Orica's new Kooragang site manager Greg Holmes says workers caught sleeping on the job risk getting sacked.
The Newcastle Herald reports Holmes made the warning in a company memo sent last week, which angered night shift workers.
Holmes said it had come to his attention that workers had been sleeping on site, and confusing sleeping with fatigue management was not acceptable.
According to the Newcastle Herald the Australian Workers Union said the warning had been "poorly worded".
The AWU said workers had always managed their own fatigue and it was "not unusual" for employees to be relieved for scheduled breaks.
Holmes said Orica was reviewing its fatigue management policy, whereby controlled 'power naps' could rejuvenate workers but longer sleep periods weren't acceptable.
"Sleeping at work, whether planned or not, is unacceptable," he said in the memo.
"Any member of our team found not to have adhered to this fundamental requirement of their employment … will be subject to investigation and further disciplinary action, which may include termination of their employment."
Orica is battling to rebuild its reputation and regain community trust after a series of chemical leaks from the Kooragang plant.