relevant award. 
 

Shutdown Provisions in Enterprise Agreements

When an enterprise agreement is in effect for an employee, any directive to take leave must comply with the agreement's terms. Variations in enterprise agreements can be significant, differing from each other and from the modern award clause. Therefore, employers should consult the specific terms of their enterprise agreement for guidance. Seeking professional assistance may be necessary for further clarification.

Reach out to My Business Workplace for clarification.
 

For Modern Awards or Enterprise Agreements Without Shutdown Provisions

Some modern awards and enterprise agreements do not include specific provisions regarding shutdowns.

If your enterprise agreement or award lacks a shutdown clause, it is advisable to contact My Business Workplace. They can provide guidance on available options and help you determine the best course of action for your organisation.
 

Award/Agreement-Free Employees and Annual Leave Directives

Under the NES, employers can direct award- and agreement-free employees to take annual leave, provided it is deemed reasonable. For instance, a direction to take annual leave could be reasonable if the business is closed for a specific period, like the Christmas and New Year holidays, as indicated in the NES notes.

Unlike modern award clauses, the NES lacks specific requirements, such as a prescribed notice period. The amount of notice given to an employee will be a factor in any dispute over the reasonableness of the directive.
 

What Constitutes a "Reasonable" Shutdown?

The NES mandates that directives on annual leave must adhere to the principles of reasonableness, regardless of whether an award or agreement applies or whether the employee is exempt from such arrangements.

However, it is not feasible to provide a blanket definition of reasonableness applicable to all scenarios. Instead, the determination of what constitutes a reasonable shutdown hinges on the unique circumstances of both the employee and the employer.

  • The Explanatory Memorandum to the Fair Work Bill 2008 offers the following factors to consider when assessing the reasonableness of a shutdown:

  • The needs and interests of both the employee and the employer's business.

  • Any existing agreed arrangements between the employee and the employer.

  • The customary practices and norms within the business.

  • The timing of the shutdown request or directive and its potential impact on the employee's personal and professional commitments.

  • The reasonableness of the notice period provided to the employee prior to the shutdown.


What happens when an employee lacks sufficient accrued annual leave to cover a company shutdown?

Ideally, employers manage annual leave requests to ensure employees retain enough leave for an annual shutdown. However, sometimes employees may lack the required leave.

Factors contributing to this situation could include a recent start date or miscalculations during the leave approval process.Insufficient annual leave can complicate shutdown management. 

Employers may need to:

  • Secure employee agreement for unpaid leave.

  • Pay employees for the shutdown period, even if they do not work.

  • Allow employees to work during the shutdown.

In scenarios where an employee's accrued annual leave is insufficient to cover the entire duration of a shutdown, an agreement may be reached to utilise alternative forms of paid absence to bridge the gap.

Examples of such alternative forms include:

  • Accrued time off in lieu of overtime

  • Accrued rostered days off (subject to the provisions of the applicable modern award or enterprise agreement)

  • Advance annual leave

While these alternatives may resolve the issue of inadequate annual leave, it is crucial to note that many modern awards and enterprise agreements also stipulate that employee consent is required before utilising any of the above.
 

Reassignment of Duties During Partial Business Closure

In situations where only a portion of an employer's business is temporarily shut down, the employer may have the option to assign alternative job duties to employees during that period. These alternative duties may differ from the employee's regular job responsibilities.

The ability to assign employees to alternative duties depends on several factors, including the specific circumstances of the employee and the terms outlined in their employment contract, modern award, or enterprise agreement. Employers should carefully review these documents to ascertain their authority to reassign job duties.

To ensure a smooth transition and maintain employee morale, employers should consider factors such as the employee's skills, qualifications, and preferences when assigning alternative duties. Open communication and collaboration with employees can help alleviate concerns and foster a positive work environment.

By providing alternative work during periods of partial business closure, employers can maintain employee engagement, minimise disruptions, and ensure the continued productivity of their workforce.
 

Over to you: Key actions for employers

  • Review your shutdown policy now.
  • Check the relevant modern award or enterprise agreement for compliance.
  • Provide employees with written notice well in advance.
  • Plan for scenarios where employees have insufficient leave.
 

Need guidance through the shutdown period?

My Business Workplace subscribers can access the Workplace Advice Line for expert guidance. Simply log into your Workplace account and visit the Support page to see your available calls.
 
You can also download ready-to-use templates designed to keep your business compliant, including:

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