An annual shutdown is a period during which the whole business, or part of the business, closes down temporarily and employees are not required to attend work. Common periods of shutdown include Christmas through to New Year or over Easter.

When observing a shut down period, employers may be required to comply with certain notice requirements outlined in an applicable award or agreement. In the absence of a specified notice period, reasonable notice must be provided.

Additionally, employers may be able to direct employees to take paid annual leave and/or unpaid leave during a shutdown period in certain circumstances. The ability to direct employees to proceed on a leave period will depend on the terms of the relevant legislation and applicable industrial instrument(s) (i.e. awards/agreements/contracts). This can differ depending on whether the business is a national system employer or a state system employer.

National system employers

The following information applies to national system employers and employees.

Award/agreement free

For award/agreement free employees, the Fair Work Act 2009 (the Act) authorises an employer to direct such employees to take accrued annual leave, provided the direction is reasonable. The Act considers that it may be reasonable to direct award/agreement free employees to take annual leave during
an annual shutdown period.

Notwithstanding this, an employer should consider the following factors when considering the reasonableness of such a request:

• the needs of both the employee and the employer’s business
• any agreed arrangement with the employee
• the custom and practice in the business
• the timing of the requirement or direction to take annual leave, and
• the reasonableness of the period of notice given to the employee to take annual leave.

Award/agreement covered

Awards and agreements may contain terms requiring an employee to take annual leave or allowing an employer to direct employees to take a period of annual leave, where the requirement or direction is reasonable. Only where the relevant industrial instrument provides for this is it possible to require or direct employees to take annual leave during a shutdown period.

Insufficient annual leave

The Act does not specifically provide information on directing an employee to take unpaid leave. However, where an employee has insufficient paid annual leave to cover a shutdown period, the employer and employee may agree to a period of authorised unpaid leave for the remainder of the shut down period.

There are additional options available to employers where an employee has insufficient leave to cover the entire shutdown period:

• Unrestricted payment to employees for the period of shutdown: Permanent employees will receive payment for their contracted ordinary hours for the proportion of the shutdown period not covered by annual leave. In the absence of mutual agreement to take unpaid leave, or provisions for taking leave in advance in a relevant industrial instrument, an employer must pay the employee their guaranteed weekly wages.
• Agree to unpaid leave: For employees who do not have the requisite amount of annual leave credited at the time of shutdown, authorised unpaid leave may be mutually agreed to between the individual employee and the employer for the remaining period. Any mutual agreement should be recorded in writing.
• Annual leave to be taken in advance: Where provision is made under the applicable industrial instrument, an employer may agree to an employee taking annual leave in advance of accrual. Any such agreement should be recorded in writing.

State system employers

The following applies to state system employers and employees.

State system employers who close their business during a shutdown period should not assume they have the right to direct their employees to take annual leave.

In order to enforce a shutdown there are a number of considerations that employers need to take into account:

• If the relevant industrial instrument provides the employer with an ability to direct or require employees to take a period of annual leave, then this may be possible.
• Where it is common practice for a business to observe a shutdown and for employees to take annual leave and/or leave without pay, then this may be implied into the employment contract. It is advisable to inform employees of this practice prior to the commencement of employment.
• Employers may agree with their employees that accrued annual leave will be utilised during a shutdown period. If the shutdown period is longer than the accrued annual leave, the employer and employee may consent to a combination of unpaid leave and pro-rata annual leave to cover the period. Where mutual agreement is sought, it is advisable to include terms in a contract of employment or letter of offer of employment that provide for leave to be taken during shutdown periods.
• Employers may include a term in their agreement, contract of employment or letter of offer of employment which makes it a condition of employment to take paid and/or unpaid leave during a shutdown period.

If none of the above allows the employer to direct or require employees to take leave during a shutdown and no mutual agreement has been achieved regarding a paid and/or unpaid leave period, the employer may need to pay employees for the time off.

If employees are ready, willing and able to work but are not required to attend work, the employer must meet contractual obligations to provide work for the contracted hours or pay employees for the ordinary hours they would have worked in lieu.  Employers in the building and construction industry may need to contact the Employee Relations Advice Centre to obtain further information on the annual industry close-down.

Guidelines for employers who observe a shut down period

It is important that employees and employers are aware of their obligations for periods of shutdown. Some useful tips include:

• Provide employees with plenty of notice by including a term in your employment contracts or enterprise agreements that an annual shut down period is observed.
• Draft a policy that addresses paid leave in advance of accrual where the relevant industrial instrument provides for this.
• Manage annual leave accruals throughout the year to ensure employees have sufficient amounts accrued for shutdown periods.
• Draft a reminder letter and issue this to employees to advise them of the shutdown period a month or so prior to the shutdown.

Frequently asked questions

1. If a public holiday falls during a shutdown period, what do we pay our staff for the public holiday?

For national system employers, where a public holiday falls during a period of paid annual leave, the employee is taken not to be on annual leave. Annual leave must not be deducted from the employee’s annual leave credits on public holidays. The employer is liable to pay the employee at their base rate of pay for their ordinary hours of work. An employee will not be entitled to any payment for absence on a public holiday if they would not ordinarily have worked that day. Employees are also not entitled to payment for public holidays that fall during unpaid leave.

Where a public holiday occurs during an annual shutdown and a state system employer and employee have agreed to a leave period, the public holiday generally will be treated as annual leave or unpaid leave, not as a public holiday for payment purposes. However, employers should always check any applicable award(s)/ agreement(s) for more beneficial entitlements to employees.

2. Can we force an employee to take annual leave?

The Fair Work Act 2009 allows an employer to require an award/agreement free employee to take a period of paid annual leave, but only if the requirement is reasonable. It also permits terms in awards or agreements that require an employee, or enable an employer to require or direct an employee, to take paid annual leave in particular circumstances, but only if the requirement is reasonable. State system employers would need to refer to the industrial instrument to determine their right to direct an employee to take annual leave.

3. What are the risks if we direct an employee to take annual leave for a shutdown period where there is no ability to direct?

The risk of directing employees to take annual leave during shutdown where there is no ability to direct is breach of the relevant award or industrial instrument. Employers can incur substantial fines for such breaches (for example, up to $63,000 per breach for national system employers).

4. Can we require employees with insufficient amounts of annual leave accrued for a shutdown period to work over that period?

By requiring employees with insufficient leave accruals to work during a shutdown, employers risk discriminating against particular individuals or groups by applying this rule. Younger workers who have entered the workforce for the first time may have insufficient leave accrued, employees who have taken annual leave due to family responsibilities during the year, or for personal illness where their personal leave entitlement has been exhausted are examples of employees who may be disadvantaged in such instances.

For more information, contact the Employee Relations Advice Centre on (08) 9365 7660 or email [email protected].