Company Shutdown

A company shutdown is a period when an employer closes operations entirely and requires employees to be away from work. The two common patterns are a week between Christmas and New Year, and a summer plant or factory closedown.

Employers do it because partial coverage is often worse than none — a skeleton crew achieves little while the business still carries the cost — and because clearing balances in one block is far simpler than approving them one request at a time.

See also the opposite concept: Blackout Periods

Whose time is it?

A shutdown reverses the usual direction of a leave request. Normally the employee chooses when to be off and the employer approves. In a shutdown the employer chooses, and the employee’s accrued balance pays for it.

Every system answers two questions about that reversal: can the employer direct when leave is taken, and how much notice must it give? The more a jurisdiction treats leave as something the employer schedules, the easier a shutdown is to run. A third question sits underneath both: what happens to someone with no balance left?

United States

Direction itself is rarely the problem. With no federal vacation entitlement, an employer is generally free to close and to require employees to use accrued PTO to cover it — subject to state law and to any statutory sick leave, which you cannot force people to spend on a closure.

The constraint is the salary basis rule for exempt employees, and it turns on the length of the closure.

If the shutdown runs a full workweek and the exempt employee performs no work at all that week, no salary is owed for it.

If the shutdown is shorter than a full workweek, the employee must receive their full weekly salary, because they worked part of the week. The employer may require them to charge the days to their PTO balance, which keeps salary whole and the exemption intact. But if the balance is empty, the salary must still be paid in full — you cannot dock the difference without putting the exemption at risk.

So a three-day holiday closure costs full salary for every exempt employee without PTO left, which is precisely the group a December shutdown tends to catch.

Non-exempt employees are paid for hours worked, so a closure generally means no pay unless policy or state law provides otherwise.

One disambiguation: a short operational closedown is not a WARN Act event. That regime concerns mass layoffs and plant closings of real duration, not a Christmas week.

Canada

Federally regulated employers. Vacation timing is normally agreed, but the employer may schedule it — and where it does, it must give the employee at least two weeks’ notice of the start date. Vacation must begin within 10 months after the employee completes each year of employment, so a shutdown is a legitimate way to discharge that obligation rather than a workaround.

Ontario. The employer schedules vacation and is obliged to ensure it is taken within 10 months after the entitlement year ends. A company-wide closedown is a conventional way to do that.

Quebec. The employer chooses the dates, and the employee is entitled to know them at least four weeks in advance — the longest statutory notice of the three.

Internationally

United Kingdom. The employer can require leave on specified days, with a notice formula that is easy to apply and widely ignored. Under regulation 15(4) of the Working Time Regulations, notice must be given twice as many days in advance as the leave it covers: three days of shutdown needs six days’ notice; a full week needs two weeks. A contract can set different terms, but absent that, this is the default.

Australia. Rules tightened in 2023. Most modern awards now require 28 days’ written notice of a temporary shutdown before an employer can direct employees to take annual leave, unless a majority of affected employees agree to less. Critically, an employee without enough accrued leave cannot simply be directed to take unpaid leave — that now requires agreement, alongside options such as leave in advance or accrued time off.

Running one well

• Announce it a year ahead, in the leave calendar, not six weeks before
• Check the notice rule for every country you employ in — four weeks in Quebec, 28 days under most Australian awards, a formula in the UK
• Model the exempt-employee cost before fixing the dates, using actual balances rather than averages
• Decide the no-balance rule in advance and write it down: unpaid, advanced, or employer-paid. Deciding case by case in December is how inconsistency claims start
• Don’t charge statutory sick leave to a shutdown
• Say whether the days come out of entitlement or are granted on top. Reading a shutdown as a gift and later finding it came out of their allowance is the complaint people actually raise

Frequently asked questions

Can an employer force employees to use PTO during a shutdown? In the US generally yes, subject to state law. Elsewhere it usually depends on giving the required notice, and in Australia on the award’s shutdown clause.

Do you have to pay salaried employees during a shutdown? For a closure shorter than a full workweek in the US, yes — full salary, whether or not they have PTO left. For a full workweek with no work performed, no.

How much notice is required? Two weeks federally in Canada, four weeks in Quebec, 28 days under most Australian awards, and twice the length of the leave in the UK. The US sets no statutory minimum.

What if an employee has no leave left? Options include unpaid leave, advancing leave, or paying the days — but in Australia unpaid leave needs agreement, and in the US exempt employees must still be paid for a partial week.

This entry is general information, not legal advice. Notice and scheduling rules vary by country, US state, Canadian province and applicable award.