As part of the Fair Work Commission’s (the “FWC”) four yearly review of modern awards, 78 modern awards will be amended to prohibit employers from directing their employees to take leave without pay during an organisation’s shutdown period. You can read the full decision of the FWC here.

This will impact many modern awards, including the Banking, Finance and Insurance Award 2020, Clerks – Private Sector Award 2020, Building and Construction General On-site Award 2020, General Retail Industry Award 2020, Professional Employees Award 2020, and many others.

The decision provides a “model clause” to be implemented into modern awards which will require that employers seeking to implement a shutdown period in their organisation do the following:

• give employees 28 days’ written notice of the shutdown period;
• for employees engaged within 28 days of the shutdown period commencing, give written notice as soon as reasonably practicable after the employee is engaged; and
• only direct an employee to take a period of annual leave during the shutdown period if it has been accrued (this direction must be reasonable and in writing).

If an employee has not accrued sufficient annual leave to cover the entirety of the organisation’s shutdown period, their employer can no longer direct them to take leave without pay.

However, an employer and employee may agree (in writing) for the employee to take leave without pay, or for an employee to take annual leave in advance (that is, before it has been accrued) during the shutdown period.

If an employee does not agree to take unpaid leave during an organisation’s shutdown period, the employer will be required to find work for the employee to perform, or pay them for the shutdown period.

To manage this situation the FWC confirmed that employers are able to reasonably refuse their employees’ requests for annual leave at other times during the year, or obtain an employee’s agreement that they will take unpaid leave during a shutdown period, if the taking of annual leave would lead them to have insufficient leave to cover the entirety of a shutdown period.

It is important to remember that if an employee has accrued sufficient annual leave to cover the entirety of the organisation’s shutdown period, then that employee must take the accrued leave as directed.

Some employers may still have the right to direct their employees to take unpaid leave during a shutdown period under an enterprise agreement or employment contract. However, modern award covered employees will be subject to the new rules.

Key takeaways

For employers who plan to have a shutdown period, it is important that they:

• plan their employees’ leave throughout the entire year to ensure their entitlements will cover the shutdown period;
• regularly check-in with employees regarding their plans to take annual leave;
• review employees’ leave balances coming up to a shutdown period, and plan to make any arrangements as necessary (including agreements with employees to work through the shutdown or take unpaid leave); and
• consider amending any policies or contracts relating to annual leave to reflect the recent changes.

The changes commence on 1 May 2023.