Grasping the updated regulations for annual and unpaid leave during temporary business shutdowns

The Ripple Effect on Employers and Employees

In the past, when businesses had to close temporarily for events such as Christmas/New Year holidays, the standard practice was for employers to ask their employees to use their annual leave. If the employees had exhausted their annual leave, they would be directed to go on unpaid leave.

However, a noteworthy shift has occurred due to amendments in 78 Awards, effective from May 1, 2023. These changes dictate that employers can no longer mandate their employees to take unpaid leave if they lack sufficient annual leave for the duration of the closure.

The Fair Work Commission's recent verdict implied that instructing an employee to proceed on unpaid leave essentially equates to a stand down. The Fair Work Act 2009 only allows for a stand down in specific circumstances, which do not cover temporary operation halts such as yearly closures.

The Scenario for Award-Covered Employees

According to the revised Awards detailed in the Commission’s verdict, employers retain the right to direct their employees to utilise their annual leave during a temporary halt in operations, provided the directive is rational, documented, and the employees have sufficient annual leave.

Reasonableness is determined by the following aspects:

• The requirements of the employee and the business
• Any previously agreed arrangement with the employee
• The custom and practice of the business
• The timing of the directive to take leave
• The adequacy of the notice period

Each Award specifies the notice period to be provided to all employees before the closure (usually between 28 days and two months), unless a shorter period is agreed with the majority of employees, or for employees who join post-notice, as soon as feasible after they join.

Employers are no longer authorised to instruct employees to proceed on unpaid leave once their annual leave is used up.

Nevertheless, under the new rules, employers can still:

• Agree with an employee in writing that they proceed on unpaid leave; or
• Negotiate with the employee to use future annual leave, resulting in a negative annual leave balance.

However, if employees do not consent to the above, they have the right to receive their wages during the closure period.

The Situation for Award and Agreement-Free Employees

For employees who do not fall under an award or agreement, employers can still ask them to use their annual leave if the requirement is deemed reasonable.

A directive to use annual leave may be reasonable if, for instance:

• The employee has an excessive annual leave balance.
• The business is undergoing a temporary closure (such as between Christmas and New Year).

Similar to Award-Covered Employees, Award/Agreement-Free employees cannot be instructed to proceed on unpaid leave if they do not have adequate accumulated annual leave.

Need Help?

If your business is considering a temporary closure, it is crucial that you understand your obligations under each relevant award for your employees and manage their leave appropriately. If you need help with notification requirements or negotiating closure arrangements with your employees, feel free to reach out for assistance.