4 Year Review of Modern Awards – Shutdown Provisions Fair Work Commission – Decision [2022] FWCFB 161 (25 August 2022) (Vice President Hatcher, Deputy President Asbury and Commissioner Hunt) (August 2022 Decision)) Fair Work Commission – Decision [2022] FWCFB 246 (22 December 2022) (Acting President Hatcher, Deputy President Asbury and Commissioner Hunt) (December 2022 Decision)
Background
The Fair Work Commission (Commission) was, as a result of provisions that previously existed in the Fair Work Act 2009 (C’th) (FW Act), required to undertake a 4 Year Review of each award.
Given that there was considerable overlap between some issues, the Commission decided to separate the issues into one of two (2) areas; the first being award-specific issues and the second being common issues (that affected more than one (1) award).
One of the common issues was annual leave.
The Commission has issued a number of decisions in respect to the annual leave common issue; including:-
- The taking of excessive annual leave,
- The cashing-out of annual leave,
- Electronic funds transfer and paid annual leave; and
- Granting annual leave in advance.
In addition, the Commission has more recently considered a model “annual shut – down” clause.
There are some seventy-eight (78) awards subject to the model “annual shut - down” proceedings.
The model “annual shut-down” decision will, amongst others, impact upon:-
- The Building and Construction General On-Site Award 2020; and
- The Clerks - Private Sector Award 2020; and
- The Manufacturing and Associated Industries Occupations Award 2020; and
- The Professional Employees Award 2020; and
- The Plumbing and Fire Sprinklers Award 2020.
This list is not comprehensive as there may be other awards that Master Plumbers members are covered by that will be impacted by the Commission Decision. The ones listed are the most common awards that a Master Plumber member may be covered by.
Refer to Attachment A for more details on the Decisions.
Operative Date
A copy of the Model Clause is attached at Attachment B.
The Commission has determined that the operative date for the award variation shall be the first pay period on or after 1 May 2023.
What does all of this mean?
The Commission Decisions have changed the rules around the annual shutdown and how an employer will deal not just with the annual shutdown, but with annual leave (in particular the approval of annual leave applications made during the year) on a more general basis.
Who does the Commission Decisions affect?
The changes will only affect those employers that are covered by the PFS Award, or any other award/s that is/are the subject of the Commission Decisions.
The Commission Decisions do not, at this stage, apply to an employer covered by an enterprise agreement (unless that enterprise agreement references, or somehow incorporates, the annual leave provisions in the PFS Award).
Clause 24.4 - Direction to take annual leave during shutdown of the PFS Award only applies to an employer and their employees should that employer determine that they will temporarily shut down all, or part, of their operation, for the purpose of giving all, or the majority, of their employees, annual leave over the Christmas / New Year period.
In the December Decision, the Commission found that:-
“We do not accept that the removal of existing provisions permitting an employee to be directed to take leave with pay or stood down if they do not have sufficient accrued annual leave will necessarily have the legal effect or practical effect that an employee in this situation will have to be paid.
As to the legal effect, this will depend upon the applicability of Section 524 (of the FW Act), the terms of the employee’s contract of employment, as well as any applicable enterprise agreement.
In relation to Section 524 (of the FW Act), there are likely to be many circumstances in which Section 524(1)(c) (of the FW Act) applies; for example, in the building industry, if a head contractor shuts down a building site over Christmas / New Year, that is likely to cause a stoppage of work for which a subcontractor employer cannot reasonably be held responsible and thus enable a stand-down under Section 524” (of the FW Act).
The findings of the Commission, whilst not determinative, provide some comfort to those employers that are forced to shut their operations because the head contractor has shut the site that their employees were working on.
Therefore, where an employer is forced to shut their operations because the head contractor has shut the site that the employees were working on and one (or more) of the employees concerned do
not have enough accrued annual leave to cover the entirety of the annual shutdown, the employer could stand down (under Section 524 of the FW Act) the employee for either the duration of the annual shut down period, or, for the period of time that would equal to the unpaid period.
Whilst these comments are based around a head contractor shutting down a building site, they could be equally applied to a maintenance company whose clients all shut down their operations for the purpose of annual leave.
Written Notice of Shut Down
The obligation to provide employees covered by the PFS Award with a minimum of two (2) months’ written notice of the intention to have an annual shut down has not changed.
However, a new addition requires that the employer must now give written notice of the annual shut down to any employee who commences employment after the two (2) months’ written notice has been given to all other affected employees and who will themselves be affected by the annual shut down as soon as reasonably practicable after the employee commences employment.
Direction to take unpaid leave / leave without pay
The annual leave shut down provisions in the PFS Award will no longer contain a provision that allows the employer to “stand off without pay” an employee that does not have enough annual leave to cover the duration of the annual shut down.
Subject to the comments made previously (regarding the closing of the site by the head contractor), the effect of this change is that an employer can no longer direct an employee to take leave without pay if they don’t have enough annual leave to cover the duration of the annual shut down.
Whilst the PFS Award has been changed to no longer allow an employer to direct an employee to take leave without pay, the annual leave shut down provisions in the PFS Award, will allow an employer and an employee to agree, in writing, that the employee will take leave without pay during all or part of the annual shut down.
