Annual leave is normally a matter of agreement: the employee asks, you approve, and the leave is taken. But every employer eventually faces the opposite question. The business is closing between Christmas and New Year, or a long-serving employee is sitting on ten weeks of banked leave, and you want them to take it whether they like it or not. Can you direct them to?
The short answer is that a direction is lawful in only a narrow set of circumstances, and it is always subject to one controlling test: the direction must be reasonable. This article explains where the power to direct annual leave comes from, the two situations in which it is commonly exercised, how the reasonableness test works in practice, and what happens when an employee challenges a direction. It is written for the employer who needs to get the direction right the first time, because that is where the cost of getting it wrong lands.
Where the power to direct annual leave comes from
Start with the baseline. The National Employment Standards (NES) in the Fair Work Act 2009 (Cth) give every non-casual employee four weeks of paid annual leave for each year of service, and five weeks for employees classified as shiftworkers under an award or agreement (s 87(1)). The leave accrues progressively according to the employee's ordinary hours of work and accumulates from year to year, so part-time employees accrue a prorated amount rather than the full four weeks (s 87(2)). When leave is taken, the NES requires payment at the employee's base rate of pay for their ordinary hours, with leave loading if the award or agreement provides it (s 90).
Under the NES, leave is ordinarily taken for a period agreed between the employee and the employer, and the employer must not unreasonably refuse a request to take leave (s 88). Nothing in the NES itself gives an employer a freestanding right to direct leave. The power to direct comes from one of two places:
- Award and agreement covered employees: from the award or agreement itself. Section 93(3) allows a modern award or enterprise agreement to include terms requiring an employee, or allowing an employee to be required, to take paid annual leave in particular circumstances, but only if the requirement is reasonable. Section 93(4) allows terms otherwise dealing with the taking of leave, such as notice periods and the length of leave blocks.
- Award and agreement free employees: from s 94(5), which lets an employer require the employee to take paid annual leave but only if the requirement is reasonable. The Act gives two examples of a reasonable requirement: the employee has accrued an excessive amount of paid annual leave, or the employer's enterprise is being shut down.
The first question to answer before any direction is therefore not "can I?" but "what do the award, the agreement and the contract actually say?" If the employee is award and agreement free and the contract is silent, you fall back on the statutory test in s 94(5). If the employee is covered and the award or agreement is silent on directions, there is no power to direct at all: you can only ask, and the employee can say no. Where the documents do speak, the direction must stay inside what they permit. That sounds obvious, but it is the point where employers most often go wrong, as the case discussed below shows.
The two directions employers actually give
In practice, lawful directions fall into two situations: shutdowns and excess leave balances. The rules for each differ depending on whether the employee is covered by an award, an enterprise agreement, or neither.
Shutdown directions
A shutdown is a temporary closure of the business, most commonly over Christmas and New Year. Many modern awards were updated from 1 May 2023 with a new model shutdown clause. Under those clauses an employer may require employees to take paid annual leave during a temporary shutdown, but must give at least 28 days' written notice of the shutdown period to all affected employees, and the requirement to take leave must still be reasonable. The 28-day notice period can be shortened by an agreement between the employer and the majority of affected employees. If an employee does not have enough accrued leave to cover the whole shutdown, the award rules contemplate agreement on options for the uncovered days, such as using accrued time off, taking annual leave in advance, or taking leave without pay.
A shutdown is not the same as a stand down. A stand down under s 524 of the Fair Work Act is where the employer tells employees not to work because they cannot be usefully employed for reasons outside the employer's control, such as a serious equipment breakdown or a natural disaster. The distinction matters because the two situations carry different rights and obligations, and a direction dressed up as a shutdown when the business is actually standing employees down can unravel.
For award and agreement free employees, the shutdown example in s 94(5) covers the same ground: a temporary shutdown of the enterprise, such as between Christmas and New Year, can make a requirement to take paid annual leave reasonable, subject to the same overall reasonableness assessment.
Excess leave directions
The second common situation is an employee who has banked far more leave than they can ever use. The Fair Work Ombudsman treats a balance as excessive when it exceeds about eight weeks, or ten weeks for a shiftworker.
Most modern awards contain an excess leave clause along these lines: if an employee has accrued at least eight weeks of leave, or ten weeks for a shiftworker, and you cannot reach agreement with them about when to take it, you may direct them in writing to take leave, provided you give at least eight weeks' notice and no more than 12 months' notice of when the leave will start, the directed period is at least one week, and the direction does not generally reduce their balance below six weeks.
