Significant changes are on the horizon for Australian employers, with new shutdown rules coming into effect from May 2023.
The Fair Work Commission (FWC) has recently updated 78 modern awards by replacing existing shutdown clauses with a new model term.
These changes will impact the way employers implement annual shutdowns and are essential to understand for compliance. In this article, we’ll explore the rationale behind these amendments, the implications for employers and Akyra’s recommendations for successfully adapting to the new rules.
Why have the shutdown clauses been amended?
The Full Bench of the FWC expressed concerns about existing shutdown clauses in certain modern awards, finding them incompatible with the Fair Work Act.
Specifically, the existing clauses provided a “general entitlement to take leave without pay” in situations where employees had not accrued enough paid annual leave to cover the period of the shutdown. This ability to direct employees to take leave without pay amounted to standing them down without pay which can only be done under specific provisions of the Act.
The Commission found that undefined periods of leave without pay were not provided for in either the National Employment Standards (NES) or any modern award. Consequently, existing clauses established an undefined entitlement to leave without pay “by the back door.”
The Full Bench ruled that the Commission had no power to include clauses in modern awards that allowed employers to require employees to take leave without pay during shutdown periods.
Content and impact of the changes
To rectify these issues, the Full Bench decided to vary existing shutdown clauses and replace them with a new model term incorporating several key changes and updates to existing shutdown clauses:
- Any mechanism that directs employees to take leave without pay during a temporary shutdown period has been removed.
- The circumstances in which a temporary shutdown can occur have been narrowed and now focuses on situations where the employer intends to shut down all or part of its operation for a particular period and requires affected employees to take paid annual leave during that time. There are some exceptions for industry specific shutdown operations.
- Employers must provide at least 28 days’ written notice of the temporary shutdown period (or a longer period if the term preserves an existing longer period of notice).
- If an employee is engaged within the 28-day notice period, the notice of the temporary shutdown must be provided as soon as reasonably practicable after engagement.
- Any direction by the employer to take annual leave must be in writing and be reasonable.
- Employees can only take paid annual leave in accordance with a direction under the shutdown term.
- The model term allows employers and employees to agree, in writing, to take unpaid leave during a shutdown period once an employee’s paid annual leave has been exhausted.
- Where an employee has not accrued enough paid annual leave to cover the period of the shutdown, the employee may take paid annual leave in advance of accruing the entitlement in accordance with the existing “annual leave in advance” term contained in each modern award.
- The new terms confirm that when calculating the amount of paid annual leave accrued by an employee, any leave taken in advance pursuant to the “annual leave in advance” clause must be taken into account.
- New shutdown clauses now confirm that periods of annual leave taken for the purposes of a temporary shutdown do not apply for the purposes of the existing excessive leave provisions contained in modern awards.
Implications for employers
As these changes come into effect on 1 May 2023, employers with employees covered by the 78 modern awards impacted by the decision should take the following steps to prepare for and accommodate the incoming changes:
- Review any current procedures and guidelines that govern annual shutdowns and update materials relating to award-covered employees impacted by the changes.
- Provide additional training to all managers and business partners regarding how a valid direction to take paid annual leave can be provided to impacted employees; including accounting for the updated notice periods and requirements to take paid leave.
- Update payroll and employee management systems to ensure employees can access leave in advance and ensure employees’ annual leave entitlements are being properly accrued and accounted for.
Which awards will be updated?
Akyra’s recommendations for adapting to the new shutdown rules
To successfully adapt to the new shutdown rules and maintain compliance, Akyra offers the following key takeaways for employers:
- Understand the updated shutdown clauses and the importance of complying with the Fair Work Act.
- Familiarise yourself with the content and impact of the new model term, including the key changes and updates to existing shutdown clauses.
- Implement the necessary steps to prepare for the incoming changes – e.g. updating procedures, providing training, and adjusting payroll systems.
Disclaimer – Reliance on Content
The material distributed is general information only. The information supplied is not intended to be legal or other professional advice, nor should it be relied upon as such. You should seek legal or professional advice in relation to your specific situation.