On 22 December 2022, the Fair Work Commission (FWC) issued its decision to standardise the annual leave shut down provisions in most modern awards, as part of the 4 yearly review of awards.
The major awards affected are:
- Banking, Finance and Insurance Award 2020
- Broadcasting and Recorded Entertainment Award 2020
- Building and Construction General On-site Award 2020
- Cleaning Services Award 2020
- Clerks — Private Sector Award 2020
- Commercial Sales Award 2020
- Food, Beverage and Tobacco Manufacturing Award 2020
- General Retail Industry Award 2020
- Graphic Arts, Printing and Publishing Award 2020
- Hospitality Industry (General) Award 2020
- Manufacturing and Associated Industries and Occupations Award 2020
- Professional Employees Award 2020
- Road Transport (Long Distance Operations) Award 2020
- Road Transport and Distribution Award 2020
- Security Services Industry Award 2020
- Storage Services and Wholesale Award 2020
The model clause, which will take effect from 1 May 2023 (subject to adaptations for some awards), is provided below.
A significant aspect of the decision is the removal of any right of the employer to direct an employee to take leave without pay if they do not have enough annual leave accrued to cover the shutdown period.
The majority decision of the Full Bench (Commissioner Hunt dissenting) said:
[69] We do not accept that the removal of existing provisions permitting an employee to be directed to take leave with pay or stood down if they do not have sufficient accrued annual leave will necessarily have the legal effect or practical effect that an employee in this situation will have to be paid. As to the legal effect, this will depend upon the applicability of s 524), the terms of the employee’s contract of employment, as well as any applicable enterprise agreement. In relation to s 524, there are likely to be many circumstances in which s 524(1)(c) applies; for example, in the building industry, if a head contractor closes down a building site over Christmas/New Year, that is likely to cause a stoppage of work for which a subcontractor employer cannot reasonably be held responsible and thus enable a stand-down under s 524.
[70] As to the practical effect, we make the following observations:
(1) On the working assumption that a shutdown period would in most cases be two weeks or less (except for some industry sectors with special characteristics), and would typically occur during the Christmas/New Year period, any employee with 6 months or more of service is likely to have accrued sufficient annual leave to cover the shutdown period. Some employer submissions have expressed a concern about employees using up their annual leave entitlements during the course of the year prior to the shutdown occurring, but we consider that s 88 of the FW Act provides sufficient scope for employers to manage employee annual leave requests, so that employees have sufficient accrued leave to cover a shutdown… In particular, where it is an established feature of an employer’s business, or a relevant part of it, to shut down in the Christmas/New Year period, it would be unlikely that a refusal to agree to a leave request which would leave the employee with insufficient accrued leave to cover the shutdown period would be unreasonable within the meaning of s 88(2) of the FW Act, unless there were some strong countervailing factors pertaining to the individual concerned.
(2) The fact that the asserted problem is largely confined to employees with only six months or less of service (or, in the case of a one-week shutdown, three months or less of service29) diminishes its significance. Even if s 524, the contract of employment, or any applicable enterprise agreement, does not address the issue of shutdown, any shortfall may be managed using a variety of means including use of accrued rostered days off and time off in lieu of overtime, or granting requests to take annual leave in advance. It will be unusual for an employee to have no accrued annual leave, so in most cases, it will only be a question of covering a shortfall, and not the entire period.
Generally, section 524 of the Fair Work Act (Act), which deals with stand downs, will not give an employer the right to direct an employee with insufficient accrued leave to take leave without pay during the shutdown. Some existing enterprise agreements may give an employer that right, however, it is doubtful many (if any) new agreements will have such a provision. A suitably drafted clause in a contract of employment, whereby an employee agrees, on engagement, to take unpaid leave if such circumstances arise, will be the only, as yet untested, mechanism available to an employer.
If such a provision does not exist in an enterprise agreement or a contract, then:
- when considering requests for annual leave during a year, an employer will have to ensure the employee will have enough leave in store to cover any shutdown period, or obtain the employee’s agreement that they will take unpaid leave during the shutdown as a condition to approving the leave request;
- the employer could require employees to take accrued RDOs or TOIL during the shutdown (if applicable, and subject to any relevant award or enterprise agreement provisions); and/or
- when an employee does not have enough leave to cover the shutdown, the employer will either have to find work for the employee to perform, or pay the employee for the period not covered by accrued annual leave.
Model clause
XX.XX Direction to take annual leave during shutdown
(a) Clause XX.XX applies if an employer:
(i) intends to shut down all or part of its operation for a particular period (temporary shutdown period); and
(ii) wishes to require affected employees to take paid annual leave during that period.
(b) The employer must give the affected employees 28 days’ written notice of a temporary shutdown period, or any shorter period agreed between the employer and the majority of relevant employees.
(c) The employer must give written notice of a temporary shutdown period to any employee who is engaged after the notice is given under clause XX.XX(b) and who will be affected by that period as soon as reasonably practicable after the employee is engaged.
(d) The employer may direct the employee to take a period of paid annual leave to which the employee has accrued an entitlement during a temporary shutdown period.
(e) A direction by the employer under clause XX.XX(d):
(i) must be in writing; and
(ii) must be reasonable.
(f) The employee must take paid annual leave in accordance with a direction under clause XX.XX(d).
(g) In respect of any part of a temporary shutdown period which is not the subject of a direction under clause XX.XX(d), an employer and an employee may agree, in writing, for the employee to take leave without pay during that part of the temporary shutdown period.
(h) An employee may take annual leave in advance during a temporary shutdown period in accordance with an agreement under clause XX.XX.
(i) In determining the amount of paid annual leave to which an employee has accrued in entitlement, any period of paid annual leave taken in advance by the employee, in accordance with an agreement under clause XX.XX, to which an entitlement has not been accrued, is to be taken into account.
(j) Clauses XX.XX to XX.XX do not apply to a period of annual leave that an employee is required to take during a temporary shutdown period in accordance with clause XX.XX
Operative date 1 May 2023.
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If you would like to discuss how these developments impact your business or if you require assistance with understanding your obligations as an employer, please contact a member of our Workplace Relations team.
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