The detail matters and awards differ, so the Ombudsman's advice is to check the specific award before acting. Enterprise agreements can set their own excess leave rules, and where an agreement allows a direction but does not spell out the rules, the direction must simply be reasonable. For award and agreement free employees there are no fixed thresholds; the test is whether the requirement is reasonable, and an excessive balance is the classic example of when it will be.
The reasonableness test is the gate
Notice that both paths end at the same place. Section 93(3) and s 94(5) both permit a direction only if the requirement is reasonable. That is the controlling question, and it is assessed against the facts as they stand when the direction is given.
The Fair Work Ombudsman identifies the factors that feed into the assessment: the needs of the employee and the needs of the business, any arrangement already agreed with the employee, the custom and practice of the business, the timing of the direction, and the length of the notice given. A direction given with plenty of notice, for a genuine business reason, and after a genuine attempt to agree, is hard to attack. A direction that comes out of nowhere, lands in a period the employee has already flagged as difficult, or is really aimed at something else entirely, is vulnerable.
The limits of a direction clause matter as much as its existence. In United Voice v Valspar (WPC) Pty Ltd [2014] FCAFC 34, the employer's enterprise agreement contained a clause that, on the employer's reading, allowed it to require employees to take annual leave at specified times. The employer directed employees to take single days and multi-week blocks of leave throughout the year. The Full Federal Court held that each of the requirements was contrary to the agreement: the clause only permitted directions in particular circumstances, and the directions went beyond them. The point for employers is that a direction clause is not a blank cheque. It is read according to its terms, and a direction that exceeds those terms is a breach that can be enforced.
What happens when an employee pushes back
Employees are not powerless in the face of a direction, and it is worth knowing what they can do, because their options define your exposure:
- Request a different period: the NES requires an employer not to unreasonably refuse an employee's request to take leave (s 88(2)), and the same logic applies to rescheduling a directed period. A reasonable request to shift the leave, backed by genuine reasons, should be taken seriously rather than dismissed.
- Raise personal circumstances: an employee can raise personal circumstances that make the directed period genuinely difficult, and can ask you to put the reasons for the direction in writing. Both are legitimate, and both put the reasonableness conversation on the record.
- Use the dispute procedure: if the award or agreement has a dispute resolution procedure, the employee can raise the dispute under it. That is the forum where the reasonableness of the direction will be tested, and where a poorly documented direction will be exposed.
- Enforce the instrument: if the direction breaches the award or the agreement, it can be enforced. Valspar is the cautionary example: the employer there faced court proceedings alleging contravention of its enterprise agreement.
From the employer's side, the practical defences are the same things that make a direction reasonable: documented business reasons, proper written notice, a genuine attempt to agree before the direction is issued, and flexibility where the employee's circumstances warrant it. An employee who refuses to comply with a lawful and reasonable direction raises a conduct issue of its own, but it is far better to have the reasonableness of the direction beyond argument before that conversation starts.
There is also a middle path worth taking seriously: sometimes the direction is really a request dressed up as an order, and the employee is entitled to treat it that way. If you have not actually decided to force the issue, say so, and negotiate the timing instead. That keeps the relationship intact and avoids turning a scheduling problem into a formal dispute.
How a lawyer helps you direct leave without a fight
The expensive mistakes in this area are made before the direction is issued, not after. A lawyer can check the award, agreement and contract provisions that actually govern your employees before you act, so you know whether you have the power at all. If your agreements are silent, a lawyer can draft a shutdown clause or an excess leave clause into your next enterprise agreement, or into the contracts of award and agreement free staff, so the power exists in terms you control. Where you are facing a shutdown or an employee with an excessive balance, a lawyer can pressure-test the reasonableness of your proposed direction against the Ombudsman's factors, and put the written notice and the record of the attempt to agree into a form that will survive scrutiny. If an employee does raise a dispute, a lawyer can respond to it, negotiate a resolution, and represent you if it reaches the Fair Work Commission or the courts.
The notice and the reasoning are what get tested
If there is one thing to remember, it is that a direction to take annual leave is only as safe as its reasonableness, and reasonableness is judged on the written record: the notice you gave, the business reasons you can show, the attempts you made to agree, and the attention you paid to the employee's circumstances. Every one of those is something you control before the direction is issued, and none of them can be reconstructed after a dispute starts. Getting the groundwork right may not be as expensive as you fear: a consultation with an employment lawyer before you send the notice is a small price against the cost of a direction that is set aside, a workplace relationship that is damaged, or proceedings that could have been avoided.