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How to avoid standing down or retrenching employees due to the COVID-19 crisis

An employer can stand down an employee if they cannot be usefully employed because of industrial action (other than a lockout by an employer), a breakdown of machinery or equipment, or a stoppage of work, for any cause for which the employer cannot be reasonably held responsible.

By Kelly Godfrey

An employer can stand down an employee pursuant to s 524 of the Fair Work Act 2009 (Cth) (FW Act) if the employee cannot be usefully employed because of industrial action (other than a lockout by an employer), a breakdown of machinery or equipment, or a stoppage of work, for any cause for which the employer cannot be reasonably held responsible.

Many businesses affected by COVID-19 are experiencing a downturn in business and not a complete stoppage of work. This may make it difficult to use stand down provisions. Nevertheless, many businesses are struggling to continue to pay staff their full employment entitlements due to a significant decline in revenue. So, what can be done if you don’t want to retrench staff but really cannot afford to keep paying them their full entitlements?

What are your options?

One possibility is to try to reach agreement with employees to reduce hours, salaries and other entitlements. Many employees are acutely aware of the impact of COVID-19 on businesses, with potential redundancies, and in some cases, the risk of administration and insolvency. Many employees may be willing to work with their employers to assist the business during this time and remain employed. It is worth having an honest and open discussion with employees to determine what, if anything, they may be willing to do to assist in these unprecedented times.

Some suggestions to discuss with employees are:

These changes must be made only with the employee’s voluntary agreement and cannot be unilaterally imposed on them. If employees agree to these changes, it is best, where possible, to put the agreement in writing.

Any reduction in remuneration entitlements must not fall below the national minimum wage or the minimum requirements under a relevant modern award or enterprise agreement.

Legal risks

If an employer unilaterally reduces wages, hours or other employment entitlements, it may be exposed to legal risks such as:

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