The coronavirus means that a lot of businesses simply won’t have enough work to carry on. No one wants to close their business down. Nobody wants to create redundancies. Nobody wants an unfair dismissal claim.
So what do you do?
Consider standing down your employees
‘Standing down’ an employee is something short of terminating them. You are basically saying that they still have their job, but you do not require them to attend work for a period of time.
In most cases, employers will only stand down employees when they can do so without having to pay the employees during the stand-down period. Otherwise, there is no cash saving to the business.
So when can you stand down an employee without having to pay them?
When do you have the right to stand down your employees?
If section 524 of the Fair Work Act 2009 (Cth) applies, then you will be able to stand down your employees and not be required to pay them the remuneration referrable to their ordinary hours of work during this period. You still have the choice of paying them, but it is not legally required. Most business owners trying to preserve cash in these times will elect not to pay their employees in these circumstances.
So when does section 524 apply?
Basically, you can stand down employees without pay if:
- The employee cannot usefully be employed; and
- This is because of a stoppage of work that you cannot reasonably be held responsible for.
If you are required to close your usual place of business, but the employee is able to be usefully employed remoted, then you will not be able to rely on this provision to stand them down without pay.
But more importantly, for this section to apply, you must not be able to be reasonably held responsible for the stoppage of work. You need to be able to identify an external circumstance or event that has given rise to the stoppage. If you are reasonably responsible for the stoppage, and you no longer need the services of the employee, then either you will need to pay the employee during the stand-down, or this will give rise to a case of redundancy.
The case law in this area applies this test of ‘reasonable responsibility’ quite strictly. In order to avoid being responsible, you need to be able to identify another cause that has directly resulted in the stoppage and for which you are not responsible. For example, if the Government directs you to close your business. This has recently occurred for some businesses in the hospitality sector.
The question arises as to whether employers can rely on the concept of ‘force majeure’ to stand down employees outside the context of section 524 of the Fair Work Act.
A force majeure clause serves to excuse someone who is affected by a force majeure event and is bound by a contractual obligation from performing their duties. It is likely that a force majeure clause details specific events that may trigger the use of the clause. It only operates if the contract specifically mentions it. Usually, such clauses include ‘an act of God’ or unforeseen acts of governments and regulatory authorities, or ‘natural disasters’ (floods, earthquakes, etc.) in its definition.
The test for most force majeure provisions is whether a particular event was within the contemplation of the parties at the time of making the contract, as well as outside of their control. An application of Nugent v Smith (1876) and the unpredictable nature of the Coronavirus would likely find that it constitutes ‘an act of God’.
If you are considering standing down employees and don’t have the cash to allow employees to take annual leave or be paid while they are stood down, contact us for some innovative strategies as to how to manage this.