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Can you temporarily close and stand down employees without pay?

Joe Murphy explains when you can stand down employees without pay.
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Can you temporarily close and stand down employees without pay?

Can you temporarily close and stand down employees without pay?

20 March 2020

Written by Joe Murphy, Managing Director - National Workplace at Australian Business Lawyers & Advisors


As COVID-19 continues to wreak havoc, many employers are considering a temporary shut down. But when is it acceptable to stand down employees without pay?

Where an employee or group of employees cannot be usefully employed for a period because of a stoppage of work, for which an employer cannot reasonably be held responsible, then you may ‘stand down’ that employee or group of employees for that period without pay.

This is usually seen as a last resort. Employers usually ask employees to take any available paid leave such as annual leave before considering standing them down without pay and, as with many other COVID-19 related decisions, you should consider balancing affordability, culture and engagement with the law before deciding what to do.

Natural disasters and pandemics, such as the current COVID-19 pandemic, can place businesses in circumstances where they are unable to usefully employ an employee or group of employees.

It is vitally important that the rationale and implementation of a stand down is conducted in accordance with the relevant provisions of the legislation.

If you have a stand down provision in an enterprise agreement or employment contract you must get specific advice on the terms of this before implementing a stand down as the general rules may not apply to you.

It is critical that there is a stoppage of work to trigger a stand down. That is, all or part of the business must cease operations in order to lawfully stand employees down without pay.

So, you need to ask yourself:

  • Is there a stoppage of work?
  • Is it for a reason reasonably outside your control?
  • Can the affected employees be employed to perform useful work?

You cannot stand down an employee if there is useful work available within the ambit of their usual job and employment contract (focus on an employee's role and job description to make this assessment). Useful work does not have to be the work that the employee ordinarily performs but needs to be genuine productive work not made up work.

Employees should be offered the opportunity to take any paid leave that they have available during a period of stand down.

These options are illustrated in the following examples:


Example 1


Assume that you run a restaurant. You have 11 full-time employees – three chefs, seven floor staff and a bar person.

All three chefs call you and say a mate has been tested for COVID-19 and they need to self-isolate for 14 days. You ring around and can't find any replacement chefs.

Working from home won’t help your type of business and until the chefs come back you decide you are left with no choice but to shut the business.

All of your employees are new and have very small annual leave balances, which they exhaust in the first week after the chefs are isolated.

You are struggling to manage the cost of the rent with no trade and decide the only option is to stand down the remaining employees without pay because your business cannot function without the chefs.

You provide the employees with a properly drafted letter implementing the stand down.

This would be a proper basis to implement a stand down without pay for the remaining employees.


Example 2


The government issues orders or advice to the community that all businesses are to be closed except food shops and pharmacies.

You run a car mechanic workshop.

This would satisfy the stoppage of work trigger but you still need to consider whether the employees can be usefully employed – e.g, working from home etc.

For the first couple of days you get the team to clean up the workshop and then ask them to take annual leave.

Unfortunately their annual leave is exhausted before the government shut down ends and you are left with no choice other than to implement a stand down without pay.

You provide the employees with a properly drafted letter implementing the stand down.

This would be a proper basis to implement a stand down without pay for the remaining employees.


Example 3


Your business makes pizza ovens and is unable to purchase essential parts from China.

You have explored whether your employees can be usefully employed on anything else but they cannot.

You provide the employees with a properly drafted letter implementing the stand down.

This would be a proper basis to implement a stand down without pay for the remaining employees.


Example 4


It’s June 2020 and your shop has been hit hard by COVID-19. Sales are down 40 per cent but the government has not yet instituted a close-down like the one in Spain and Italy.

You have cut casual employee hours and are unsure whether you can keep the door open. Your permanent employees have exhausted their annual leave, which had allowed you to run a skeleton roster for a period.

Having some customers is good but it’s not enough to keep you going.

Can you shut the business and stand the employees down without pay?

This is a difficult example and will require a detailed discussion about your circumstances.

You will likely be able to implement a stand down at some point in this situation but given the potential significant ramifications of getting a stand down direction wrong, exercise caution and seek legal advice.


Redundancies


It is also important to note that stand downs are temporary in nature and are intended to ‘freeze’ the employment relationship as an alternative to termination. Employees cannot be stood down indefinitely. If it becomes clear they will not be able to resume employment, they would still be entitled to any termination benefits that might ordinarily apply (e.g. notice and redundancy pay).

If redundancies are required, and to avoid an unfair dismissal claim, it's important to remember there are three requirements for a redundancy to be genuine.
  • The business must no longer require the person's job to be performed by anyone because of changes in operational requirements
  • The business must consult with any employees who are covered by a modern award or enterprise agreement (in accordance with the relevant consultation provision), and
  •  It must not have been reasonable in all the circumstances for the person to be redeployed within the business or an associated entity.

If redundancies are implemented, you must consider your obligation to provide:
  • redundancy pay;
  • provide notice of termination (or payment in lieu), and
  • other statutory or contractual entitlements.

This article does not provide legal advice and should not be relied on in place of specific legal advice.

For legal advice, contact Australian Business Lawyers & Advisors.

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