If agreement cannot be reached between an employer and an employee to take leave without pay, then the employer and the employee may agree that the employee could use an RDO, or RDO’s, to make up the time or take time off in lieu of overtime that has been previously accrued.
Finally, (whilst generally not recommended), the employer may grant a request from the employee that they take annual leave in advance.
The question that the Commission didn’t answer was what happens if an employee, who does not have enough accrued annual leave to cover the duration of the annual shut down, refuses to take leave without pay, or refuses to take an RDO / RDO’s, or refuses to take time off in lieu of overtime?
It would appear that the Commission Decisions would result in the employer being required to either pay the employee for the period of time that makes up the difference between their accrued annual leave and the duration of the annual shut down or find suitable employment opportunities for the employee.
Direction to take annual leave
The employer can direct an employee to take annual leave during the annual shut down. The direction by the employer to the employee to take annual leave must be reasonable and must be in writing.
There is one condition that is conditional on the issuing of the direction and that is that the employee has enough accrued annual leave to cover the duration of the annual shut down. This then means that the employer needs to ensure that, to avoid any problems at, or around, the time of the annual shut down, each employee who will be directed to take annual leave during the annual shut down has enough annual leave credits to cover the duration of the annual shutdown.
This may well mean that an employer refuses an employees’ application during the other times of the year to ensure that that employee has enough annual leave credits to cover the duration of the annual shut down. It should be noted that under the NES, the employer must not unreasonably refuse to agree to a request by the employee to take paid annual leave.
What should members do next?
Members may wish to review their letters of offer and their contracts of employment to ensure that they properly reflect the revised Clause 24.4 – Direction to take annual leave during shutdown. It should be noted that a contract of employment can be varied, however, it cannot be varied unilaterally (without the agreement of the employee), there needs to be agreement between the employer and the employee.
Members will (in all likelihood) need to review their annual leave approval process and introduce a more rigorous decision making process around the approval of annual leave.
Should there be any questions about the contents of this MPMSAA Industrial Relations Note, please contact either Phil Eberhard, Senior Workplace Relations Adviser, Master Plumbers, on 03 9321 0720, 0425 790 722 or [email protected].
Attachment A - Decisions
In the August 2022 Decision, the Commission expressed a provisional view about the type of clause that should be included in each of the awards subject to the proceedings. In the August 2022 Decision, the Commission found that:-
“A shutdown provision which enables an employer to direct the taking of annual leave merely on the notification of a shutdown period without any other considerations or requirements does not satisfy the criterion of reasonableness in Section 93(3) (of the FW Act) and is therefore not permitted to be included in a modern award.”
“A shutdown clause cannot include a provision to the effect that the employer can stand down an employee without pay during a shutdown period which is for the purpose of facilitating annual leave if the employee does not have sufficient accrued annual leave entitlements.”
“We do not consider that there is power under the FW Act to include in an award a provision by which the employer may require an employee to take leave without pay during a shutdown period where the employee does not have sufficient annual leave entitlements to cover the period … The concept of “leave” in the FW Act, including in Section 139(1)(h) (of the FW Act), is a beneficial entitlement for employees to be absent from work … In this context, leave without pay may be sought by an employee who seeks the employer’s permission to be absent from work at a time when the employee wishes to be absent or whose personal circumstances prevent attendance at work. It is a benefit to the employee which may or may not be agreed to by the employer. A provision by which an employee may be required to take “leave” without pay is, in our view, no different in substance to the standing down of the employee without pay, since it occurs on the employer’s initiative and without the employee’s consent and leads to the same result of the employee being deprived of work and pay. Labelling a stand down as “leave” taken by employer direction does not make it leave for the purpose of Section 139(1)(h) (of the FW Act). This is particularly so in the absence of award provisions entitling an employee to apply for leave without pay and to be granted such leave.”
“We have already stated our view that the Commission has no power to include a provision in an award by which an employer may require an employee to take leave without pay. For this reason, we will not accede to the submissions made by a number of employer groups that the right of the employee to elect to take leave without pay should be replaced with a right of the employer to require that leave without pay be taken (or that existing provisions to this effect should be retained). This would amount, in substance, to the stand down of the employee without pay - a matter which may not be the subject of an award term. Any stand down of an employee during a shutdown period would therefore have to occur in accordance with Section 524(1) (of the FW Act) or pursuant to authorisation in an enterprise agreement or contract of employment.
It appears to us to be logically fallacious, unfair and unreasonable that an employee could be required to take “leave” to which the employee has no entitlement in the first place with the result that the employee’s right to take leave with pay, at a time suitable to the employee, would be impacted.”
In December 2022, the Commission issued the final Decision. In the December 2022 Decision, the Commission found that:-
“The FW Act does not include, in Section 139 or elsewhere, a power for the Commission to include terms about the stand-down of employees in a modern award … Instead, the FW Act directly regulates the circumstances in which employers may stand down their employees in Pt 3 – 5 of the FW Act (specifically, Section 524). Respect must therefore be given to the fact that the legislature has chosen to remove the stand-down of employees from the list of matters which may be the subject of award terms and, by Section 524 (of the FW Act), to restrict the circumstances in which a stand-down may occur.”
