Workforce Stand Down Laws under Fair Work Act 2009 (Cth)

24 July 2020

This article provides a summary of a number of cases that deal with stand down, including entitlements during a stand down period.

By Luisa Gonzaga (Partner) and Alexandra Gonos (Employer Lawyer)

When can employers stand down its employees?

The stand down provision under section 524 of the Fair Work Act 2009 (Cth) (FW Act) allows employers to temporarily stand down employees without pay during a period in which the employee cannot usefully be employed because of one of the following circumstances:

  • industrial action (other than industrial action organised or engaged in by the employer);
  • a breakdown of machinery or equipment, if the employer cannot reasonably be held responsible for the breakdown; or
  • a stoppage of work for any cause for which the employer cannot reasonably be held responsible.

Due to the effect of COVID-19, many employers have had to stand down employees by applying the “stoppage of work for any cause which the employer cannot reasonably held responsible”.

What constitutes a “stoppage of work” and “useful employment”?

In Michael Marson v Coral Princess Cruises (N.Q.) Pty Ltd T/A Coral Expeditions [2020] FWC 2721, the Fair Work Commission (Commission) dealt with what constitutes a “stoppage of work” and outlines the test for “useful employment”.

Background

Mr Michael Marson (Applicant) an employee of Coral Princess Cruises (Coral Cruises) alleged that he was stood down in breach of section 524 of the FW Act.

Coral Cruises’ revenue dropped to zero due to COVID-19. As a result, it stood down 50% of its workforce.

The Applicant argued that while cruises for guests had ceased, there were some administrative duties that he could continue to perform, therefore there is no stoppage of work and his role is considered “useful”.

What constitutes a stoppage of work?

The Commission noted there is limited guidance on the meaning of “stoppage of work”. In determining what constitutes ‘stoppage of work’ the Commission noted the following:

  • section 524(1)(c) requires an identification of some event which involved work being consciously halted for some reason and ordinarily for some identified period of time;
  • a mere reduction in available work can not constitute a stoppage;
  • work” in this context is defined as the primary activity of the business; and
  • where the employer’s business is not trading but there are ancillary functions which may be performed, a stoppage of trade exists where the primary activity of the business ceases.

The Commission determined that the primary activity of Coral Cruises is the “carriage of passengers on various cruise holidays”. Given this had entirely halted, there was a genuine stoppage of work.

When an employee “cannot be usefully employed”?

The next question for the Commission was whether the Applicant could be “usefully employed”, despite the stoppage of work.

The Commission held that “useful employment” comprises a two-part test:

  1. An assessment of the work available: This requires a determination if there is useful work; and the number of employees required to perform that useful work.
  2. A more general analysis of the conduct of the employer against notions of good faith and fairness. This requires consideration of the “economic consequences” the employer faces.

In applying the above test, the Commission accepted Coral Cruises evidence that the Applicant’s responsibilities had largely diminished and any administrative duties could be distributed to competent employees who had not been stood down. Therefore, while there may be useful work which the Applicant can perform, the volume of work is insufficient for him to be characterised as “usefully employed”.

Further, the Commission held that Coral Cruises acted on proper principles of good faith for the following reasons:

  • the number of employees stood down across the company demonstrate that the action taken was not targeted at a particular employee, but rather widespread;
  • the decision to stand down employees was only taken after considerable analysis of costs, ongoing overheads, retention requirements and ongoing workflow;
  • the business took other measures including a hiring freeze and delaying scheduled maintenance; and
  • the overall measures taken by Coral Cruises was a “business necessity” and indicate that the decision was not done “maliciously”, rather in good faith when considering the economic strain on its business.

On this basis, the Commission held that the Applicant is not capable of or could not be usefully employed. His claim was subsequently dismissed.

Michael Marson v Coral Princess Cruises (N.Q.) Pty Ltd T/A Coral Expeditions [2020] FWC 2721

Employers not obligated to pay sick leave during stand down

The Qantas Airways Limited (Qantas) decision makes clear that employees are unable to access accrued personal/carer’s leave or compassionate leave entitlements during a stand down period.

In mid-March Qantas announced its intention to stand down approximately two-thirds of its workforce in response to government directives as a result of COVID-19; by banning all non-essential travel.  

As a result of the stand down, a number of unions (Unions), on behalf of Qantas’ employees issued proceedings claiming that employees were entitled to access their paid personal/carer’s leave or compassionate leave during the stand down period.

On 19 May 2020, the Federal Court of Australia (Court) dismissed the Unions’ case and held that while Qantas employees would continue to accrue entitlements during the stand down period, they were unable to access paid personal/carer’s or compassionate leave.

Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia & Ors v Qantas Airways Limited [2020] FCA 656

Arguments put forward by the Unions and Qantas

The Unions in support of its contention relied on section 525 of the FW Act, which provides that an employee is not taken to be stood down under section 524 when the employee:

  • is taking paid or unpaid leave that is authorised by the employer; or
  • is otherwise authorised to be absent from his or her employment.

The Unions submitted given the wording of section 525, an employer’s ability not to make payments during the stand down only applies to the payment of wages, but not to personal/carer’s or compassionate leave.

Qantas rejected this claim, arguing the stand down provisions must be construed by reference to its legislative intent together with the purpose of leave entitlements.

It further submitted that the power of an employer to stand down employees who are otherwise ready and willing to perform their contractual services serves two important purposes:

  1. financial relief to an employer from paying wages in circumstances where, through no fault of its own, the employer has no work that the employee can usually perform; and
  2. protection to employees from the extreme measure of termination of their employment, which in effect attempts to preserve the employment relationship.

Court ruled in favour of Qantas

The Court agreed with Qantas and held that the purpose of stand down provisions is to afford financial relief to employers.

The Court also held that entitlements to take sick leave arises when an employee is unfit for work due to illness or injury, this must be contrasted to a stand down where there is no work for the employee to perform. Therefore no entitlement exists in this circumstance.

Further, leave entitlements is a “form of income protection”. Therefore, income is not being protected if there is no available or required work from which to derive income in the first place.

The Court clarified section 525 is directed to those circumstances in which provisions of the FW Act authorise the employee to be absent with no choice open to the employer. For example, eligible community service activities, jury service and public holidays. By way of contrast, personal/carer’s leave cannot be characterised as authorised absence from employment.

It is likely that the Court’s decision will be appealed. 

What must employers do as a result of these cases?

There is no doubt the effect of COVID-19 will continue to have an impact on businesses.

Employers must ensure that the use of stand down laws must meet the threshold required under the FW Act. Below are some tips for employers: 

  • employers can only stand down employees when they cannot be “usefully employed” – this requires an objective test;
  • a stand down period is regarded as “continuous service” under the FW Act, meaning employees will continue to accrue annual leave, personal/carer’s and compassionate leave entitlements in the usual way during the stand down period;
  • employees are entitled to be paid annual leave, jury service, public holidays and leave for eligible community service activities during the stand down period; and
  • employees are unable to access paid personal/carer’s or compassionate leave during the stand down period.

For further information, please contact our experienced Employment and Industrial Relations team to understand your obligations under the National Employment Standards by emailing hjk@hentys.com.au.