Do employers have the right to stand down employees because of the COVID-19 pandemic?

Do employers have the right to stand down employees because of the COVID-19 pandemic?

Summary

  • Employers do have the right to stand down employees during a period in which the employee cannot be usefully employed. This right is conferred by section 524 of the Fair Work Act 2009 (Cth).
  • One of the three circumstances that forms the basis of this right is a stoppage of work for any cause for which the employer cannot reasonably be held responsible.
  • A pandemic is clearly a situation whereby an employer cannot reasonably be held responsible for a stoppage of work.
  • Employers do not have to pay employees whilst they are stood down.

Estimated reading time: 7 minutes

Background

Apart from the obvious devastating effect it is having on people’s health in Australia and around the globe, the novel coronavirus (COVID-19) pandemic, is the biggest threat to the livelihoods of millions of Australians in a generation. Many businesses have or will be forced to close their doors to help contain the spread of the virus. The carry-on effect of this is that many employees will lose their jobs, either temporarily or permanently while business is put on hold. This article will consider the former, being the right of employers to temporarily stand down staff because of the COVID-19 pandemic.

The right of an employer to stand down employees during certain periods is not a measure that has been hastily rushed through Federal Parliament in response to the COVID-19 pandemic. Rather, the right is enshrined in Australia’s workplace relation laws, specifically section 524 of the Fair Work Act 2009 (Cth) (the Act).

It is unclear whether it was envisaged at the time of enactment whether section 524 (or its predecessor in the Workplace Relations Act 1996 (Cth)) would operate in circumstances where a pandemic was the cause of a “stoppage of work”. The explanatory memorandum to the Fair Work Bill 2008 (Cth) uses the example of a flash flood as a means of illustrating the circumstances whereby an employer cannot be held responsible.

Despite the lack of clarity regarding the intention of parliament at the time and although this has not yet been tested by a court, it is reasonably clear that the COVID-19 pandemic is a basis for standing down employees.

Section 524(1) of the Act

Section 524(1) of the Act sets out the general right of employers to stand down employees during a period in which they cannot be usefully employed in three circumstances:

  • Industrial action;
  • A breakdown of machinery or equipment; and
  • A stoppage of work for any cause for which the employer cannot reasonably be held responsible.

There are three critical aspects of section 524(1)(c) of the Act that relate to the current COVID-19 pandemic:

  • Employers can only be stood down if they cannot be “usefully employed” (i.e. the employer is able to obtain a benefit or value for the work performed);
  • The reason why they cannot be usefully employed is because of a “stoppage of work”; and
  • The stoppage of work is for any cause for which the “employer cannot reasonably be held to be responsible”.

The reference to a “stoppage of work” in section 524(1) of the Act is considerably vague and it is therefore reasonably open for businesses to rely on this section if their business is materially affected by the COVID-19 pandemic.

Stoppage of work – the trigger

The Fair Work Ombudsman makes it clear that employers cannot stand down employees just because business is quiet or there isn’t enough work. There must be an external factor that triggers a stoppage of work.

Qantas was one of the first major companies in Australia to stand down two-thirds of its employees as a result of the COVID-19 pandemic. The direct trigger of the stoppage was the recommendation from the Federal Government against travelling overseas. This was further solidified by the travel ban placed on non-residents entering Australia, which commenced on 20 March 2020.

It is conceivable that the restrictions put on travel would have drastic consequences on the aviation industry. However, what about other businesses in Australia that have been severely affected by the COVID-19 pandemic? What “cause” would trigger section 524 of the Act? The answer to these questions was delivered by the Prime Minster of Australia, Scott Morrison, on 22 March 2020.

The PM announced extreme measures to restrict the freedom of movement, the likes of which have not been seen since the end of the Second World War. Pubs, clubs, restaurants, cafes, gyms and other “non-essential” services were closed from 12pm on 23 March 2020 until further notice, and likely for a period of at least six months. Additions to the list of non-essential services were made on 24 March 2020, and it is likely that more will be added in the foreseeable future.

Businesses that are subject to the forced closures are overwhelmingly micro and small-to-medium enterprises (SME’s). Proprietors of these businesses will have to consider their options on how they will best navigate what the PM has described as the “worst economic crisis since the great depression” and it is inevitable that many of these businesses will face an insolvency challenge.

One of the options that proprietors of these businesses have is to informally restructure their business to account for the significant changes that result from the forced closures. Part of this restructure may be the termination or standing down of employees to preserve cash at bank in circumstances where business has been put on hold.

What if an employee is covered by an enterprise agreement or employment contract?

If an employee is covered by an enterprise agreement or employment contract, and that instrument provides for a mechanism by which employees can be stood down, that instrument will govern the procedure by which employers can stand down employees. Often, these instruments may require notice or consultation in addition to the requirements of section 524(1).

Do employers have to pay employees who have been stood down?

Pursuant to section 524(3) of the Act, employers are not obligated to make payments to employees who have been stood down in the circumstances contemplated by section 524(1) of the Fair Work Act.

Do employee entitlements accrue during the period that they are stood down?

During any period that an employee is stood down their entitlements to, for example, annual leave, sick leave and public holidays are not affected. This means that employees will continue to accrue leave as they normally would.

Can employees take annual, long service or unpaid leave instead?

Another alternative that employers may adopt is to give employees the opportunity to take accrued annual leave or, if eligible, long service leave. This is governed by section 525(1) of the Fair Work Act. If employees choose to take advantage of accrued leave it will give them the ability to continue receiving income in the interim, however the inevitability of the prolonged period of these forced closures may force these employees to be eventually stood down. If employees agree to take annual or long service leave, the employer will benefit by the overall reduction of leave liability, however this may prove difficult if a business faces an insolvency challenge.

Employers can also give employees the opportunity to take leave without pay. However, should employees agree to this course of action, they will not accrue annual leave, sick leave or be entitled to a public holiday.

Key takeaway

Employers have the right to stand down employees on the basis of the forced closures by the Federal and State governments.

Proprietors of micro and SME businesses should urgently consider what the best course of action is regarding their employees. This is one of the vital issues that must be considered to give businesses the best possible chance of continued viability during the inevitable turbulent period to come.

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