Legal experts offer a quick guide to standing down employees due to COVID-19

The rapidly evolving nature of COVID-19 and accompanying challenges has greatly renewed focus on the power to stand down employees. Employers such as Qantas, Virgin Australia, Flight Centre, Myer, AFL, NRL, Cotton On Group, and Country Road have stood down thousands of employees across Australia.

What is a stand down?

Employees who are stood down do not perform work for their employer and are not paid while stood down. However, the employees remain employed.

Contracts of employment and industrial instruments, such as enterprise agreements, may contain stand down provisions. If this is not the case, employers may then turn to the Fair Work Act, specifically section 524.

Why would I stand down my employees?

For employers, standing down employees may be preferable to the harsher alternative of termination of employment by way of redundancy. However, the financial impact on employees is likely to be significant as they are unpaid, particularly if the stand down is for an extended period of time.

Can I stand down my employees?

If an employer is considering a stand down of employees, the starting point is to review the contracts of employment and any applicable industrial instrument to determine whether they contain a stand down clause. If there is a stand down provision, the employer is required to follow it. For example, an employer may be required to consult with the employees it is considering standing down in respect of mitigating the impact.

If the contracts of employment and any applicable industrial instrument do not contain a stand down clause, then the employer would need to rely on the Fair Work Act to stand down employees.

The bar to meet before employees can be stood down under the Fair Work Act is high.

Employees may be stood down:

• during a period in which the employee cannot usefully be employed;
• because of a stoppage of work for which the employer cannot reasonably be held responsible.

Consideration of the above factors would involve a question of fact on a case-by-case basis. A direct causal connection between the stand down and the reason for the stand down is required.

A general reduction of work, for example, because of an economic downturn, is unlikely to be sufficient to stand down employees.

Employers also need to consider whether:

• the employees under consideration could be usefully employed elsewhere in the business, including assessing any opportunities for redeployment; and
• the cause of the stoppage of work is something for which the employer cannot reasonably be held responsible. For example, government-mandated closure of non-essential services may be considered a cause of a stoppage of work for which the employer cannot reasonably be held responsible.

If the employees are covered by a modern award, the employer may also have consultation obligations in relation to a major workplace change.

An economic downturn isn't a legitimate reason?

This is confusing to some so it might help to use a hypothetical, reiterating that every real world situation should be assessed on a case-by-case basis and individual legal advice should be sought.

Say it’s 2025 and you are the owner of a chain of restaurants. You don’t have an enterprise agreement or employment agreements that mention “stand down”. Due partially to a national economic downturn, you are seeing fewer customers visiting several of your restaurants, and decide that you will shift to a strategy of making these restaurants deliver-only kitchens. In this instance, it is highly unlikely that it would be lawful to stand down your waitstaff, since while you might not be doing well financially there is no inherent reason you are prevented from running your business more generally.

A stand down is not applicable to situations where the essential issue is ‘less than ideal business circumstances’. There is no “stoppage of work” in this scenario as required by the Fair Work Act. Your business can still run. The fundamental issue is lower revenue with which to pay staff. You could potentially make some of your staff redundant, but even there you would have to see if there was an opportunity for them to switch to delivery roles.

Now imagine you are that same owner in 2020 and the government has put restrictions put in place to slow the COVID-19 pandemic that means you are not legally permitted to run a sit-in restaurant. You can still deliver food though. In this example, you are more likely to be allowed to stand down waitstaff for so long as the government is limiting you from running that aspect of the business. Here again, you would need to see if some staff could be retained in the delivery function. The main distinction with this 2020 scenario compared with the 2025 one is that some work is simply not allowed to take place, and your business cannot be held reasonably responsible for the stoppage of work.

Can a stand down be challenged?

A stand down may be challenged by application to the Fair Work Commission. The consequences of unlawfully standing down employees may involve an order to back pay employees for lost wages during the unlawful stand down, an order to back pay any annual leave taken, and the employees may have a right to return to useful work. If any such orders are made and breached, the employer may also be liable to pay pecuniary penalties.

Can employees access paid leave entitlements while stood down?

Generally, employees may access accrued annual leave and long service leave during a stand down. This could significantly reduce the financial impact on employees.

The legal position in relation to employees accessing paid personal leave is less clear and specific legal advice should be sought regarding this.

Additionally, stand down periods count as periods of service under the Fair Work Act, meaning that employees are entitled to continue to accrue service-based leave when stood down.

Conclusion

If adopting flexible work arrangements such as remote working or an altered roster are impractical for your organisation and cannot prevent a stoppage of work, consider whether your organisation can lawfully stand down employees according to the applicable contracts of employment or an applicable industrial instrument, or in accordance with the Fair Work Act.

Careful consideration should be given on a case-by-case basis as to whether the stoppage of work genuinely renders employees incapable of being usefully employed. It is strongly recommended that you seek legal and financial advice if your organisation is contemplating a stand down.

Our team is actively monitoring and considering the implications of legal and regulatory developments in response to the COVID-19 pandemic. You can find our COVID-19 collection here.