Many employers will have an annual shutdown over the Christmas through to New Year period. The shutdown may be due to industry practice (for example, in the construction industry) or due to an employer policy. Sometimes a skeleton staff will remain to provide a basic cover (including payroll!) but in the main most staff will not be attending work.
The leave rules
The Fair Work Act provides that annual leave is to be taken at a time as agreed between the employer and employee. The law states that an award or industrial agreement can stipulate situations where an employee covered by that document will be required to take annual leave.
For non-award staff, the law provides that an employer can require staff to take annual leave providing it is considered reasonable. The term “reasonable” is stated to included when the business is being shut down for a period between Christmas and New Year.
Insufficient leave accrued
Whilst employers will be within their rights to require staff to take annual leave if there is an annual closure, the issue arises: what happens if an employee does not have sufficient leave accrued to cover the period of the annual closure? For example, an employee who begins with the employer in December may have insufficient annual leave accrued to cover all non-public-holiday dates in the shutdown period.
The law, as a general provision, provides that staff are allowed to take annual leave in advance of it accruing by agreement with their employer. In the case of award/agreement staff, the award or industrial agreement may provide specific rules to follow where an employee does not have sufficient annual leave accrued, such as deeming the shortfall as unpaid leave.
In the case of award-free staff or where an award or industrial agreement is silent, there is no compulsion for an employee to agree to take unpaid leave. If the employee is ready and willing to work but has used up all of their annual leave then the employer will be obligated to pay for the shutdown days even though the employee may not be attending work.
It has been argued that employers could apply the special stand-down provisions in the law, but these are only available where it is a situation outside of the employer’s control (for example, a natural disaster). Therefore there is nothing specific in the law that the employer can use to require an employee to take unpaid leave or indeed leave in advance.
What to do?
For staff covered by an award or industrial agreement, check what is specified in that award or agreement.
For other staff, including those whose award or agreement is silent on the matter, it may be appropriate to consider documenting what is to happen at annual closure as part of the employment contract; that is, if the employee is agreeing at the outset to take unpaid leave or leave in advance if their annual leave balance is insufficient to cover the shutdown period.
It may also be worthwhile documenting such an agreement for situations where an employee would otherwise have sufficient paid leave accrued but may want to take a large amount prior to year-end (for example, to take an overseas holiday). The relevant arrangement may be that the employee agrees to take either unpaid leave or leave in advance to cover any shortfall existing at year-end. Where leave in advance is used, the agreement should also provide for what occurs if the employment terminates before the employee’s accrual returns to a positive balance.