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Following government announcements in NSW, Victoria and South Australia, we answer some of the key questions about standing down impacted employees.

Of course, the new restrictions will impact you all differently – please let us know if you need tailored advice.

If I have to shut my business because of the Government’s orders, can I stand down my employees without pay?

Yes, if you have a stand down right under one of the following:

  • your enterprise agreements – you should check if they provide for stand down and whether the right is triggered in these circumstances;
  • your employment contracts – prior to COVID-19, most employment contracts did not deal with stand down, but some employers updated their employment contracts since the pandemic started to provide for stand down; and
  • section 524 of the Fair Work Act.

Enterprise agreement

If you’ve got a stand down provision in an enterprise agreement that is triggered in the current situation, you’ll need to follow the requirements of that clause. The consultation provision in the agreement may be triggered but practically consultation in this situation is going to be pretty short.

If an enterprise agreement does not cover the field on the issue of stand down, then the Fair Work Act provision may be relevant.

Employment contract

If you’ve got a stand down provision in an employment contract that is triggered in the current situation, you’ll need to follow the requirements of that clause.

If an employment contract does not cover the field on the issue of stand down, then the Fair Work Act provision may be relevant.

Fair Work Act

Under section 524 of the Fair Work Act, you would need to establish the following requirements to be able to stand an employee down:

  1. first – the employee cannot be usefully employed (in their normal duties or performing alternative duties that would have a net benefit to the employer);
  2. second – there is a stoppage of work (which might not necessarily include a reduction of work);
  3. third – the stoppage is for a cause for which the employer cannot be held reasonably responsible – in the current circumstance the NSW Government orders not to operate your business;
  4. fourth – the employee cannot be usefully employed, because of the stoppage of work referred to in 3 (this is an important issue of causation).

If my business can continue to operate under the current Government orders, can I stand down my employees without pay?

Generally, a reduction in demand will not constitute a stoppage of work for the purposes of section 524 of the Fair Work Act.

However, if the reduction is so great that it essentially means no work can be performed, it could amount to a ‘stoppage of work’ outside the employer’s control. If this applies to your business, we encourage you to get specific advice – this is a complicated area and there are significant risks if an employer stands down employees without pay without a right to do so.

If my business can continue to operate under the current Government orders but it is impacted, can I reduce the salary of my employees?

Temporarily reducing salary may be a way of mitigating the impact of the current orders – and is possible if the employee agrees.

Of course, the reduced salary must not fall below minimum rates (in a modern award, enterprise agreement or the Federal Minimum Wage). This can be a problem if you are contemplating a commission only arrangement.

However, a unilateral reduction will rarely be possible (eg, unless the employment contract allows for it, possibly as part of an annual pay review).

If you are contemplating seeking employees’ agreement to reduce salaries, there are some practical steps for you to consider, including:

  • will you offer reduced hours / different duties, it may be easier to reach agreement if you offer reduced pay for reduced hours;
  • can you vary or withdraw any bonus or incentive schemes as an alternative – especially if they are discretionary;
  • discussing with employees the practical impact of the current Government orders on the availability of work and the financial performance of the business, and how significant the pay reduction needs to be and for how long.

Another option to consider is reducing employees’ hours of work – so their take home pay goes down. Again, this will usually require agreement, but you should check if you have any other flexibility in your contracts or applicable industrial instruments.

If I am standing down my employees, do I need to let them take annual leave if they ask to do so?

If an employee wants to take annual leave where the alternative is a stand down without pay, an employer must not unreasonably refuse a request by an employee to take annual leave.

However, if you are standing down employees, and approving the annual leave will create cash flow issues, it may be reasonable to decline requests – or only approve a certain amount of annual leave. It will be important to consider the employee’s reason for requesting the annual leave as it will be relevant to whether it is reasonable to refuse the request.

Can I direct my employees to take annual leave?

The position depends on whether or not your employees are covered by an industrial instrument (enterprise agreement or modern award).

Employees not covered by an enterprise agreement or modern award

Under the Fair Work Act an employer can require an award/agreement free employee to take annual leave if the requirement is ‘reasonable’. If you have no work for an employee to perform because of the Government orders, it is likely to be considered reasonable to require an employee to take at least some of their annual leave. However, the reasonableness could be affected by an employee’s particular circumstances and any concerns should be addressed on a case by case basis.

Employees covered by a modern award

You will need to consider the terms of the modern award/s that are applicable to your employees.

Many modern awards were varied in 2020 to allow employers to direct employees to take leave because of the pandemic. In March 2021, the Fair Work Commission extended the unpaid pandemic leave and annual leave at half pay clauses in 57 modern awards (five others were subsequently extended). They will continue to operate until December 2021.

As a first step, we would recommend you check if the modern awards that apply to your employees contain any relevant leave provisions.

Employees covered by an enterprise agreement

It will depend on the terms of the enterprise agreement. Many enterprise agreements do provide for directing an employee to take annual leave in specific circumstances.

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