How to handle temporary shutdowns

If you usually shut your business down over Christmas-New Year or you’re thinking about it for the first time, doing it properly is important.

For most of us, the lead up to Xmas is a hectic time. Work and personal commitments escalate in the rush to Christmas Day.

While sectors like retail and hospitality enter one of their busiest times of year, many industries prepare to wind down for a summer break and (usually) the “regular annual shutdown.”

Before you shut up shop, there can be a lot to get done: last orders, final repairs, gifts for clients, December billing, Christmas functions, and a busy personal life.

Like everything in Australian employment law, any temporary shutdown requires that your business follows a process and if you don't get it right, it can cause unnecessary hassle.

With a little bit of preparation the annual shutdown can be seamless and not get in the way of everything else that's happening.

Shutdown periods and employment law

Most modern awards and registered agreements contain rules about shutdowns and whether an employer can direct their employees to take annual leave while the business is closed.

An award might also prescribe when a shutdown can occur, e.g. the end-of-year period. Otherwise, the business can choose when it is closed, e.g. a seasonal business may close during the slow part of the year.

Employers don’t have to close the entire workplace. For example, engineers, maintenance or manufacturing staff might continue working while the office closes. Or the office may stay open for customer service queries but wider operations shut down.

Shutdowns are different to stand downs, which can only be implemented because of circumstances outside the employer’s control, e.g. a breakdown of equipment, or industrial action.

Employees, annual leave, and shutdown notification

In May 2023, 78 modern awards were amended to include a model clause covering shutdown provisions and how (and when) an employer can direct employees to take annual leave during a shutdown.

Before this, many awards contained shutdown provisions that allowed employers to direct employees to take unpaid leave if they didn’t have sufficient annual leave to cover the whole shutdown period.

Under the model clause:

• Employers can require employees to take paid annual leave during a temporary shutdown if they have accrued it.
• The requirement to take annual leave must be reasonable.
• If an employee doesn’t have enough paid annual leave to cover the whole shutdown period, the employer and employee can agree to let the person take annual leave in advance, leave without pay, or to use accrued time off. This agreement must be in writing.
• Employers must give all impacted employees at least 28 days’ written notice of the shutdown period, or a shorter notice period if the employer and the majority of employees agree.
• Workers employed after the shutdown notice is given must be notified as soon as reasonably practicable.

Industries covered by the model clause include building and construction, hospitality, real estate, and banking, finance and insurance.

If an award or agreement doesn’t allow you to direct employees to take paid annual leave during a shutdown, you can’t require your workers to do so.

If no award or agreement applies to your organisation, you can only require an employee to take annual leave if the direction is reasonable. We recommend you give any such direction to the employee in writing.

The factors you should consider when determining whether a direction to take annual leave is reasonable are:

• The needs of both the employee and the business.
• Any agreed arrangements with an employee.
• The timing of the direction to take leave.
• Whether the period of notice you give employees is reasonable.
• Custom and practice of the business, i.e. such a request will be deemed reasonable if the employer’s business annually shuts down over the Christmas-New Year period.

An employer and an award/agreement-free employee can agree:

• On the period of notice that must be given to employees prior to the requirement to take annual leave.
• Whether paid annual leave may be taken in advance of being accrued when the shutdown period exceeds an employee’s accrued annual leave.
• Whether unpaid leave may be taken when the shutdown period exceeds an employee’s accrued annual leave.

Learn more about shutdown rules and entitlements at fairwork.gov.au

Public holidays

If a public holiday is a day an employee would’ve normally worked (if it wasn't a public holiday), they are entitled to their base pay rate for the ordinary hours they would’ve worked.

This applies to the shutdown period as if the shutdown was not in effect, meaning employers can’t claim that it is not a working day because the business is closed.

Find out more about paying public holidays correctly.

6 steps for shutting down

1. Decide if there will be a temporary shutdown and when.
2. Check the clause covering shutdowns in the relevant modern award or agreement.
3. Decide if you can and will require employees to use paid annual leave (or other forms of leave) over the shutdown period.
4. Notify your people with a simple letter as early as you can.
5. Be prepared to speak to anybody who raises an issue so problems are dealt with effectively and the right outcome is achieved for the business and staff.
6. Then enjoy the break! Breathe a sigh of relief, toast the season, and fire-up the BBQ...