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DBH Lawyers

- 23 Mar 2020
  • General

Legal Alert – COVID-19

Mandatory Government shut down – what is the effect?

By Sarah Legoe (Solicitor) and Dylan Steel (Partner)

The Government has announced further measures aimed at reducing the spread of the Coronavirus disease (COVID-19).   These measures may result in a number of businesses closing their doors (for example hotels, gyms, cinemas to name a few) or being required to significantly reduce their operations (for example restaurants and cafes) for the foreseeable future.  Other services deemed non-essential, may face the same fate in the coming days.   For most of these service based industries working remotely is not a possibility.   This raises the issue of how best to manage employees during this time.

Can we temporarily stand down employees?

A contract of employment or Modern Award/Enterprise Agreement may permit in some circumstances an employer to temporarily stand employees down when they cannot be usefully employed because of an event outside of their control.

If a contract of employment or Modern Award/Enterprise Agreement does not contain such terms, then an employer can temporarily stand down employees where they cannot usefully be employed as a result of circumstances that are outside of their control pursuant to section 524 of Fair Work Act 2009 (Cth) (‘Act’).

An employee is usefully employed where the employer can obtain some benefit or value from the work they perform, whether in the position they have been employed to perform or otherwise.  Therefore, if work can be completed remotely, an employer should consider this before standing down employees.   In customer service based industries such as hospitality and retail, remote work is not possible.

In our opinion, the measures announced by Government that force the closure of or severely restrict the operations of the business, are likely to trigger the ability to stand down employees (whether in whole or within one or more departments, for example front of house employees are not likely to be required for those businesses restricted to takeaway services).

A general downturn in business is not likely to trigger the operation of the prescribed stand down provisions.  However, if the business has been so severely impacted by external events that there is no work available at all (i.e. supply chains have ceased), whether for the whole business or a department within, it is possible a stand down may occur.  Legal advice should be sought in such scenarios.

Do employees get paid during the period of the stand down?

An employer does not need to pay an employee for the period they are stood down (see section 525 of the Act).  However, it is important to note that annual and personal leave entitlements will continue to accrue for those employees who are entitled to such.

Employees can access any accrued annual leave entitlements during this time (if applicable) and employers may want to consider allowing employees to access leave in advance (noting this should be approached with caution and the relevant Modern Award/Enterprise Agreement should be referred to).

Note:  if the right to stand an employee down is contained in the contract of employment or Award/Enterprise Agreement, the terms of that document will dictate the effect on an employee’s entitlements during the stand down period, including any ability to take leave in advance.

Do we need to provide employees with notice?

Employers should strongly consider providing employees with written notice that includes at least the following information:

  1. they are temporarily being stood down;
  2. why they are being stood down (i.e. Government mandated closure as a result of the COVID-19 virus);
  3. when the stand down will take effect from; and
  4. the employer cannot provide an indication of the length of time the employee will be stood down, and that the employer will provides further updates as and when it can (noting the difficulty with this current situation).

Closing a business as a result of Government mandated directions is not a decision of the employer and therefore it is unlikely the consultation provisions in an Award or Enterprise Agreement will apply.  However, employers should refer to the Modern Award/Enterprise Agreement for further information.

What other options are available

It is unclear how long employers may be impacted by these measures and many businesses are therefore facing an uncertain future.  Employers who are unable to provide any work to employees as a result of the closure may also want to consider whether positions are to be made redundant.  If redundancy is being considered, employers should be aware there are strict steps that must be followed.  Therefore, we recommend legal advice is sought before taking such action.

On 22 March 2020, the Government has announced a raft of financial measures aimed at helping effected businesses and employees through this time.   For businesses, this will include being able to access payments if employees are ‘kept on the books’ as opposed to being made redundant (pending approval of this package by Parliament).

Each business needs to carefully consider the approach they want to take and what suits their needs.  Legal advice should be sought where necessary.

Further information

For further advice and assistance in relation to standing down employees or any other employment related matter arising from the COVID-19 pandemic, please contact the Commercial Law Team on 08 8216 3394.


Disclaimer:  This Article provides a summary of the subject matter only.  The information contained within is not intended as advice, legal or otherwise, and should not be relied upon as such.  Please contact us should you wish to discuss the subject matter of this article further or to obtain professional advice on the same.