“Stand-down” (or “stand-off”) has a well-established meaning: it refers to a circumstance where an employer has no useful work for an employee to perform for a period, and therefore directs the employee not to attend the workplace and does not pay the employee for that period. There is no functional difference between a stand-down, so described, of an employee during a period when the employer shuts down its business or part of it, and a direction to an employee to (notionally) take leave without pay during a shutdown. That stand-downs may also occur in a broader range of circumstances does not invalidate this proposition.”
“The provisions in question are therefore, in substance, provisions about the stand-down of employees during shutdowns. They are not provisions about leave, leave loadings or arrangements for taking leave such as to be authorised by Section 139(1)(h) (of the FW Act) because they are not concerned with “leave” in the proper sense at all, and the mere use of the label “unpaid leave” does not make them about leave. “Leave” is not defined in the FW Act, but in accordance with its established industrial meaning, it is a beneficial entitlement for an employee to be absent from work. Leave without pay is a recognised form of leave entitlement, and the NES provides for a number of unpaid leave entitlements: unpaid parental leave, unpaid special maternity leave, unpaid carer’s leave, unpaid family and domestic violence leave and community service leave. These all have the character of entitlements that are beneficial to employees. An award term that is about an employee entitlement to take leave without pay would clearly be authorised under Section 139(1)(h) (of the FW Act), as would a term about the taking of such leave pursuant to such an entitlement.”
“the existing clauses which permit employees to be directed to take leave with pay, or to be stood – down or stood – off, during a shutdown, are beyond power. They are not authorised by Section 93(3), Section 139(1) or Section 142 (of the FW Act).”
“It would not be fair for an employer to be able to direct an employee take leave without pay during a shutdown, unconstrained by any requirements as to reasonableness, prior consultation or (in most cases) the duration of the shutdown, in circumstances where the employee themself has no entitlement to take, or even request, leave without pay if they wish to do so.”
Section 139(1)(c) (of the FW Act) authorises award terms that are about “arrangements for when work is performed, including hours of work, rostering, notice periods, rest breaks and variations to working hours.” We do not think that a provision by which an employer may require an employee not to attend the workplace and not pay the employee for a period during which the employer’s business, or a part of it, is shut down, may reasonably be characterised as concerned with arrangements for when work is performed.”
“Even if Section 524 (of the FW Act), the contract of employment, or any applicable enterprise agreement, does not address the issue of shutdown, any shortfall may be managed using a variety of means including use of accrued rostered days off and time off in lieu of overtime, or granting requests to take annual leave in advance.”
“It will be unusual for an employee to have no accrued annual leave, so in most cases it will only be a question of covering a shortfall and not the entire period … employees who do not have sufficient leave accrued to cover the whole of a shutdown period will not be entitled to receive full pay for the whole period and not exhaust any part of their leave accruals, and such employees may be directed to take such leave as is accrued to cover part of the shutdown.”
“There is nothing to prevent an employer from identifying useful work that could be performed in a part of its operation by employees who do not have sufficient accrued annual leave to cover all or part of a shutdown, and who do not agree to take leave without pay, from performing such work, provided the work is within the terms of relevant modern award provisions dealing with employer and employee duties.”
“We see merit in a provision which allows an employer and an employee to agree that the employee take leave without pay during a shutdown once they have exhausted their annual leave balance.”
Attachment B - Model Clause
24.4 Direction to take annual leave during shutdown
(a) Clause 24.4 applies if an employer:
(i) Intends to shut down all or part of its operation for a particular period in conjunction with the Christmas / New Year period for the purpose of giving the whole of the annual leave due to all, or the majority of their employees qualified for such leave (temporary shutdown period); and
(ii) Wishes to require affected employees to take paid annual leave during that period.
(b) The employer must give the affected employees two months’ written notice of a temporary shutdown period, or any shorter period agreed between them and the employer.
(c) The employer must give written notice of a temporary shutdown period to any employee who is engaged after the notice is given under clause 24.4(b) and who will be affected by that period as soon as reasonably practicable after the employee is engaged.
(d) The employer may direct the employee to take a period of paid annual leave to which the employee has accrued an entitlement during a temporary shutdown period.
(e) A direction by the employer under clause 24.4(d):
(i) Must be in writing; and
(ii) Must be reasonable.
(f) The employee must take paid annual leave in accordance with a direction under clause 24.4(d).
(g) In respect of any part of a temporary shutdown period which is not the subject of a direction under clause 24.4(d), an employer and an employee may agree, in writing, for the employee to take leave without pay during that part of the temporary shutdown period.
(h) An employee may take annual leave in advance during a temporary shutdown period in accordance with an agreement under clause 24.5.
(i) In determining the amount of paid annual leave to which an employee has accrued an entitlement, any period of paid annual leave taken in advance by the employee, in accordance with an agreement under clause 24.5, to which an entitlement has not been accrued, is to be taken into account.
(j) Clauses 24.7 to 24.9 do not apply to a period of annual leave that an employee is required to take during a temporary shutdown period in accordance with clause 24.4.
