From 1 May 2023, a significant number of employers in Australia will lose a current right, contained in many modern awards, to direct employees to take unpaid leave during shutdown periods when the employee has no accrued annual leave.

The majority of employers have a shutdown period at least once a year, sometimes due to seasonal slowdowns, but most often from a cessation of trade due to the Christmas and New Year holiday period.

Arising in the Fair Work Commission’s (‘FWC’) 4 yearly review of modern awards, a majority decision of the Full Bench has resulted in a new model clause for shutdowns (relative to annual leave) being inserted into 78 modern awards (listed below) and operative from 1 May 2023.

The change arises largely because of a legal argument, ultimately adopted by a majority of the FWC Full Bench (the majority comprising of Acting President Hatcher and Deputy President Asbury), that the FWC that it did not actually have power under the Fair Work Act 2009 (Cth) to include the current shutdown provisions (which exist in many modern awards). Disagreeing with that view, Commissioner Hunt said that the FWC was appropriately empowered to include such clauses, and that this new model clause would lead to increased disputes between employers and employees.

What is the change?

The new model clause provides that employers covered by the modern awards in question can only direct award-covered employees to take annual leave during a shutdown if they have accrued an entitlement to annual leave which can be used during the shutdown period.

While provision has been made for employers and employers to agree to the employee taking unpaid leave where they have insufficient annual leave to cover the entire shutdown period, many employers will now lose the right to direct the employee to take unpaid leave where they have an insufficient annual leave balance to cover the shutdown period.

The employer and employee may also agree to the employee taking annual leave in advance of the entitlement accruing. However, Acting President Hatcher and Deputy President Asbury made it clear that employees cannot force employers covered by these awards to provide annual leave in advance.

If an employer fails to properly consider this issue, and plan for it, and an employee arrives at a Christmas holiday shutdown with no accrued annual leave (or only sufficient annual leave to cover part of the shutdown period), an employer may now be forced to pay the employee their normal remuneration for the shutdown period (or part of the shutdown period).

The Fair Work Commission’s decision represents a change in the interpretation of a ‘direction to take unpaid leave’ during a shutdown period, instead construing it as a ‘stand down’ under section 524 of the Fair Work Act. The majority of the Full Bench held that in most circumstances of an employer’s annual shutdown they would not be entitled to ‘stand down’ employees, as stand downs can only be enacted because of:

1. industrial action;
2. breakdown of machinery or equipment; or
3. a stoppage of work for which the employer cannot reasonably be held responsible.

An example of where a stand down under section 524 may be utilised in the context of an annual shutdown is where a head contractor on a building site shuts the site down over Christmas. While employees of the head contractor could not be stood down under section 524, an employee of a subcontractor who cannot enter the site because of the shut down could potentially be stood down under section 524. It is important to note though that the head contractor would be required to rely on this new model clause for its own employees (who are covered by the relevant award).

For the majority of employers covered by the affected awards, careful review of the new model clause is necessary and then greater scrutiny of annual leave requests will now need to be undertaken to ensure employees have a sufficient annual leave balance to cover any planned shutdown. Employers will need to calculate the impact of approving an employee’s annual leave request for a period elsewhere in the year on their accrued annual leave balance and either deny the leave, or approve it only on the basis that the employee agrees to take unpaid leave during the planned shutdown.

Employers should also consider taking legal advice about adding a clause to their employment contracts, through which the parties agree that unpaid leave will be taken if there is insufficient annual leave accrued to cover the period of a shutdown.

If you would like to know more about what you should now be taking into account when you receive annual leave requests, or need advice about your annual leave provisions in your employment contracts, you should contact the specialist employment lawyers at Aitken Legal today.

Affected modern awards:

1. Aboriginal and Torres Strait Islander Health Workers and Practitioners and Aboriginal Community Controlled Health Services Award 2020 (clause 22.3)
2. Aircraft Cabin Crew Award 2020 (clause 19.4)
3. Airline Operations–Ground Staff Award 2020 (clause 22.6)
4. Alpine Resorts Award 2020 (clause 25.3)
5. Aluminium Industry Award 2020 (clause 22.4)
6. Ambulance and Patient Transport Industry Award 2020 (clause 22.7)
7. Animal Care and Veterinary Services Award 2020 (clause 22.5)
8. Aquaculture Industry Award 2020 (clause 22.9)
9. Asphalt Industry Award 2020 (clause 21.8)
10. Banking, Finance and Insurance Award 2020 (clause 22.5)
11. Black Coal Mining Industry Award 2020 (clause 24.9)
12. Broadcasting and Recorded Entertainment Award 2020 (clause 18.6)
13. Building and Construction General On-site Award 2020 (clause 31.3)
14. Business Equipment Award 2020 (clause 23.5)
15. Car Parking Award 2020 (clause 24.6)
16. Cemetery Industry Award 2020 (clause 19.3)
17. Cement, Lime and Quarrying Award 2020 (clause 22.8)
18. Cleaning Services Award 2020 (clause 21.4)
19. Clerks—Private Sector Award 2020 (clause 32.5)
20. Coal Export Terminals Award 2020 (clause 20.7)
21. Commercial Sales Award 2020 (clause 20.6)
22. Concrete Products Award 2020 (clause 22.6)
23. Contract Call Centres Award 2020 (clause 22.10)
24. Educational Services (Post-Secondary Education) Award 2020 (clause 22.5)
25. Electrical Power Industry Award 2020 (clause 21.8)
26. Electrical, Electronic and Communications Contracting Award 2020 (clause 21.5)
27. Fitness Industry Award 2020 (clause 21.3)
28. Food, Beverage and Tobacco Manufacturing Award 2020 (clause 25.11)
29. Gardening and Landscaping Services Award 2020 (clause 20.9)
30. Gas Industry Award 2020 (clause 20.7)
31. General Retail Industry Award 2020 (clause 28.4)
32. Graphic Arts, Printing and Publishing Award 2020 (clause 31.12)
33. Hair and Beauty Industry Award 2020 (clause 24.3)
34. Health Professionals and Support Services Award 2020 (clause 26.5)
35. Higher Education Industry—General Staff—Award 2020 (clause 24.4)
36. Horse and Greyhound Training Award 2020 (clause 18.6)
37. Hospitality Industry (General) Award 2020 (clause 30.4)
38. Hydrocarbons Industry (Upstream) Award 2020 (clause 25.7)
39. Joinery and Building Trades Award 2020 (clause 27.9)
40. Journalists Published Media Award 2020 (clause 20.8)
41. Legal Services Award 2020 (clause 22.7)
42. Local Government Industry Award 2020 (clause 23.5)
43. Manufacturing and Associated Industries and Occupations Award 2020 (clause 34.7)
44. Meat Industry Award 2020 (clause 25.8)
45. Mining Industry Award 2020 (clause 22.7)
46. Mobile Crane Hiring Award 2020 (clause 24.6)
47. Miscellaneous Award 2020 (clause 21.4)
48. Nursery Award 2020 (clause 22.12)
49. Nurses Award 2020 (clause 22.7)
50. Oil Refining and Manufacturing Award 2020 (clause 24.6)
51. Pest Control Industry Award 2020 (clause 23.9)
52. Pharmaceutical Industry Award 2020 (clause 21.5)
53. Plumbing and Fire Sprinklers Award 2020 (clause 24.4)
54. Poultry Processing Award 2020 (clause 21.5)
55. Premixed Concrete Award 2020 (clause 22.8)
56. Professional Employees Award 2020 (clause 18.4)
57. Racing Clubs Events Award 2020 (clause 23.5)
58. Racing Industry Ground Maintenance Award 2020 (clause 21.5)
59. Real Estate Industry Award 2020 (clause 20.5(a))
60. Registered and Licensed Clubs Award 2020 (clause 25.4)
61. Restaurant Industry Award 2020 (clause 25.4)
62. Road Transport (Long Distance Operations) Award 2020 (clause 20.4)
63. Road Transport and Distribution Award 2020 (clause 24.9)
64. Salt Industry Award 2020 (clause 23.10)
65. Seafood Processing Award 2020 (clause 21.11)
66. Security Services Industry Award 2020 (clause 21.4)
67. Silviculture Award 2020 (clause 22.5)
68. Storage Services and Wholesale Award 2020 (clause 24.5)
69. Sugar Industry Award 2020 (clause 31.5)
70. Supported Employment Services Award 2020 (clause 32.3)
71. Surveying Award 2020 (clause 22.7)
72. Telecommunications Services Award 2020 (clause 22.9)
73. Textile, Clothing, Footwear and Associated Industries Award 2020 (clause 32.6)
74. Timber Industry Award 2020 (clause 28.10)
75. Vehicle Repair, Services and Retail Award 2020 (clause 29.6)
76. Water Industry Award 2020 (clause 22.4)
77. Wine Industry Award 2020 (clause 24.9)
78. Wool Storage, Sampling and Testing Award 2020 (clause 23.5)