There has been a lot of talk about employers implementing stand downs as a response to the Coronavirus pandemic, and in many instances, as an alternative to paid leave and redundancies. However, stand down rights under the Fair Work Act are quite limited and employers may get themselves into serious trouble if they attempt to exercise these rights in circumstances which do not qualify. This article reviews how stand down rights work, and viable alternatives to stand downs.
When can an employer legally stand down employees?
The Fair Work Act provides an employer with the right to stand down an employee without pay where the employee cannot perform "useful work" in certain defined circumstances.
Stand downs are intended to be temporary measures. The consequences of stand downs can be severe as they deprive an employee of wages or, in some instances, redundancy benefits. Even where a stand down right is available, it should be used as a last resort only.
Under the Fair Work Act, an employer can only stand down an employee during a period in which the employee cannot usefully be employed because of one of the following:
- industrial action (other than industrial action organised or engaged in by the employer);
- a breakdown of machinery or equipment, if the employer cannot reasonably be held responsible for the breakdown; or
- a stoppage of work for any cause for which the employer cannot reasonably be held responsible.
Employers will also need to check their employment contracts and enterprise agreements (if any), as they may contain additional stand down rights or requirements before a stand down can be implemented, such as notice requirements or consultation requirements.
What qualifies as a stoppage of work under the Fair Work Act?
Stand downs have been used historically when an employer has been forced to close operations due to industrial action or machinery failures. Where there is a stoppage of work for other reasons, an employer will need to establish that:
(a) the stoppage was for a reason that is genuinely beyond the reasonable control of the employer; and
(b) the employees could not have been usefully employed elsewhere.
The fact that an employer anticipates a downturn in business due to the Coronavirus epidemic is unlikely, of itself, to give rise to a stand down right. In contract, a Government restriction which prohibits an employer from opening its stores may justify its exercise. However, the employer will also need to establish that it cannot redeploy each employee (e.g. by having them work from home, at a different location, or in a different business operated by the employer).
What does "usefully employed" mean?
Whether or not an employee can be usefully employed will be a question of fact to be determined having regard to the circumstances faced by the employer and the nature of the employee's role. The case law on stand down suggests that an employer will have to explore all available opportunities. Indeed, the explanatory memorandum to the Fair Work Act sets a high threshold for whether an employee can be "usefully employed": "if the employer is able to obtain some benefit or value for the work that could be performed by an employee then the employer would not be able to stand down an employee."
An employer that wishes to rely on the stand down provisions will also need to lead evidence which demonstrates the connection between the occurrence of a circumstance (e.g. Government restrictions due to the Coronavirus pandemic) and the absence of useful employment. As this will turn on its facts, employers should consider the circumstances that led to the stoppage of work, whether or not it had any control over these circumstances, and any work that may exist within the business which the workforce could be engaged to perform. In some instances, this will be obvious, e.g. where an airline is compelled directly by the Government to ground flights because of Government restrictions and stand down its pilots. In others this will be more difficult to determine.
Interaction with Authorised Leave
An employer is not required to make any payments to an employee during a qualifying stand down period, but an employer may choose to pay an employee if they wish. Relevantly though, an employee is not taken to be stood down during a period when the employee is taking authorised paid or unpaid leave or is otherwise authorised to be absent from his or her employment. An employee may take paid or unpaid leave (for example annual leave) during all or part of a period during which the employee would otherwise be stood down under the Fair Work Act.
Does an employer need to give notice or consult with employees before implementing a stand down?
There is no express statutory obligation to provide notice or consult with employees prior to a stand down. However employers must:
- consider whether any notification or consultation obligations might be triggered under an enterprise agreement or employment contract; and
- check whether the terms of any consultation clause in a modern award would place an obligation on an employer to consult with employees ahead of any stand down.
