“Help, I can’t pay my employees any more” – options for employers during the coronavirus pandemic
Workers stood down as businesses forced to close
What are the options open to employers whose businesses are impacted by the coronavirus pandemic, making it hard, or even impossible, to continue paying employees?
Presently the news is full of references to employees being “stood down” from businesses which have been shut down or, if still trading, have suffered substantial drops in income. But what exactly does it mean to “stand down” a worker? And what options are open to employers?
No right at common law to stand down an employee
At common law there was – and is – no right for an employer to “stand down” an employee, meaning to suspend an employee’s work and pay, while not actually terminating the employer-employee relationship. An employer was not obliged to provide work but, if the employee was willing and able to work, the employer could not lawfully stop paying their salary or wages.
The common law these days has little scope for application, because the terms and conditions of employment of the vast majority of workers are governed either by Modern Awards or Enterprise Agreements, made under the Fair Work Act 2009, as well as by the National Employment Standards under the Fair Work Act.
Most employees can’t be stood down, even executives and managers
Most employees still have contracts of employment, which of course cannot lawfully have terms and conditions less favourable than what is provided under this Fair Work “umbrella”.
Employees at executive and managerial levels may enjoy benefits much exceeding those provided by this “umbrella”, but even so, an employee at this level could not be stood down, in the sense of being temporarily deprived of work and pay – possibly for some considerable period in this case – unless the employment contract permits this.
Modern Awards generally do not have stand-down provisions. Some Enterprise Agreements have such provisions, but these are usually restricted to fairly specific circumstances.
So, what options are open to employers who hope to revive their businesses when the crisis passes, but won’t be able to do so if they have to continue to pay staff who may or may not be working but, in either case, are not bringing in revenue?
Reviving a business once the crisis has passed
In discussing options, it will be assumed that business operators will want, if at all possible, to preserve the business in a shape which will enable its revival when the crisis passes.
This means retaining staff – or at least a core group of staff allowing the business eventually to recommence – without needing to pay them until times get better.
Staff cannot be compelled to take paid or unpaid leave
Most obviously, an employer can ask staff either to draw on accrued paid leave – annual or long service leave – or to take unpaid leave.
However, the key word here is “ask”: an employer cannot compel staff to take unpaid leave or, in the absence of special circumstances, paid leave.
Of course, no employee in the current circumstances is likely to doubt the genuineness of the request and the reality of the situation.
Equally importantly, some employees may think that it’s better for them to remain “on the books”, in expectation of better times, than to have their employment terminated.
Redundancy must be genuine and workers should receive redundancy pay
The Fair Work Act recognises that, for all manner of reasons, jobs disappear. This may be because of business downturn, or simply because some product or service is discontinued. In such cases, employment can be terminated, on two broad conditions.
One is satisfaction of the three-point “genuine redundancy” test applied by the Act, which is that the employer no longer requires the employee to do the job in question; no longer requires anyone else to do it either; and cannot redeploy the employee to some other job.
The other is that a redundant employee who has been employed for at least a year is entitled to be paid, in addition to notice and accrued entitlements, redundancy pay as specified by the Act, ranging from four to sixteen weeks’ pay, depending on length of service.
It’s important to point out that there are requirements of general application that employees be consulted before redundancy decisions are made. (For more information, please see Redundancy must still be paid when a business loses contracts.)
Smallest businesses not obliged to pay redundancy pay
Redundancy is the obvious option where a business operator, believing that revival will be impossible, decides to act promptly to cut losses. While some employees might prefer a period without pay if that means eventually getting their jobs back, it may suit others to have an additional cash injection quickly, and to look elsewhere for work.
Making excess employees redundant and paying them redundancy pay is a generally available option, although if a Modern Award or Enterprise Agreement applies to the employment, it is always wise to check if that instrument makes any contrary provision.
Additionally, small businesses (defined as having 15 or fewer employees) are not obliged to pay redundancy pay.
Stand down due to “stoppage of work” under the Fair Work Act
There is a section in the Fair Work Act allowing an employer to stand down an employee in certain specified circumstances, one of which is a “stoppage of work” for which the employer cannot reasonably be held responsible.
Although the coronavirus pandemic clearly satisfies that test, the origin of provisions of this kind was in circumstances such as industrial action, for example where a strike in one industry effectively shut down another which depended on it. So the word “stoppage” is important and differs from what is merely a downturn.
Consulting your employees makes sense no matter what you need to do
While there are widespread legal requirements for consultation with employees and their employee associations, this makes sense whether or not it is legally required.
Decisions about the future of a business are likely to be sounder, and certainly more likely to be accepted, however unpleasant they may be, if there is consultation with staff of a business confronting a choice between a range of unpalatable options.
And, if there’s any doubt whether an intended course is within the law, it’s always wise to get legal advice.