As the Christmas and New Year period approaches many organisations shutdown there operations with empoyees taking annual or other forms of leave. But what are the rules around directing employees to take annual leave and what can employers do if an empoyee does not have enough leave to cover the shutdown period? This blog post answers these questions and more.
For award/agreement free employees, the National Employment Standards (NES) of the Fair Work Act 2009 allows for the employer to require an employee to take annual leave in certain circumstances if the requirement is reasonable. Valid reasons include where an employee has accrued excessive annual leave or if the employer’s enterprise is being shutdown for Christmas.
For employees covered by a modern award or enterprise agreement the NES permits these instruments to contain supplementary terms relating to the taking of paid leave.
Similarly to the NES, modern awards in many cases provide that an employer may direct an employee to take leave if they have accrued an excessive amount, for example if they have a balance of more than eight weeks. Employers may also be able to ask employees to take annual leave where the business is being ‘shut down’ for the purposes of allowing such leave.
Under the NES, employers have the right to refuse a request for annual leave if the refusal is based on the operational requirements of the establishment and is reasonable. However, caution should be exercised when doing so as an employee may feel they are being discriminated against or that a refusal is unreasonable. As a result, they may lodge a claim against the organisation or initiate a dispute resolution process if available to them.
A refusal of a request for leave should always be accompanied by a reason as to why the leave is not convenient at that time. The employer and employee can then discuss an appropriate time for leave to occur.
One reason an employer may choose to refuse a request for leave is due to the shut down of the business. It would be reasonable in most circumstances to decline an employee’s request for annual leave if taking such leave would result in the employee having insufficient leave to cover a ‘shut down’ of a reasonable length. However, the specific reasons surrounding the request for annual leave would need to be considered in each case.
A practical implication of the December decision is that where employees do not have sufficient
annual leave to cover the full shutdown period employers may need to either:
• secure agreement from employees to take a period of unpaid leave;
• pay employees for the shutdown period even if the employees perform no work; or
• allow employees to work.
Members are encouraged to contact Ai Group on 1300 55 66 77 to discuss their individual
circumstances. However, some potential options for employers to mitigate the impact of the FWC’s
decision are set out below.
Manage annual leave balances
Employers can mitigate the impact of the Model Clause by managing annual leave approvals to
ensure that existing employees maintain enough leave to cover a future shutdown period.
Section 88(2) of the FW Act allows an employer to refuse an employee’s request for annual leave if
the refusal is reasonable. In the December decision, the FWC expressed a view that an employer’s
refusal of a request for annual leave may be reasonable if it would result in the employee having
insufficient leave to cover a proposed shutdown.
Members are encouraged to review any workplace policies that deal with the approval of leave to
ensure that employees, and managers with authority to approve leave, are aware of any
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expectation that an employee should retain sufficient annual leave balances to cover a future
period of shutdown.
Use other forms of paid absence to cover a shortfall
Where an employee does not have sufficient annual leave accrued to cover the entire period of a
shutdown, the employee might agree to use other forms of paid absence to cover that period. For
example, a shortfall in accrued annual leave might be managed by an agreement to access:
• Accrued time off in lieu of overtime;
• Accrued rostered days off (where the applicable modern award/enterprise agreement allows for
the accrual of rostered days off); and/or
• Annual leave in advance.
While the use of other forms of absence may resolve the issue of an employee having insufficient
annual leave to cover a period of shutdown, it is important to appreciate that it is common for
modern awards and enterprise agreements to require that an employee must provide their
agreement to using one of the entitlements listed above.
Provide alternative work for an employee to perform
Where only a part of an employer’s business is being shut down for a period, an employer may be
able to direct an employee to perform alternative duties during that period to those which they
would ordinarily perform.
Whether an employee can be directed to perform alternative duties will depend on the individual
circumstances of the employee. Employers should consider whether the applicable contract of
employment, modern award or enterprise agreement contain terms relating to an employer’s ability
to direct an employee to perform alternative duties (see for example clause 29 of the
Manufacturing and Associated Industries and Occupations Award 2020).
Make an enterprise agreement tailored to the business’ needs
An employer can make an enterprise agreement with its employees that provides terms dealing
with shutdowns that differ from the relevant modern award. Alternatively, employers may seek to
vary an existing enterprise agreement to ensure that it contains shutdown provisions that meet the
requirements of their organisation. This could include, for example, a clause that allows an
employer to direct employees to take a period of unpaid leave, or a clause that provides for
accrued rostered days off to be used during a shutdown period.
The feasibility and merit of seeking to either make or vary an enterprise agreement to deal with
shutdown arrangements will depend upon an employer’s individual circumstances. Ai Group can
provide members with advice and assistance in relation to such matters.
Make provision for shutdowns in the contract of employment
In circumstances where an employee does not have sufficient annual leave to cover a shutdown
period, the requirement to pay an employee for that period may be subject to the terms of the
employee’s contract of employment (see paragraph [69] of the December decision).
Employers may wish to consider the feasibility of including terms in employment contracts that
specifically deal with shutdown periods, particularly for new employees who will not have the
opportunity to accrue sufficient leave before the shutdown commences. This could potentially
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encompass terms that require an employee to take a period of unpaid leave during a shutdown.
Stand down employees
Section 524(1)(c) of the FW Act allows employers to stand down employees without pay in
circumstances where an employee cannot be usefully employed for a period because there is a
stoppage of work for any cause for which the employer cannot reasonably be held responsible.
In the December decision, the FWC expressed a view that in some circumstances s.524 may
operate in conjunction with a shutdown period. The FWC gave the example of a head contractor
closing down a building site over Christmas/New Year causing a stoppage of work for a
subcontracted employer.
Members are encouraged to seek advice about their individual circumstances before utilising the
stand down provisions of s.524 (including in the way described in the example above). A stand
down under s.524 requires an employer to establish that there has been a stoppage of work
outside the employer’s control and that the employee cannot be usefully employed during that
