24 March 2020

COVID-19/Coronavirus – What Happens If You’re Ordered To Shut Down?

Lachlan Thorburn, Michael Coates
Lachlan Thorburn Litigation Lawyer
Michael Coates Intellectual Property Lawyer

We are living through uncertain times that very few of us have experienced. The vast majority of businesses are in the same boat, no matter what industry they operate in, where serious consideration is being given to whether your business will be required (whether by government edict or economic necessity) to shut down for an unknown period of time.

As can reasonably be expected, many businesses are facing the tough task of deciding whether their business will be forced to shut down due to the current economic crisis. This decision will likely be taken out of the hands of most businesses and determined by the State and Federal Governments. It is clear that the most serious concern for employers (and, indeed, employees), is how do they continue to pay their employees – whether that be by way of normal pay or annual leave (or long service leave) – in circumstances where the business is not generating any income (or any sufficient) to meet those liabilities.

The Fair Work Act 2009 (Cth) (the “Act”) allows an employer to “stand down an employee during a period in which the employee cannot usefully be employed because of … a stoppage of work for any cause for which the employer cannot reasonably be held responsible” (section 524(1)(c) of the Act).

One must consider that at the time of drafting section 524 the Act, the legislature had not anticipated that section 524 of the Act would be applied to what is effectively a national shut down affecting all businesses. What has become clear is that there is no definitive legal commentary on the application of section 524 of the Act in circumstances where most businesses in our nation are facing the same economic concerns and probable shut downs.

Over recent days the Fair Work Ombudsman has appeared to change its stance on whether the coronavirus (COVID-19) would definitively be an event that would allow businesses to stand down their workforce as a result of forced government shut downs and/or economic necessity. The message from the FWO is now clear in that it considers a pandemic, such as the coronavirus, would be the kind of event that would allow a business to stand down its employees under section 524 of the Act.

However, it must be remembered that section 524 of the Act is intended to relieve an employer of the obligation to pay wages to employees who cannot be usefully employed in certain limited circumstances. The consequences of a stand down can have a severe impact on an employee and their family, as the employee may be deprived of wages for a lengthy period. Whether a particular employee can be usefully employed is a question of fact to be determined having regard to the circumstances that face the employer.

What happens if you stand down an employee in accordance with the Act?

If an employer stands down an employee during a period in accordance with section 524 of the Act, then the employer is not required to make payments to the employee for that period. In a previous publication, we opined that it appeared to be a reasonable proposition that employers should not unreasonably refuse an employee’s request to take paid annual leave/long service leave. In the absence of clear guidance from the Federal Government, it could be seen to be unreasonable for an employer to refuse an employee’s request to take annual leave/long service leave if the employee is faced with the prospect of being stood down as a result of the coronavirus. What is “reasonable” will depend on the circumstances of each employee, and the employer’s business needs.

There has been little guidance on this issue as to whether it would be unreasonable for an employer to refuse to allow an employee to take annual leave (or long service leave) entitlements (or part thereof) during this time. However, the pressing concerns that employers have conveyed to us over the last week is that the vast majority of businesses will not have the cash flow reserves to sustain annual leave (or long service leave) payments for all employees during this prolonged period. That raises the proposition, contrary to the previous general contentions reflected in our previous publication, would it be reasonable for the employer to refuse an annual leave (or long service leave) request during this time and therefore, not required to make any payments to employees during the stand down.

We consider that the Federal Parliament by way of the recent rescue packages are providing some guidance on this point. The Federal Government has announced that:

“the Government has temporarily expanded eligibility for the JobSeeker and Youth Allowance payments, meaning you may be eligible if you’re:

(a) A permanent employee who has been stood down or lost their job;
(b) A sole trader, self-employed, a casual or contract worker whose income has reduced;
(c) Caring for someone who’s affected by coronavirus.

Income testing will still apply but if you’re earning less than $1,075 a fortnight, Centrelink should approve your claim, meaning you would get the supplement”.

Accordingly, and in light of that proposed relief, we consider that on the strict reading of section 524 of the Act and the proposed relief being offered to permanent employees stood down from their employment due to the coronavirus, there are strong arguments that an employer will have acted reasonably in refusing an employee’s request to take annual leave (or long service leave) in circumstances where the business is unable to meet the payment of those entitlements as a direct result of a lack of cash flow due to forced shut downs (subject to an enterprise agreement, or a contract of employment which applies to the employment relationship).

