Australia: Changes to shutdown leave rules for 78 modern awards

The Fair Work Commission ('FWC') is required to conduct a review of the modern award process every 4 years under section 156A of the Fair Work Act 2009 (Cth) ('FWA'). This time around, it will be amending 78 different modern awards to include a new 'model term'. This 'model term' is intended to replace the existing shutdown clauses in these awards which relate to an employer's ability to direct its employees to take annual leave when it shuts down all or part of its operations. The most common example would be employers shutting down for the Christmas/New Year holidays every year. Ordinarily, there would be no issues if every employee has accrued sufficient annual leave leading up to this period. However, things get a little more complicated when employers find themselves in situations where an employee does not have enough annual leave accrued to cover the employer's shutdown period. Note, these changes will take effect on 1 May 2023.

Some of the 78 modern awards which will be amended include but are not limited to:

The impetus for this Change

The wheels were set in motion on 25 August 2022 when the FWC decided that amendments to certain modern awards were required specifically in relation to the shutdown clauses in those awards ('August Decision'). On 22 December 2022, the Full Bench of the FWC ('Full Bench') decided that these changes to the 78 awards were needed in order to meet the modern awards objective in FWA s 134(1) (as varied by the Fair Work Legislation Amendment (Secure Jobs Better Pay) Act 2022). The issue the FWC had to grapple with was pre-existing shutdown clauses contained in these 78 awards conferring powers on employers to make their employees take leave without pay in the event that (i) the employer shuts down all or part of its operations and (ii) the employee does not have sufficient annual leave accrued.

The FWC was of the view that these shutdown clauses were inconsistent with the FWA as "there is no general entitlement to take leave without pay under either the National Employment Standards or any award and (ii) the establishment of an undefined entitlement to take such leave in a clause concerned with taking of annual leave would not be appropriate".¹ It was further held that it would be unfair if employers were permitted to direct employees to "take leave without pay during a shutdown, unconstrained by any requirements as to the reasonableness, prior consultation or (in most cases) the duration of the shutdown, in circumstances where the employees themselves have no entitlement to take, or even request, leave without pay if they wish to do so".²

Requirements under the New 'Model Term'

In the event an employee does not have enough annual leave or leave in advance to cover a shutdown period, employers will no longer be able to direct their employees to take unpaid leave during this period. Some of the key terms under the new Model Term are:

• employers are required to give employees 28 days' written notice of a temporary shutdown period;
• an employer may direct an employee to take paid annual leave (assuming the Employee has sufficient annual leave accrued) during this shutdown period but, the direction must be reasonable and in writing;
• employers and employees may agree, in writing, for the employee to take unpaid leave during the shutdown period; and
• an employee may take annual leave in advance if the employee does not have sufficient annual leave accrued to cover the shutdown period.

Impact on Employers

Employers should consider reviewing their internal policies, procedures, and guidelines that cover shutdown periods and annual leave and making the necessary changes to ensure compliance with the new Model Term. This includes upgrades to applicable HR and payroll processes.

Footnotes

¹[2022] FWCFB 161 at [149].

² [2022] FWCFB 246 at [64].

For further information please contact:

Michael Byrnes, Partner
Phone: +61 2 9233 5544
Email: mjb@swaab.com.au

Alexander Leong, Graduate at Law, Swaab

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.