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New Shutdown Rules for 78 Modern Awards

Published April 24, 2023 (last updated April 27, 2023) - Head of Operations

As a part of Fair Work Commission’s (FWC) four-yearly review of modern awards, 78 modern awards have new shutdown rules in place.

The FWC has replaced existing shutdown clauses with a new model term. These clauses relate to an employer’s ability to direct employees to take a period of annual leave where the employer shuts down all or part of its enterprise.

What is a shutdown?

A shutdown is when a business temporarily closes during slow periods of the year, such as Christmas and New Year. It is also called a ‘close down.’

A shutdown isn’t the same as a stand down. A stand down is when an employer sends employees home if there is no useful work for them to do. Some reasons for stand down can include events out of the employer’s control like a natural disaster.

When can an employer direct an employee to take annual leave?

An employee can be directed to take annual leave during a shutdown if their award or registered agreement allows it.

Why have the shutdown clauses been amended?

The FWC has amended the clauses as there was a concern that existing clauses provided a ‘general entitlement to take leave without pay’ in circumstances where the employee had not accrued enough paid annual leave to cover the period of the shutdown. The FWC also found that the ability to take undefined periods of leave without pay was not provided for in either the National Employment Standards (NES) nor in any modern award and that the existing clauses therefore established an undefined entitlement to leave without pay ‘by the back door.’

The FCW full bench has resolved to vary existing shutdown clauses by replacing them with a model term.

What are the changes?

  • Any mechanism that directs an employee to take leave without pay during a temporary shutdown period has been removed.
  • The circumstances in which a temporary shutdown can occur have been narrowed to where the employer intends to shut down all or part of its operation for a particular period and the employer wishes to require affected employees to take paid annual leave during that period. Certain model terms still preserve the entitlement to shutdown operations in some industry-specific circumstances
  • Employers must now provide at least 28 days’ written notice of the temporary shutdown period (or a longer period if the term preserves an existing longer period of notice).
  • If an employee is engaged within the 28-day notice period, notice of the temporary shutdown must be provided as soon as reasonably practicable after engagement.
  • Any direction by the employer to take annual leave must now be in writing and be reasonable.
  • Employees can now only take paid annual leave in accordance with a direction under the shutdown term.
  • The model term allows the employer and employee to agree, in writing to take unpaid leave during a shutdown period once an employee’s paid annual leave has been exhausted.
  • Where an employee has not accrued enough paid annual leave to cover the period of the shutdown, the employee may take paid annual leave in advance of accruing the entitlement in accordance with the existing ‘annual leave in advance’ term contained in each modern award.
  • The new terms confirm that when calculating the amount of paid annual leave accrued by an employee, any leave taken in advance pursuant to the ‘annual leave in advance’ clause must be taken into account.
  • New shutdown clauses now confirm that periods of annual leave taken for the purposes of a temporary shutdown do not apply for the purposes of the existing excessive leave provisions contained in modern awards.

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What does it mean for employers?

Employers with employees covered by the 78 modern awards impacted by the decision can take the following steps to prepare for and accommodate the incoming changes on 1 May 2023.

  • Review your procedures and guidelines that govern or mention annual shutdowns and update any material relating to award-covered employees impacted by the changes.
  • Update employee management software and systems to ensure employees can access leave in advance and ensure that employees’ annual leave entitlements are properly accrued and accounted for.
  • Reach out to specialists or services to provide training and resources regarding a valid direction on taking paid annual leave for impacted employees.

Please note that this is general information subject to change. Please consult an employment relations professional before making any changes.

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