The Coronavirus (COVID-19) pandemic is going to cause many employers to have no option but to shut down all or part of their operations. An employer generally has an obligation to go on paying permanent employees regardless of lack of work – but few employers could afford to keep paying an idle workforce for long without “going to the wall”. What can an employer do if the drastic decision to shut down must be made?
The primary tool at the disposal of employers that must shut down due to this epidemic is likely to be the statutory entitlement to stand employees down (e.g. effectively put them on unpaid leave). This entitlement generally arises during a period when an employee “cannot usefully be employed” because of “a stoppage of work for any cause for which the employer cannot reasonably be held responsible.”
There are two key elements:
- Stand down must be dealt with on an employee by employee basis, applying in each case the test of whether that employee can be usefully employed.
- A shut down caused by external forces due to this epidemic would seem to amount to a “stoppage of work… for which the employer cannot reasonably be held responsible“, which would entitle the employer to stand employees down. Examples of this might include a school that must close due to a government directive, or a manufacturer that must close some or all of its operations because of loss of vital aspects of its supply chain.
We can see potentially difficult questions arising if an enterprise decides to close for reasons related to the epidemic that might be entirely valid – but less than physically or legally compelling. For example, if a school were to make the decision that it was socially responsible to close, or that it needed to do so to protect its workforce, the question of whether that would amount to a stoppage of work for which the employer cannot reasonably be held responsible might not be clear cut.
There is a question mark over how long a stoppage of work can continue before an employer needs to either recall employees from the stand down, or make them redundant. Probably, a stand down is likely to remain valid for as long as the stoppage could be considered temporary. If the shutdown becomes protracted, difficult questions about whether to continue the stand down or take other steps concerning employees may arise.
There is no general entitlement for an employer to unilaterally put employees on “leave without pay” outside of stand down entitlements (discussed above) and doing so would generally amount to unilateral termination of employment by the employer. The potential consequences of termination are discussed briefly below.
Employers may be able to reach an agreement with employees about them taking forms of accrued paid leave (annual leave, long service leave) on a voluntary basis during a shutdown. This might well be an attractive proposition to employees, if the alternative is no income. There is no general entitlement for employers to require employees to take annual or long service leave for a shutdown necessitated by
Termination and Redundancy
Termination and redundancy are major topics in themselves. However, the key points are that:
- An employer could choose the drastic step of terminating the employment of some or all employees due to a shutdown. There are obvious disadvantages such as the loss of the workforce, which would have to be rebuilt when the shutdown ends. Termination of employment in such circumstances would generally amount to redundancy which has certain consequences
- Termination of employment at the instigation of the employer has the potential to trigger claims by employees. However, a claim cannot generally be validly made where a termination is a genuine redundancy.
- Correctly managed redundancies necessitated by an extended shutdown by reason of an epidemic are likely to be genuine. However, employees made redundant are often entitled to a payout, based on length of service, so this option could prove expensive. There are exemptions, particularly for small business.
The foregoing comments are general in nature and concern permanent employees. In any given case, there may be terms of an employee’s contract, or an Award, or an Enterprise Agreement that may alter the general position. Additionally, other considerations would apply to casual employees, daily hire employees, contractors, and other less common categories of worker.
Unfortunately, the COVID-19 epidemic is going to give rise to difficult and somewhat unprecedented employment issues in respect of which careful decisions will need to be made. The above is at best an outline and specific advice should be sought concerning particular circumstances.
There are a number of practical steps that all businesses should be considering as they plan for the next few months.
Thynne + Macartney’s team will be producing further updates for our clients as the situation evolves.
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This information is intended to provide a general summary only and should not be relied on as a substitute for legal advice.