In December 2022, as part of its 4-yearly review, the Fair Work Commission introduced a model called "Direction to take annual leave during shutdown clause" into 78 modern awards. These came into effect on 1 May 2023. These changes have far-reaching implications for both employers and employees alike.
Previously, in numerous modern awards, employers had the authority to require their employees to take annual leave during a scheduled shutdown period (typically observed over the Christmas and New Year holidays). This was regardless of if an employee had not accumulated enough annual leave to cover that specific period. In such cases, employers could direct employees to take unpaid leave instead.
However, as of 1 May, a new provision called the model clause has been introduced. This clause prohibits employers from mandating unpaid leave during a shutdown period unless they meet certain conditions – which we explore further below.
If an employee has accrued annual leave:
According to the model clause, employers can direct their employees to take paid annual leave during a temporary shutdown period, but only if certain conditions are met.
First, the employer must provide notice of the direction. The amount of notice will be stipulated in the modern award and typically varies between 28 – 30 days from award to award. Secondly, the direction must be deemed reasonable. And finally, employees must have accrued sufficient annual leave entitlements.
When assessing reasonableness, factors such as the needs of both the employee and the employer's business, any agreed arrangements, customary practices within the business, the timing of the leave directive, and the reasonableness of the notice given to employees should be considered.
If an employee does not have sufficient annual leave:
While employers are prohibited from directing employees to take unpaid leave during a shutdown period, there are alternative options available:
The employer and employee can come to a written agreement for a period of unpaid leave.
Employees can arrange with their employer to take annual leave in advance, even before it is accrued. This is commonly known as taking "negative annual leave" or "entering into negative leave balance". It's important to note that employees cannot demand or compel employers to provide them with advanced annual leave. The decision to allow advanced annual leave is ultimately at the employer's discretion and subject to mutual agreement. It is not an automatic right for employees to take annual leave before they have fully accrued it.
Key takeaways for shutdown periods:
It is crucial to note that if an employee does not have enough accrued annual leave to cover the shutdown period and does not agree to take unpaid leave, or if the employer does not permit annual leave in advance, the employee may be entitled to wages during the shutdown period.
These changes do not entirely prevent employers from directing employees to take paid annual leave during temporary shutdown periods as long as the requirements outlined in the applicable award are met.
Employers should plan for the change and communicate it to employees. Proper consideration of employees' annual leave balances is crucial to avoid disputes and ensure sufficient coverage during shutdown periods.
To adapt to these changes effectively, we recommend:
Check Your Award: 78 awards have been affected by this change.
Monitoring employees' annual leave balances throughout the year to anticipate whether they will have sufficient leave for the shutdown period. If necessary, alternative arrangements can be made in advance.
Employers need to carefully assess annual leave requests, considering the impact on accrued annual leave balances. Approval may depend on the employee agreeing to take unpaid leave during the planned shutdown or, if necessary, denying the leave request.
Updating policies or contract clauses relating to annual leave to reflect the changes and ensuring that HR managers are aware of these modifications.
By staying informed and adjusting practices accordingly, employers can navigate these changes and ensure compliance while managing their shutdown periods effectively.