COVID-19 dilemma: cut hours, stand down, or redundancy?
By Wentworth Advantage
As COVID-19 devastates your members' businesses large and small, employers are being faced with a dreadful dilemma: should we cut hours, stand down staff or make people redundant?
The reality is - no one wants to lay staff off. However, your desire to do the right thing and keep workers employed could backfire on you unless you are careful and get good advice pertinent to your particularly circumstances.
Many employers believe that standing down employees is an easier or ‘nicer’ option than redundancy. It preserves the person’s employment, continuity of service is maintained, and leave continues to accrue.
The problem is that your member’s businesses may not be properly assessing the circumstances that allow for a stand down. You should consider stand downs as a last resort. In fact, you need to be very careful that you even have the option of standing someone down.
So, when can an employer utilise stand down provisions?
Historically, in order to be able to take advantage of the stand down provisions, employers will need to carefully consider the following three factors:
• Can the employee no longer be usefully employed? An employee cannot be stood down where there are still jobs the employee can complete. It does not matter if the work available does not fall under the scope of their ordinary employment.
• Is the reason outside the reasonable control of the business? The Fair Work Ombudsman has highlighted that a decline in business is generally not sufficient to stand down employees. In contrast, mandatory closure by government directive or a lack of vital supply due to bans may be sufficient.
• Are there other opportunities for the employee to be usefully employed? Stand down should be considered a ‘last resort’ and the employer should make all attempts to explore other options. Flexible working arrangements such as allowing an employee to work from home or offering employees the opportunity to take accrued paid leave should therefore be considered before standing down any employee(s). In the current unprecedented circumstances, many employers are increasingly using the stand down provisions in expanded circumstances, for example where social distancing stipulations impact ongoing operations. The stand down provisions are also being used to stand down a segment of a workforce, rather than the whole.
Some employers mistakenly believe they can stand down employees simply because work is drying up and profits are down. You cannot stand down employees on that basis or because of what you anticipate is going to happen in the next few months. Only at the point at which a stoppage occurs can a stand down occur. The problem with a stand down is that if you get it wrong, your member’s business can attract a penalty for breaching the Fair Work Act, an award or agreement and also be personally liable for any breaches.
So, what should your members and employers do?
If paid or unpaid leave is not an option, then reduced work hours may be a viable option for some businesses but be cautious about trying to steamroll any changes through. Every employee has to individually agree to cut their hours. Even though it’s a time of crisis, you need each employee’s agreement before you vary any terms of employment or contracted hours for that individual - and you need to be very careful that you don’t say ‘if you don’t agree, I will have to consider redundancy’.
A better way to do it is to “paint a picture” for employees about the state of the business and why hours need to be cut. Talk about the need to remain viable and how this will help maintain everyone’s employment in the long term.
If employees don’t agree to reduced hours, then redundancy may be the only option. While redundancy is a more permanent solution, because you terminate the employee’s employment, it is a less risky solution.
Before making any decision, it is recommended that your members/employers consider:
• Can they keep people on?
• Looking ahead three months, what do they expect their workforce to look like?
• If a stand down isn’t an option, and for many businesses it isn’t, is redundancy the most appropriate way to reduce the workforce now, even if you need to turn around in three months and re-employ people?
Sadly, redundancy will often be the most practical option for most members/employers.
For more information and support, please contact the friendly team at the Wentworth Advantage HR Advisory Service
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This document does not constitute human resource or legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should contact the Wentworth Advantage HR Advisory Service or seek professional advice before acting or relying on any of the content. © Wentworth Advantage Pty Ltd 2020