For example, the consultation clause in the Clerks - Private Sector Award 2010 requires an employer to consult with employees in writing about any major workplace change. Where an employer makes a definite decision to make major changes in production, program, organisation, structure or technology that are likely to have "significant effects" on employees, the employer must:
- give notice of the changes to all employees who may be affected by them and their representatives (if any);
discuss with affected employees and their representatives (if any);
- the introduction of the changes; and
- their likely effect on employees; and
- measures to avoid or reduce the adverse effects of the changes on employees; and
- commence discussions as soon as practicable after a definite decision has been made.
For the purposes of the discussion above, an employer must give in writing to the affected employees and their representatives (if any) all relevant information (excluding confidential information if its disclosure would be contrary to the employer's interests) about the changes including:
- their nature; and
- their expected effect on employees; and
- any other matters likely to affect employees.
The term "significant effects" is defined in the award to include any of the following:
- termination of employment; or
- major changes in the composition, operation or size of the employer's workforce or in the skills required; or
- loss of, or reduction in, job or promotion opportunities; or
- loss of, or reduction in, job tenure; or
- alteration of hours of work; or
- the need for employees to be retrained or transferred to other work or locations; or
- job restructuring.
Exercising a statutory right to stand down employees covered by the Clerks - Private Sector Award 2010 will trigger consultation obligations for the employer under the award.
An employer may also need to consult with employees to determine whether or not they can be redeployed elsewhere in the business or other measures can be taken so that they may be usefully employed.
Will leave entitlements accrue during a period of stand down?
Yes, in respect of some types of leave.
Under section 22 of the Fair Work Act, a period during which an employee is stood down is counted as a period of service and does not break an employee's continuous service with his or her employer. This means that an employee that is stood down continues to accrue annual (and other types of) leave during the stand down period.
However, the position in relation to long service leave depends upon the laws that apply in the state or territory in which the employee performs works. For example, under the long service leave laws in NSW, a period during which an employee is stood down is not counted as a period of service but does not break an employee's continuous service with his or her employer (similar to a period of unpaid parental leave).
What impact does a stand down have on a public holiday?
If an employee is entitled to be absent from work, for example on a public holiday, the employee is not stood down on that day. They are, therefore, entitled to be paid for that day.
What is the impact of the JobKeeper Payment on stand down?
On 30 March 2020, the Federal Government announced the introduction of a JobKeeper Payment which immediately provides businesses impacted by the Coronavirus a wage subsidy from the Government to continue paying their employees. Companies that have been affected by the Coronavirus and can demonstrate at least a 30 per cent reduction in revenue and, for employers with a turnover exceeding $1 billion, a 50 per cent reduction in revenue, will be able to claim a fortnightly payment of $1,500 per eligible employee for a maximum period of 6 months from 30 March 2020. Employees must be employed (even if stood down) in order for the company to be eligible to receive the JobKeeper Payment.
The JobKeeper Payment does not provide an employer with a right to stand down an employee outside the provisions of the Fair Work Act. Its aim is to assist employers with continued wage payments to employees. If employees are lawfully stood down without pay, they will now be entitled to payment of $1,500 per fortnight. Where stand down is not available, employees will continue to be entitled to their usual rate of pay but eligible employers will be entitled to receive a subsidy of $1,500 towards their employees' wages (in other words, the employer must make up any difference).
Do we need to stand down casuals?
Genuine casual employees are engaged on a day-to-day basis, and would not be entitled to pay where an employer elects not to offer further work. Casual employees do not have paid sick or carer's leave entitlements under the National Employment Standards and (generally) are not entitled to be paid when they do not work. Their employment begins and ends with each shift and they are paid a casual loading to account for the lack of leave. Consequently, casual employees do not need to be stood down or terminated and made redundant - in periods of the stand down of permanent employees. Casuals are just not offered any further work during such periods.
However, it is important for employers to check casual employees are genuinely classified as casuals, i.e. not working regular or systematic hours such that they may be able to argue that they are permanent employees under the common law.
What happens if an employer gets it wrong?
The Fair Work Commission (FWC) has the power to deal with a dispute about an employer standing down employees by arbitration, mediation or conciliation, making a recommendation or expressing an opinion. When considering such disputes, the FWC must take into account fairness between the parties to the dispute when making orders.
