The economic shock triggered by the COVID-19 health crisis has meant that many businesses are struggling to deal with a sudden drop in revenue, making it very difficult to sustain usual levels of expenditure. This has resulted in many businesses having to make the hard decision to cut expenses through terminating staff, reducing staff hours, or reducing staff pay.
This is never an easy process especially where the Fair Work Act 2009 (Cth) (the Act) imposes strict obligations on employers. The worst thing you can do as a business owner, is make a quick decision in an attempt to deal with the sudden economic shock. Inadvertently, this may mean that your business is exposed to a claim in the Fair Work Commission.
In this article, we explain the two ways that your business can lawfully stand down employees.
Standing down an employee who is in receipt of JobKeeper
As part of the Commonwealth Government’s response to the COVID-19 pandemic, changes have been made to the Act to assist businesses who qualify for JobKeeper deal with the economic fallout. If you are a business owner that has qualified for JobKeeper, you are entitled to issue ‘JobKeeper enabling directions’ to your staff.
The most practical and flexible direction given to employers under the Act is the power to stand down an employee. [1] If your business has suffered a change that has been caused by COVID-19, and your employees (or a group of employees) can no longer be ‘usefully employed’, then you would be permitted to stand down an employee or a group of employees by issuing a ‘JobKeeper stand down direction’.
What is a stand down direction for JobKeeper employees?
A stand down direction can take the following forms:
- The employee is not required to work on a day that they would usually work;
- The employee is directed to work less hours then they usually would on a particular day;
- The employee is directed to work less hours then their ordinary hours, including up to 0 hours.
Satisfying the wage condition
However, if you elect to stand down an employee, you must ensure that the ‘wage condition’ is satisfied. That is, each employee that has been stood down must continue to receive the full amount of the JobKeeper payment regardless of hours worked.
The benefit of the JobKeeper stand down direction is that it is very flexible. Essentially, any change in your business (generally a drop in revenue) that can be directly attributed to COVID-19 could enable your business to issue a stand down direction.
What if my employees are not in receipt of JobKeeper payments?
If your business has not qualified for JobKeeper then the circumstances in which you are permitted to stand down your employees are very limited. [2]
An employer is only permitted to stand down an employee without pay if the employee cannot be usefully employed because of:
- Industrial action;
- A breakdown of machinery or equipment; or
- A stoppage of work for which the employer cannot reasonably be held responsible.
In light of the trading restrictions caused by COVID-19 most employers are relying upon ‘stoppage of work’ as the reason to stand down an employee (without pay) if the employee is not in receipt of JobKeeper payments.
Standing down an employee for this reason is difficult and can only be relied upon in narrow circumstances. In recent cases, the Fair Work Commission has made it clear that a reduction in available work is not a stoppage of work. That said, for there to be a stoppage of work there is no requirement for business activities to entirely cease.
Whether there has been a stoppage of work, will rest on whether an employee can be usefully employed. As part of the decision-making process the employer must assess the existing work available in the business and the number of employees required to complete the useful work and whether there is a stoppage of work related to a component of the business or in respect of a business activity. At all times, the employer must act in good faith and fairness.
Although an employer is permitted to make a decision based on business necessity, the employer is prohibited from acting maliciously in this regard.
There is no clear cut approach to interpreting and applying the Act. Each business must be assessed on a case by case basis. If your business intends to stand down employees because of ‘stoppage of work’, it is essential that legal advice is sought.
What if you get it wrong?
If a business stands down an employee incorrectly, the aggrieved employee has standing to bring the matter before the Fair Work Commission (the Commission). If the Commission concludes that there has not been a stoppage of work, the Commission will make an order that the employer pays the aggrieved employee compensation to account for their lost wages during the stand down period.
This can be a costly and long exercise. It is important you get it right from the start.
Key takeaways
Most businesses will be impacted by the disrupted global economy, particularly those business that rely on international markets from a logistical and demand perspective.
Where your employees are in receipt of JobKeeper payments, your business could potentially rely on the JobKeeper enabling directions to issue a stand down direction. These directions provide greater flexibility, and there is no requirement to demonstrate a ‘stoppage of work’.
However, where your business is not in receipt of JobKeeper payments, there are limited circumstances in which you can stand down an employee, including ‘stoppage of work’. The threshold set by the Act is extremely strict and all businesses should seek advice prior to standing down their employees for this reason.
[1] Section 789GDS of the Act
[2] Section 524 of the Act
