Australia Labor Law: Annual Christmas and New Year Close-Down – Do You Understand the Rules?

Christmas and New Year are fast approaching. Businesses that close down over the Christmas period and require employees to take their annual leave over this time must comply with potentially complex rules if they are to avoid contravening either the Fair Work Act 2009 (Cth) (the Act) or an industrial award.

Employers must: 

• know what awards or enterprise agreements cover their employees if any;
• know what these instruments say about close-down and annual leave if anything, and
• understand the requirements of the Act when it comes to directing employees to take their annual leave.  

Annual close-down provisions in awards and enterprise agreements

If your employees are covered by a Modern Award or enterprise agreement it is likely that it will contain provisions concerning annual close-down and directing employees to take annual leave. Two-thirds of Modern Awards contain close-down provisions, but there is considerable variation in what they say.

For example, the Clerks – Private Sector Award 2010 simply states:

 “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.”

The Nurses Award 2010 provides that where an employer temporarily closes a medical practice, an employee can be directed to take paid annual leave during part or all of the period. Where an employee does not have sufficient accrued annual leave for the period, they may be directed to take annual leave in advance. The Health Professionals and Support Services Award 2010, which also covers employees in medical practices, is almost identical- except that the direction to take paid annual leave, and the requirement to take annual leave in advance, must both be “reasonable”.

The Manufacturing and Associated Industries and Occupations Award 2010 is an example of an award with a more detailed clause, stipulating not less than four weeks’ notice of the requirement to take annual leave; no more than two periods of close-down in a year; methods of payment over the period; and that one of the periods of closure must be for at least 14 days.

If your employees are covered by an award or an enterprise agreement it is crucial that you understand the specific requirements of each regarding annual close-down, and that you comply with them.

Awards that do not contain a close-down provision

The Social, Community, Home Care and Disability Services Industry Award 2010 is an example of a Modern Award which does not contain provisions for annual close-down.

For employees covered by an award or agreement which does not deal with annual close-down, the National Employment Standards (NES) of the Act apply. The NES simply provides that paid annual leave may be taken for a period agreed between an employee and his or her employer.

If you are regularly engaging employees pursuant to an award that does not contain an annual shut down clause, we recommend that all new employees are told at the recruitment stage, that this is an annual custom and practise in the business that it is noted in their contract of employment and that all employees are reminded each year at least 3 months from the shut-down date of this requirement.

Employees who are not covered by an award or enterprise agreement

Under the NES an employee not covered by an award or enterprise agreement can be required by their employer to take a period of paid annual leave, providing that the requirement is reasonable. In assessing reasonableness, relevant factors include the needs of the employee and the employer’s business; custom and practice of the business; the timing of the direction or requirement to take leave; and the length of the period of notice given. The NES notes that a requirement to take paid annual leave may be reasonable if the employer’s enterprise is being shut down for a period, for example, between Christmas and New Year.

The NES does not specify a mandatory period of notice, but it must be reasonable. An indication of what would be considered reasonable is that the period of notice required in most awards is one month. We usually recommend that employers give both their award and non-award employees at least 3 months’ notice of the dates of the close-down and the requirement that employees take annual leave.

To avoid arguments regarding the proper provision of notice, employers should provide their employees with notice in writing.

Payment of employees during the close-down

Unless an applicable award or enterprise agreement says otherwise, full-time and part-time employees should be paid during the close-down according to normal practice when employees are on annual leave including any relevant loadings. Where public holidays fall in the period they are paid as public holidays and not as annual leave days.

Casual employees are generally not entitled to be paid during the annual close-down.

Employment contracts and company policies

Where there is a clear company policy in writing which deals with annual close-down and annual leave, an employer will be required to comply with the terms of the policy.

Wherever possible, we suggest including the agreement to take annual leave over a customary close-down period in all contracts of employment that your business enters into.

Employers covered by more than one award

In larger organizations, it may not be so simple and employers may have to comply with different award provisions for different groups of employees, in addition to complying with the NES provisions governing the taking of annual leave during close-downs for employees who are not covered by an award or an agreement. In such circumstances, it is best to adopt a minimum 3 month notice period as mentioned above.

Employees without adequate accrued annual leave to cover the period of close-down

Awards and enterprise agreements usually include rules to cover the situation where an employee does not have enough accrued annual leave to cover the close-down period. These usually provide that employees may be required to take unpaid leave for part of the shutdown period or to take paid annual leave in advance of accruing it.

In the case of employees covered by an award or agreement which does not deal with annual closedown, and if an employer has failed to include a clause to this effect in a contract or letter of appointment, it may be difficult for the employer to force an employee to take leave unless they agree. The employer can attempt to reach agreement with individual employees that they take unpaid leave or annual leave in advance. It is important, however, to check the terms of the award or agreement, because some may prohibit taking annual leave in advance.

This issue and the accrual of appropriate leave days should always be considered by employers when approving leave requests throughout the year. 

By Peta Tumpey, Partner, TressCox Lawyers, Australia, a Transatlantic Law International affiliated firm. 

For further information or for any assistance regarding Australian labor law please contact Peta Tumpey at australialabor@transatlanticlaw.com.

Disclaimer: Transatlantic Law International Limited is a UK registered limited liability company providing international business and legal solutions through its own resources and the expertise of over 105 affiliated independent law firms in over 95 countries worldwide. This article is for background information only and provided in the context of the applicable law when published and does not constitute legal advice and cannot be relied on as such for any matter. Legal advice may be provided subject to the retention of Transatlantic Law International Limited’s services and its governing terms and conditions of service. Transatlantic Law International Limited, based at 42 Brook Street, London W1K 5DB, United Kingdom, is registered with Companies House, Reg Nr. 361484, with its registered address at 83 Cambridge Street, London SW1V 4PS, United Kingdom.