FWC overhauls annual ‘shutdown’ provisions in Modern Awards

Prior to Christmas, a Full Bench of the Fair Work Commission (FWC) handed down its decision in the long-running review of annual shutdown clauses, determining to vary 78 Modern Awards to include a model clause governing the taking of annual leave during a temporary business closure. The decision comes despite the dissenting view of one Commissioner, who fears a resulting influx of annual leave disputes.

From May, Modern Awards that contain a clause permitting an employer to direct employees to take a period of annual leave during a temporary closure (e.g. Christmas/New Year) will reflect uniform arrangements, allowing an employer to require employees to utilise accrued annual leave during the closure period, subject to the employee having been given the requisite notice in writing (between 28 days and three months, depending on the award). Where an employee has insufficient annual leave accrued to cover the whole period of the shutdown, the employee may agree to take annual leave in advance or, leave without pay.

Critically, in 54 Modern Awards – including popular awards such as the Children’s Services Award 2010 and those applicable within the Manufacturing and Construction sectors – the updated clause will override an employer’s historical ability to direct an employee to take leave without pay in circumstances where they have insufficient annual leave accrued to cover the period of the shutdown. Instead, the taking of unpaid leave or annual leave in advance will be by mutual agreement only. Where the employee does not agree to take unpaid leave or annual leave in advance, the employer would be obliged to pay the (permanent) employee ordinary wages for the period of the temporary shutdown for which they have insufficient annual leave accrued.

Commissioner Hunt voiced her concerns with the model term, arguing that employers may “baulk at employing new employees” too close to a temporary shutdown, knowing they risk having to pay those employees “for the period of time when they do not require the new employee to attend for work, at the same time as they are likely to be experiencing an impact to the business on account of the shutdown”. Commissioner Hunt also highlighted an anticipated increase in disputes between employers and employees, observing, “The likely effect of the majority decision is that some employees of those employers who know they will be having an annual shutdown will be denied annual leave when requested throughout the year”.

Justice Hatcher and Deputy President Asbury were not persuaded however, saying the model clause would not necessarily have “the legal effect or practical effect that an employee in this situation will have to be paid [ordinary wages]”. The majority Full Bench downplayed the potential impact on business commenting that most annual shutdowns last only 1-2 weeks and a permanent employee only needs 3-6 months’ service to accrue sufficient annual leave to cover a shutdown of this duration. In addition, Justice Hatcher and Deputy President Asbury overlooked Commissioner Hunt’s concerns foreshadowing an increase in disputes over annual leave refusal, pointing out that the National Employment Standards extend employers appropriate latitude “to manage employee annual leave requests [over the course of the year] so that employees have sufficient accrued leave to cover a shutdown period”. The majority further observed, “it would be unlikely that a refusal to agree to a leave request which would leave the employee with insufficient accrued leave to cover the shutdown period would be unreasonable… unless there were some strong countervailing factors pertaining to the individual concerned”.

The updated shutdown clauses take effect from 1 May 2023, allowing employers ample opportunity to prepare for temporary annual (Christmas) closures and, importantly, suitably manage employee leave requests which may arise in the second half of 2023. Modern Awards affected by this update will be amended and made available to ES Subscribers closer to 1 May. Subscribers who wish to confirm if their Modern Award stands to be impacted are invited to contact the ES advice line on (07) 3220 3500.