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With Christmas only 6 weeks away, it is important for employers to plan and confirm their Christmas/New Year close down. Decisions must be made as to whether to close down at all and, if so, when the close down will commence and when to give employees notice.

What is a “close down”?

A close down occurs when an employer’s business (or part of the business) closes down, usually during holiday periods such as Christmas/New Year, when there is a decrease in general business activity or at other times when the specific business is not in demand.

Direction to employees

The right of an employer to direct its employees to take annual leave during a close down is subject to the provisions of the Fair Work Act 2009 (Cth) (FW Act), an applicable Modern Award, an Enterprise Agreement or a contract of employment.

The Fair Work Act – Modern Award and Enterprise Agreement-free employees

For those employees who are not covered by a Modern Award or Enterprise Agreement, the National Employment Standards (NES) provisions contained in the FW Act will apply.

Section 94(5) provides that an employer can require an employee to take a period of paid annual leave but only if the requirement is reasonable. “Reasonableness” includes the employer’s enterprise being shut down for a period (for example, between Christmas and New Year).

Award-covered employees

The majority of Modern Awards allow for an employer to direct employees to take annual leave during a close down, subject to that direction satisfying certain provisions.

For example, the Manufacturing and Associated Industries and Occupations Award 2010 (the Manufacturing Award) at subclause 41.10 provides that:

• An employer cannot give less than 4 weeks’ notice of the intention to close down;

• An employee with sufficient accrued annual leave is allowed to take it and is to be paid at the Award rate;

• An employee who has not accrued sufficient annual leave to cover part or all of the close down period is allowed paid leave for the period which they have sufficient accrual and then given unpaid leave for the remainder of the close down;

• Any leave taken as part of a close down also counts as service by the employee with their employer;

• The employer may only close down the enterprise or part of it for one or two separate periods in a year, with one of the periods being at least 14 consecutive days (including non-working days);

• The employer may close down the enterprise or part of it for three separate periods by agreement with the majority of employees; and

• The employer may close down the enterprise or part of it for a period of at least 14 days, including non-working days and allow the balance of any annual leave to be take in one continuous period in accordance with a roster.

It is important to note that not all industrial instruments (including Enterprise Agreements) provide as much detail about the terms and conditions of a close down as the Manufacturing Award. For example, the Clerks (Private Sector) Award 2010 at subclause 29.5 provides simply as follows:

29.5 Close-down
An employer may require an employee to take annual leave as part of a close-down of its operations, by giving at least four weeks’ notice.

Notice requirements

Where directions to take annual leave during a close down are permitted by a Modern Award, it will typically require that employees be provided with at least 4 weeks’ written notice. However, some Modern Awards will require a longer notice period. For example, the Electrical, Electronic and Communications Contracting Award 2010 (Electrical Contracting Award) in subclause 28.5 requires employers to provide employees with at least two months’ notice of a close-down:

28.5 Taking of annual leave during close-downs etc.

(a) An employer may, by two months’ notice in writing, declare that the establishment, project or business will observe a complete Christmas–New Year close-down. An employee will, provided that the employee has been employed continuously for one week or more, be entitled to leave on a pro rata basis for each week of continuous service and such an employee may be stood down for the duration of the close-down period, provided that any such employee must be paid for all public holidays occurring during the close-down period.

(b) Employees will be entitled to be paid for public holidays during the close-down.

(c) Unpaid leave taken does not break service of an employee and is not an excepted period as per the NES.

(d) An employee who has been employed continuously for one week or more will be entitled to leave on a pro rata basis for each week of continuous service and such an employee may be stood down for the duration of the close-down period, provided that any such employee must be paid for all public holidays occurring during the close-down period.

(e) Close-down means a period of not less than two consecutive weeks and not more than four consecutive weeks, inclusive of public holidays.

Employers must double check their applicable industrial instrument. Failure to give the required notice of a close down could result in employees not being required to take their annual leave during the period. For example, if employees are covered by the Electrical Contracting Award, it will now be too late to give the required notice of a close down.

Sufficient accrual of annual leave

If an employee has not accrued a sufficient amount of annual leave to cover the whole of the close down period, Modern Awards and Enterprise Agreements treat the situation differently. Some will permit an employer to direct that an employee takes annual leave in advance or leave without pay to cover the balance of the close down – others will not, creating genuine difficulties for the employer.

For employees covered by the FW Act, section 94(6) allows for employers and employees to come to an agreement in relation to the taking of annual leave, including taking annual leave in advance of accrual.

Public holidays and other leave

Many close down periods will align with public holidays such as Easter and Christmas/New Year. Where the close down period also falls on a public holiday, the employee is taken to not be on annual leave for that day but is to be paid for the public holiday.

If an employee is on workers’ compensation during the close down period, their entitlement to both workers compensation and annual leave will depend on the applicable State or Territory legislation.

Take-away for employers

Before any close down is implemented, it is imperative that employers review any applicable industrial instruments, such as a Modern Award or Enterprise Agreement, to see what steps are required to correctly close the business down and to require employees to take their annual leave during that time.

Need a laugh...

- "It looks like our bank is in trouble."

- "Why?"

- "See the sign? It says, 'We Will Be Closed for Good Friday!'"

Should you require any further information or assistance, please contact our Managing Director Athena Koelmeyer on (02) 9256 7500 or via email on sydney@workplacelaw.com.au.

Information provided in this update is not legal advice and should not be relied upon as such. Workplace Law does not accept liability for any loss or damage arising from reliance on the content of this update, or from links on this website to any external website. Where applicable, liability is limited by a scheme approved under Professional Standards Legislation.