With Christmas fast approaching many businesses will be finalizing their closedown arrangements, however while this is a customary process, many employers are unaware that the requirements associated with a closedown are actually contained within legislation.
Section 29 of The Holidays Act 2003 confirms that a closedown is a period during which an employer customarily (a) closes the employer’s operations or discontinues the work of 1 or more employees; and (b) requires the employees to take all or some of their annual holidays.
The critical elements to emerge from this definition are that the closedown does not need to affect all staff at the same time and that employees may only be subject to one enforced closedown in each 12-month period of employment. This means that the company may elect to affect a closedown for its administration functions while still continuing to utilize some of its operational functions over the same period. It is not, and does not need to be, an all or nothing process with the employer having the ability to apply different closedown arrangements to different parts of their business (section 31).
The length of any closedown is not dictated within legislation with this again being at the sole discretion of the employer, meaning again that the actual length of the closedown may vary between different groups of worker, or functions of the company. The only period specific provision in legislation is the length of notice that the employer must provide to affected workers, this being not less than 14 days’ notice of the commencement of the closedown period (section 32(3)).
Whether or not the affected workers have annual leave owing to them is not again a requirement to affect whether the employer can impose a closedown period or not. The legislation (section 32) states that; an employee who is entitled to annual holidays at the commencement of the closedown period must, if required by his or her employer, take annual holidays during the closedown period whether or not the employee agrees to take the holidays. Furthermore, the Act states that an employee who is not yet entitled to annual leave at the commencement of the closedown period must if required to do so by his or her employer, discontinue the employee’s work during the closedown period.
This therefore becomes one of the only occasions whereby an employer is entitled to make arbitrary decisions that impact upon an employee’s terms and conditions of employment where the requirement to engage in procedurally fair consultation does not apply.
The distinction between ‘entitled’ annual leave and ‘accumulated’ leave then becomes critical when determining the payment provisions for workers affected by the closedown period. Entitled leave is defined as that leave that has become available to the employee as a result of them reaching an employment anniversary date (a minimum 4 weeks leave for each 12 months of employment). Employees with entitled leave are therefore required to use this leave to cover the duration of the closedown period, and if insufficient leave is available, the remainder of the closedown period is deemed to be unpaid leave.
However, in the case of an employee who has not yet reached their first anniversary date on account that their period of employment is less than 12 months, legislation requires that they are paid out all leave owing (at a rate of 8% of total gross earnings) and that they are then provided with a new anniversary date coinciding with the commencement of the closedown period, or a date nominated by the employer (section 35).
While this is generally not an issue for employees who have been employed for less than six (6) months as the accumulated leave will provide payment for at least some of the closedown period (the remainder being taken as unpaid leave) it may clause issue for employees with a longer period of service who in fact have more accumulated leave available than the closedown period would require.
In such cases, as The Holidays Act is a ‘minimum entitlements Act’ the parties may agree to only paying the employee the amount of accumulated leave required to cover the closedown period and to retain the balance of the leave for the employee to use at a later agreed date (at which time it would be paid out on the greater of the average daily rate or ordinary daily rate basis – section 21)
The critical element in the above is to ensure that there is good communication, well in advance of the commencement of the closedown period (a minimum of two (2) weeks) with respect to the intended duration of the closedown, how this will affect each employee and what the provisions for payment for the period will be. Workplace
If you require any further information with respect to the implementation of a closedown period please feel free to contact us directly.