The following persons/bodies have standing to bring a stand down dispute in the FWC:
- an employee who has been, or is going to be, stood down;
- an employee who has made a request to take leave to avoid being stood down (where the leave has been authorised by the employer);
- an employee organisation; or
- an inspector.
What alternative measures should you consider before implementing a stand down?
1. Consider alternative ways of working
You should carefully consider whether you can make changes to your operations which will enable your employees to be usefully employed. We expect that the FWC will require employers to conduct such a review before implementing severe stand down measures. Some employers have implemented well developed pandemic plans which enable business continuity. Others are less prepared.
Where you engage white collar workers and have decided to close your offices, you should consider whether you can facilitate remote working and the impact of remote working on the conduct of your operations. However when it comes to working from home, you are only as good as your technology and you will need to ensure that your staff have functional IT equipment and are provided with tech support.
You should expect that it will take a little time for your staff to transition from face to face meetings (and hand-shakes) to video conferencing (and emojis), but there are long term benefits for employers who can train their staff to be agile. Clear and frequent communication with your employees is vital. Managers need to conduct regular and frequent check-ins with employees to reduce isolation and keep productivity and motivation levels high. Also, employers should not postpone their usual performance management measures. These will be particularly important in providing employees with feedback as to how to work effectively from home and to re-align performance expectations. Employers should be reasonable in conducting assessments and have regard to factors beyond the employee's control that may have impacted their performance (including a period of adjustment).
Employers must also bear in mind that their work health and safety obligations extend to the home office, and should take some steps to ensure that they do not foster a generation of back problems.
2. Reduce leave balances
Consider inviting employees to take accrued annual leave and, if need be, directing them to so do. Whilst annual leave is primarily for rest and relaxation (and is a precious resource to many Australians), employers should communicate that such invitations / directions are being implemented in lieu of more severe measures (e.g. redundancies). Long service leave may also be available to employees with sufficient tenure.
At the date of writing, two (2) modern awards (Hospitality Industry (General) Award 2010 and the Clerks - Private Sector Award 2010) have been varied urgently to provide greater flexibility around the taking of annual leave, . The Clerks - Private Sector Award 2010 was varied on 28 March 2020 lifting existing restrictions around when an employer can direct an employee to take accrued annual leave. These new flexibility terms are temporary in nature and designed to address the urgency of the current impacts of Coronavirus on businesses. They will operate until 30 June 2020 (unless they are further extended on application to the FWC).
3. Seek expressions of interest for reduced hours, pay or other entitlements
Consider seeking expressions of interest for reduced hours, pay or other entitlements from employees (whether they are full time, part time or casual). Some employees will welcome the ability to drop one day per week or one shift if that results in the business staying afloat during a downturn. Others will be content to take a pay cut if it means they can avoid redundancy.
Where such arrangements are by consent, this should be documented in writing by way of variation to the employee's employment contract.
You should also ensure that you comply with any applicable modern awards and enterprise agreements which contain provisions requiring consultation where there are changes to working hours.
4. Cut bonuses and reduce executive remuneration
It may be an unpopular step but saying no to bonuses and salary increases is an easy option to reduce your wage bill. However, you should first check your employment contracts and bonus schemes to ensure that you have a sufficient discretion to make such a decision, or you could be exposed to a breach of contract claim. Some schemes and agreements require an employer to take into account certain factors when determining bonuses or salary increases (such as individual or company performance).
Voluntary or forced reduction of executive remuneration can send a powerful message to employees. If management can demonstrate a willingness to keep the business alive by reducing their take home pay, this can go a long way to incentivise employees to keep working and stay motivated during difficult times.
The Final Word
It is important that employers closely monitor Government announcements and restrictions. The nature and scope of these restrictions can affect dramatically an employer's stand down rights. These restrictions are changing rapidly as the Government manoeuvres to contain the spread of the Coronavirus.
These are difficult times for all. If you need any assistance, please reach out to our team. Otherwise Stay Safe!