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Managing wages and employment risk during COVID-19 (and other crises) April 6, 2020

Since the outbreak of COVID-19 and the resulting government intervention including restrictions on gatherings and movement, many businesses are confronted with the question of how they decrease their business expenses to combat their falling turnover.

Although COVID-19 is primarily a social and health issue, the reality is it has become an issue of economic life and death for many businesses.

The Federal Government has already offered various assistance packages to businesses generally such as the Job Keeper payment and in specific industries such as the newly announced Early Childhood Education and Care Relief Package.  There will shortly be announced a package in relation to relief in respect of rent for commercial premises (at the time of writing this package has not been detailed).

Notwithstanding these packages, over the past couple of weeks probably the question we have been asked most often is “What can I do to reduce my wages bill while COVID-19 is reducing my turnover?” The next question often is “Can I stand down my employees?”

Broadly speaking, the options for an employer may include:

  1. Terminating an employee’s employment on the grounds of redundancy;
  2. Asking an employee to take leave without pay;
  3. Standing down an employee without pay;
  4. Directing an employee to take paid leave (long service leave, annual leave);
  5. Asking an employee to take paid leave; and
  6. Negotiating with an employee to reduce their wages during the downturn.

Which of these options are available in individual workplaces will depend upon the circumstances of the employer and the employee.

There is no doubt in our opinion that an arrangement which involves the employer and employee agreeing on an outcome ought to be the first option considered.

During this process, the first question to ask is what the contractual basis of the employment relationship is.  Is there an applicable Modern Award, is there an EBA or is the relationship governed by a common law contract?

Once it is determined what instrument governs the relationship, then the employer will need to determine what that instrument says about the rights of the employer in the present circumstances.

If the employment relationship is governed by a common law contract, the parties are essentially free to agree to amend their contract and therefore agree to whatever arrangements they want.  Therefore, the employer and employee could agree to reduce wages, or a stand down or for the employee to take paid leave.

If however a Modern Award or EBA applies, the options available to reach agreement may be more limited.

If the employer and employee cannot reach an agreement, then the employer may have to look at the available options to impose an outcome on the employee.

Dealing with the right to stand down employees, there is a general stand down right given to employers in the Fair Work Act 2009.  That right is limited to standing down an employee where the employee cannot usefully be employed because of a limited number of specified circumstances.  One such circumstance is a stoppage of work by any cause for which the employer cannot reasonably be held responsible.

The question is whether COVID-19 directly or indirectly results in a stoppage of work for which an employer cannot reasonably be held responsible. This depends upon the particular circumstances of the employer and its business to be assessed on a case by case basis.

The employer will need to consider the issue of whether the employee can still usefully be employed.  Can the employee do work that will contribute to the conduct of the business or from which the business can benefit, even if it is not work within the employee’s ordinary duties? An employer ought to explore flexible working arrangements, including working remotely and different locations.

Aside from the limited stand down rights in the Fair Work Act 2009, whether an employer has the right to impose another outcome on an employee is a question of interpreting the instrument governing the employment relationship in the circumstances presented.

As a last resort, if no other solution can be found, the employer may have to resort to redundancies.  There is under the Fair Work Act (and Modern Awards) specific requirements in relation to redundancies.  We suggest an employer ought to seek legal advice before embarking upon a process of redundancies.

For advice or information on the options available to employers in the present circumstances, contact Director of Dispute Resolution, Scott Eustace, at [email protected].


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