Home - FWC confirms that beyond JobKeeper, stand downs due to business downturns are unlikely to be lawful

UpdatesNov 26, 2020

FWC confirms that beyond JobKeeper, stand downs due to business downturns are unlikely to be lawful

8 mins read

An employer that qualifies for JobKeeper subsidies can issue a JobKeeper-enabling stand down direction to an employee. Aside from this temporary power, section 524 of the Fair Work Act 2009 (Cth) (FW Act) permits employers to stand down employees without pay, in certain circumstances, where the employee cannot usefully be employed for reasons beyond the employer’s control.

A stand down under section 524 of the FW Act is a statutory tool available to a business (if pre-conditions are met) in situations where an employer temporarily does not have work for an employee to perform, for reasons beyond the control of the employer, such as industrial action, breakdown of machinery or ‘stoppage of work’ with any cause for which the employer cannot reasonably be held responsible. The employer can preserve the employment of an employee, and while on stand down, the employee must hold themselves ready, willing and able to return to work, yet they are not entitled to wages.

What is a ‘stoppage of work’?

In Buttress v Preston James 1 Pty Ltd (2020), the Fair Work Commission (FWC) dealt with a dispute raised by an employee who was stood down by her employer. The employer claimed the employee was stood down due to a ‘stoppage of work’.

In this case, the FWC ruled that it was insufficient for a recruitment business to rely on an alleged business downturn to stand down a consultant.

The FWC confirmed that a stoppage of work did not include a mere downturn in business activity. For there to be a stoppage of work, some defined business activity with respect to which work is performed needs to cease, but not the cessation of business activity entirely. A mere reduction in available work cannot constitute a stoppage of work.

On the question of whether there was useful work for the employee to perform during the stand down period, the FWC applied the test of whether there was work that would have probably contributed beneficially to the reasonable and efficient conduct the employer’s business. In applying this test, it is not sufficient that as a matter of convenience the employer would prefer the employee not to be at work.

The FWC found there was work to do but the employee was denied the opportunity to perform the work. There was insufficient evidence that government restrictions had reduced available work, and the employee’s duties could readily be performed remotely. Rather than COVID-19 stopping work, the employer’s refusal to allow the employee to perform her duties inevitably created a situation where she was unable to create leads to generate work or revenue to support her return to work. The stand down appeared intended to force her to resign from the business to avoid the lengthy notice period contained in her contract of employment.

The FWC was­ not satisfied that there was a ‘stoppage of work’ for the purposes of the FW Act stand down power.

Considering alternatives to stand downs

The FWC ruled that, as a matter of fairness, before taking the drastic step of refusing to pay an employee’s wages, the employer should explore what alternative arrangements might be entered into when there is a downturn in work. For example, exploring options for agreed temporary reduction in hours and/or days of work, or allowing employees to take leave at normal or reduced pay rates.

In this case, the employer determined the employee’s position was redundant, but declined to retrench her immediately, preferring to continue to stand her down without pay. This was despite the employee expressing a willingness on multiple occasions to negotiate temporary changes in her hours of work or other conditions of employment. The employer refused to allow the employee to return to work, unless she agreed to permanent substantial reductions in her terms and conditions of employment. The FWC observed it was not reasonable for the employee to be required to make permanent concessions in her employment conditions to address temporary market conditions.

The FWC noted it did not have power to order the employer to resume paying the employee and make back payments. However, it did order that she be returned to work and her stand down cease immediately.

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