As the festive season approaches, many Australian businesses begin preparing for their annual shutdowns over the Christmas and New Year period. This tradition aligns with a seasonal dip in customer demand and a natural desire among employees to spend time with loved ones. But while closing the doors for a few weeks may seem straightforward, employers must navigate a complex web of workplace laws to ensure compliance.
Here’s what you need to know to manage a shutdown effectively and lawfully.
An annual shutdown is a temporary closure of all or part of a business during which employees are directed to take annual leave. Before choosing to do this, employers need to consider the National Employment Standards (NES) and relevant industrial instruments (modern awards or enterprise agreements), which regulate how and when employees can be directed to take leave as discussed below:
Employees that are not covered by a modern award or enterprise agreement are subject to the NES provisions on directing annual leave.
Under the NES, employers can direct employees to take annual leave during a shutdown, but only if the direction is ‘reasonable’. What will be considered reasonable depends on the employee, but a note in the NES suggests that a direction to take annual leave could be reasonable if the business is being shut down for a period, such as Christmas and New Year period.
Most modern awards (around 78) include the model clause introduced on 1 May 2023. The model clause allows employers to direct employees to take annual leave during a shutdown if:
Important: Some awards have different requirements. For example, the Meat Industry Award 2020 requires 3 months’ notice. Always check the specific award that applies.
A Notice of Annual Shutdown Letter is available to assist Australian Industry Group Members when providing notice of a shutdown.
If an enterprise agreement applies, any direction to take leave must comply with its terms. These can vary significantly from the model clause in modern awards. Employers should review their agreement carefully and seek advice if needed.
Some awards and agreements don’t include shutdown provisions (for example the Social, Community, Home Care and Disability Services Industry Award 2010). In these cases, employers should seek advice on alternative options.
Neither the model clause or the NES provide detailed guidance on when a direction to take leave will be reasonable. However, the Explanatory Memorandum to the Fair Work Bill 2008 suggest factors that may be considered:
Knowing your obligations as an employer, as well as communicating employee responsibilities, is essential in ensuring that the various forms of leave available to employees is managed effectively.
Our Managing Leave Handbook provides helpful and practical information on how to manage all the different forms of leave in the workplace and explains the interaction of the NES with modern awards, enterprise agreements, contracts and any relevant state legislation.
The accompanying updating subscription for this publication makes sure you stay up to date when legislative changes or case law developments occur.
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This is a common challenge. If an employee lacks sufficient annual leave, employers may need to:
Here are practical ways to reduce the impact of employees not having enough annual leave for a shut down:
Under the NES, employers can refuse leave requests if the refusal is reasonable. Employers should review leave policies and ensure managers manage annual leave approvals to ensure that existing employees maintain enough leave to cover a future shutdown period for future shutdowns when considering whether to grant a request for leave.
Employees may agree to use:
Note: These options usually require employee agreement and may be subject to award or agreement conditions.
If only part of the business is shutting down, employees may be directed to perform other duties. This could be subject to the terms of applicable contracts or industrial instruments.
Enterprise agreements do not have to follow the model clause in modern awards, so can be tailored to suit a business’s particular shutdown requirements.
If an enterprise agreement is due for renegotiation, it might be a good time to consider whether the shutdown clause is meeting business needs. An employer without an enterprise agreement can consider making one with its employees.
However, making an enterprise agreement can be a lengthy and complicated process, and employers are recommended to seek strategic advice from Australian Industry Group Workplace Lawyers before commencing.
An employee’s entitlement to be paid over a shutdown period can be subject to an employee’s contracts of employment. Employers may want to seek advice about drafting or varying employment contracts that deal with shutdown periods. They can be especially valuable for new hires who will not accrue enough leave before their first shutdown period.
Annual shutdowns can be a great way to give your team a well-earned break and align with seasonal business needs. But to avoid pitfalls, it is essential to plan ahead, communicate clearly, and understand the business’s obligations under the NES, awards, and agreements.
For assistance with your workplace matters, Members of Australian Industry Group can contact us or call our Workplace Advice Line on 1300 55 66 77 for further information. Our Managing Leave Handbook is a practical guide that will help all organisations to succesfully manage the various types of leave available to employees.
Australian Industry Group Workplace Lawyers can assist organisations with:
Take advantage of more than 150 years of experience actively solving members’ workplace issues and representing their interests at the highest levels of national and state government. Being a member of Australian Industry Group makes good business sense. Call us on 1300 55 66 77 or visit our Why join page to sign up for a consultation with one of our member representatives.
