Changes to shutdown clauses in awards: what employers need to know

Temporary shutdowns are common in many workplaces. They may occur over Christmas and New Year, during school holidays, for seasonal closures, renovations or other periods when an organisation temporarily stops operating.

But if your organisation wants employees to use annual leave during a shutdown, you need to check the rules that apply to your workforce.

For employees covered by a modern award or enterprise agreement, the relevant instrument may set specific requirements around when a shutdown can occur, how much notice must be given and whether employees can be directed to take annual leave.

What is a temporary shutdown?

A temporary shutdown is when a business or part of a business temporarily closes for a period of time.

Christmas and New Year is a common example, but shutdowns can happen at other times of the year. For example, an organisation may close during school holidays, for a seasonal break, or while premises are being renovated.

A shutdown is not the same as a stand down. A stand down generally applies when employees cannot be usefully employed for reasons outside the employer’s control, such as certain equipment breakdowns or natural disasters.

The rules around annual leave during a shutdown depend on what covers the employee.

What changed with shutdown clauses in modern awards?

From 1 May 2023, many modern awards were updated to introduce new shutdown provisions.

The changes followed the Fair Work Commission’s review of shutdown clauses and replaced or amended existing provisions in affected awards. The Fair Work Ombudsman notes that many awards now have updated rules for taking annual leave during a temporary shutdown.

However, there is no single shutdown rule that applies to every award.

Some awards contain broadly worded temporary shutdown provisions. Others contain requirements that are specific to a particular industry or period. For example, some awards may limit when a shutdown can occur, while others allow a temporary shutdown more generally.

That means employers should check the current award that applies to their employees rather than relying on a previous year's shutdown process.

Can employers require employees to take annual leave during a shutdown?

If an employee is covered by an award or enterprise agreement, an employer can only direct them to take annual leave during a shutdown if the applicable award or agreement allows it.

Where the relevant award permits a direction, there may be requirements around:

• how much notice must be given

• whether the notice must be in writing

• when the shutdown can occur

• whether the direction to take annual leave must be reasonable

• how employees who do not have enough accrued annual leave are dealt with.

Many awards use a 28-day written notice period, or allow a shorter period to be agreed in accordance with the award. But this is not a universal rule, so employers should check the specific award or agreement before communicating a shutdown.

For example, the Nurses Award 2020 contains a 28-day written notice requirement for a temporary shutdown, with a shorter period able to be agreed between the employer and the majority of relevant employees. It also requires a direction to take accrued annual leave to be in writing and reasonable.

Other awards can contain different requirements. Some may specify a particular shutdown period or a different notice period.

What if an employee does not have enough annual leave?

An employee may not have enough accrued annual leave to cover the entire shutdown.

What happens next depends on the applicable award or agreement.

Where permitted, an employer and employee may agree in writing to options such as:

• taking annual leave in advance

• taking unpaid leave

• using another form of available paid leave where appropriate.

An employer cannot simply assume that employees can be required to take unpaid leave because they have run out of annual leave. The applicable award or agreement needs to be checked, and in many circumstances unpaid leave during the remaining shutdown period requires agreement.

What about employees who aren't covered by an award or agreement?

Different rules apply where an employee is not covered by a modern award or enterprise agreement.

An employer can require an award and agreement-free employee to take annual leave if the requirement is reasonable. A temporary business shutdown can be a circumstance where requiring annual leave may be reasonable.

Employers should still consider the circumstances of the direction, including the timing and length of the shutdown and the notice provided.

What should employers check before a temporary shutdown?

Before announcing a Christmas closure, school holiday shutdown or another temporary closure, employers should check:

1. What covers each employee?
Identify the relevant modern award, enterprise agreement or other employment arrangement.

2. Does it allow employees to be directed to take annual leave?
Don't assume that because the business has shut down in previous years, the same approach can automatically be used again.

3. When can the shutdown occur?
Some awards contain specific requirements about the timing or circumstances of a shutdown.

4. What notice is required?
Check the applicable notice period and whether the award allows a shorter period to be agreed.

5. Does the direction need to be in writing and reasonable?
For many awards, the answer is yes. Check the exact wording that applies to your employees.

6. What happens if employees don't have enough annual leave?
Plan how any gap will be handled in accordance with the relevant award or agreement.

7. What happens to public holidays during the shutdown?
Public holidays that fall during paid annual leave are not deducted from an employee's annual leave balance. Employees who would ordinarily work on the public holiday may also be entitled to payment for their ordinary hours, subject to the applicable rules.

8. Has payroll been set up correctly?
Check that annual leave, public holidays and any other relevant entitlements will be processed correctly during the shutdown.

Planning a Christmas closure? Our Christmas Closure Checklist blog can help you work through the key people, payroll and operational considerations before your workplace closes.

Don't assume last year's shutdown process still applies

A shutdown might be a regular part of your organisation's calendar, but that doesn't mean the same process automatically applies every year.

Award provisions have changed, and individual awards can contain different requirements around shutdown periods, notice and annual leave.

If you're planning a temporary shutdown, particularly over Christmas and New Year, school holidays or another extended closure, check the current award or agreement before directing employees to take annual leave.

At Workplace Plus, we help employers navigate award requirements, annual leave and payroll compliance so shutdown arrangements are practical, compliant and properly planned.

Need help checking your shutdown arrangements? Book a confidential discovery call with Workplace Plus.