We will continue to monitor reports and commentary for any further guidance provided by the State or Federal Governments and share that information to you as soon as possible.

Importantly, the employees’ annual leave and long service leave entitlements will continue to accrue during any stand down.

General requirements to stand down all or part of your workforce:

To invoke section 524 of the Act, employers will need to ask themselves the following questions to ensure they satisfy all its elements:

  • Does your employees’ contract of employment or enterprise agreement provide for stand down situations?If yes, those provisions must be complied with (including any specific requirements e.g. consultation) instead of simply utilising the stand down provisions contained in section 524 of the Act.
  • Can the business establish that the reason for the stand down of employees because the employees cannot be usefully employed as a result of the coronavirus and the business’ lack of viability if it had to continue to bear the burden of the employees’ wages?It is not sufficient that there be merely a downturn or a building is inaccessible. If there is work an employee can undertake in other areas of the business or the employee can work from another location, it will not be a stoppage and the Stand Down Provisions will not be available.Section 524 of the Act requires all prospects of useful employment elsewhere in the business to be exhausted before it is enlivened. Employers will, therefore, need to exhaust all other options such as working from home, working in some other way (such as directing them to an alternative role if available) and/or redeployment opportunities before they turn to the stand down provisions.
  • We would suggest that any stand downs should be implemented as fairly as possible. For example, giving employees as much notice as possible so that they do not incur costs or inconvenience related to attending for work only to be stood down.

As said above, the FWO has put out advice that is consistent with the above. You can access the FWO advice by clicking here. You will note that the FWO has specifically highlighted that standing down employees without pay is not generally available simply due to a deterioration of business conditions or because an employee has coronavirus. Employers should ensure that they understand when a stand down under the Act may be triggered so that they may respond to any employee questions and/or misconceptions.

We consider that forced Government shut downs will likely trigger the operation of section 524 of the Act.

Some examples provided by the FWO of when employers may be able to stand down employees include:

  • If there was an enforceable government direction requiring the business to close (which means there is no work at all for the employees to do, even from another location);
  • If a large proportion of the workforce was required to self-quarantine with the result that the remaining employees/workforce cannot usefully be employed
  • If there was a stoppage of work due to lack of supply for which the employer could not be held responsible.

It is important to remember that if employers cannot satisfy the elements above, they may be exposed to a dispute application under s 526 of the Act which would be dealt with by the Fair Work Commission most commonly by arbitration (but mediation, conciliation or provision of a recommendation where appropriate are also within the Commission’s powers).

If an employer unlawfully stands down employees without pay, the employees will likely be able to recover unpaid wages.

Further, section 525 of the Act provides that an employee is not taken to be stood down during a period when the employee:

  • Is taking paid or unpaid leave that is authorised by the employer, or
  • Is otherwise authorised to be absent from his or her employment.

(Note: 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).

Standing Down Your Workforce – The Considerations

Standing down part or all of a business’ workforce is a drastic step as it would usually deprive workers of an income for an indeterminate period. It is not a termination of employment. It is very important to remember that should a business make their workforce redundant, they will be liable for the notice period and redundancy payments provided for under the National Employment Standards. However, in the present coronavirus crisis, it appears that the Federal Government is providing a safety net by expanding the JobSeeker and Youth Allowance payments to stood down employees.

As we have previously advised, if your business is considering either ‘shutting down’, enforcing a ‘stand down’, or directing employees to work from home, we strongly recommend that you consult with your employees about the potential major changes to their ongoing employment. This will be a mandatory requirement under a modern award or an enterprise agreement.

That consultation ought to include discussions with the business’ workforce is to whether the employees would agree to reduced hours and/or taking paid or unpaid leave during this time. It is important for all employers and employees to understand that we must all work together to ensure the long-term viability of businesses to navigate this crisis and to also ensure that those employees have a position to return to once we get to the other side of this crisis.

 

 


Individual liability limited by a scheme approved under professional standards legislation (personal injury work exempted).

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