The economic impacts triggered by the COVID-19 health crisis have had a devastating impact on businesses. Some of the regulations introduced by the federal and state government to contain COVID-19 have stifled economic activity and prevented many businesses from trading.

What can an employer do in these circumstances?

The Fair Work Act 2009 (Cth) allows an employer to stand down its employees in circumstances where there has been a stoppage of work for any reason which is outside of the control of the employer and the employee cannot be usefully employed within the organisation.

Section 524(1)(c) of the Act is broadly written and there has been confusion by some employers about the applicability of section 524(1)(c) to the current economic climate.

On 25 May 2020, Deputy President Lake in Marson v Coral Princess Cruises (N.Q.) Pty Ltd T/A Coral Expeditions [2020] FWC 2721 (Marson) clarified with specificity the intent and applicability of section 524(1)(c) of the Act.

Key Takeaways

Deputy President Lake considered the meaning of a ‘stoppage of work’. The Commission held that in circumstances where the core activity of the organisation has ceased, this would constitute a ‘stoppage of work’. For example, in the factual circumstances of Marson, the employer was conducting a cruise ship tourism operation. As a result of the COVID-19 restrictions, the employer was prevented from conducting its core business activity, resulting in a total drop of revenue. However, the employer still had some administrative and caretaker functions available within the organisation. This meant that there was very limited work available to employees of the organisation.

Despite the existence of the limited work, Deputy President Lake considered that the Respondent had still experienced a complete stoppage of work because the primary functions of the business had ceased. The stoppage of work was linked to the legal restrictions arising from controlling the spread of COVID-19.

In short, the Commission held that section 524(1)(c) should be interpreted in respect of whether the employee can be usefully employed and not whether the organisation as a whole has experienced a complete stoppage of work.

The Commission went into some detail on what ‘usefully employed’ means. Deputy President Lake applied a useful two prong test:

  • First, the employer must actively consider whether any work is available and how that work will be distributed amongst existing employees of the business. Essentially, the employer is required to calculate the exact number of employees that are available to complete ‘useful work’. In the circumstances of Marson, this calculation would be based on the ‘caretaker’ and ‘administrative’ functions available within the organisation and the allocation of these ancillary functions.
  • Second, the employer must act in good faith and apply principles of fairness. This means that an employer is permitted to consider steps that can be taken to mitigate the economic consequences arising from the stoppage of work. In short, the decision to stand down an employee can be validly exercised on the basis of a ‘business necessity’.

Get in touch

This is a complex and technical area of law.

Whilst a commonsense approach is required, it is also essential that all employers follow the requirements and intent of section 524 of the Act.

Contact Mariam Chalak on 0410 914 128 for a no obligation chat.

If you would rather get in contact through email, send your question through to Mariam at mariam.chalak@jfmlaw.com.au.