Insights & News

September 1, 2020

In late March 2020, extraordinary measures were put in place to address the impacts of restrictions put in place to manage the spread of COVID-19. In addition to the JobKeeper payment scheme, flexibilities were introduced into the Fair Work Act 2009 (FW Act) for JobKeeper eligible employers to support employers to keep employees on their books.

The Federal Government has passed a Bill to amend the FW Act to extend and amend the JobKeeper provisions. The effect of these amendments are that, following 28 September 2020, two categories of employers will be created:

• Qualifying employers – being those employers who are eligible for JobKeeper payments after
  28 September; and
• Legacy employers – being employers who received one or more JobKeeper payments prior to
  28 September, but no longer qualify for a payment after 28 September.

Qualifying employers will retain access to the full range of flexibility measures, whereas legacy employers will only have access to modified flexibilities, and only where they have a certificate from an eligible financial service provider (tax agent or qualified accountant) stating that the employer has experienced a 10% decline in turnover (unless they are an exempt small business).

JobKeeper 2.0 flexibilities under the FW Act will sunset on 29 March 2021.

What will change?

The key change introduced by the amending legislation relates to the capacity of legacy employers to issue JobKeeper enabling stand down directions.

Legacy employers may only issue a JobKeeper enabling stand down direction to reduce an employee’s hours of work:

• Where they hold a 10% decline in turnover certificate (unless they are an exempt small business, which may instead give a statutory declaration in the prescribed form);
• Where 7 days’ (up from 3 days’) notice is given prior to the implementation of the JobKeeper enabling standing stand direction, and enhanced consultation requirements are followed (see below);
• Where they otherwise comply with the procedural requirements to issue such a direction;
• Where the direction will not result in the employee working less than 60% of the ordinary hours that they worked at 1 March 2020; and
• Where the direction will not result in the employee working less than 2 hours on any day.

Qualifying employers may continue to issue a JobKeeper enabling stand down direction to reduce an employee’s hours by any amount, including to no hours at all, provided that they comply with the procedural requirements to issue such a direction.

Legacy employers seeking to issue a JobKeeper enabling stand down direction will be subject to enhanced consultation obligations requiring:

• Recognition of the employee’s chosen representative, if they choose one;
• Provision of information to the employee and their representative (if any) about the nature of the direction, when the direction takes effect, and the expected effects of the direction;
• Inviting the employee and their representative (if any) to give their views about the proposed direction;
• Giving prompt and genuine consideration to any views expressed by the employee and their representative (if any) within the 7 day period.

What will stay the same?

Save for the additional consultation requirement for legacy employers, most of the procedural aspects of the JobKeeper flexibilities remain the same, notably:

• The requirement to consult about proposed directions;
• The requirement to comply with JobKeeper payment obligations;
• The right for employees subject to reduced hours under a JobKeeper stand down direction to engage in reasonable secondary employment or to engage in training or development;
• The requirement to recognise pre-stand down hours for the purposes of service based entitlements such as the accrual of annual leave or personal leave;
• The Fair Work Commission’s scope to resolve disputes;
• The requirement to pay employees the greater of their JobKeeper payment or the wages earned by them in the relevant period.

Qualifying employers and legacy employers will also retain the scope to give reasonable directions to employees around duties and location of work (including working from home).

What will stop?

The additional scope to request employees to take annual leave or to agree to take annual leave at half pay will come to an end on 28 September 2020, as originally planned, for both qualifying employers and legacy employers.

Employers may still direct employees to take excessive annual leave where pockets of excessive leave continue to exist, and employers and employees may continue to reach agreements for the taking of annual leave with half pay where the applicable industrial instrument provides scope to do so.

Will I need to issue new JobKeeper enabling stand down directions?

Qualifying employers will not need to issue new JobKeeper enabling stand down directions where their eligibility for JobKeeper payments is continuing beyond 28 September 2020. Agreements reached with employees about changing the days and times of their work will also carry over.

Any current JobKeeper enabling stand down direction previously issued by an employer that is not a qualifying employer will automatically cease to have effect on and from 28 September 2020. Affected employers who will become legacy employers will accordingly need to issue a new JobKeeper enabling stand down direction under the new laws.

What do I need to do between now and the end of September?

Employers who will not be qualifying employers after 28 September 2020, but may fit the definition of a legacy employer under the amendments should speak with their accountant (or other eligible financial service provider) about being issued with a 10% decline in turnover certificate.

Small business employers (as defined under the FW Act) may, instead of a certificate provided by an eligible financial service provider, have an individual with knowledge of the employer’s financial affairs make a statutory declaration that the 10% decline in turnover test is satisfied.

What is the relevant period for the 10% decline in turnover test for prospective legacy employers?

An employer will satisfy the decline in turnover test at a particular time where there is a 10% decline in current (not projected) GST turnover:

• If the test time is prior to 28 October 2020 – during the quarter ending 30 June 2020;
• If the test time falls from 28 October 2020 to 27 February 2021 inclusive – during the quarter ending 30 September 2020; or
• If the test time is on or after 28 February 2021 – during the quarter ending 31 December 2020.

A new certificate must be obtained in each quarter. If the employer does not continue to meet the 10% decline in turnover test in any given quarter, any JobKeeper enabling stand down directions will automatically cease at the end of that quarter, unless withdrawn or revoked prior.

Is there anything else we should be thinking about?

Employers who may still have employees stood down pursuant to section 524 of the FW Act should seek advice regarding whether those stand downs continue to be valid. The Fair Work Commission has now considered a number of disputes under the “ordinary” stand down provisions of the FW Act.

Employers who have some, but not full capacity, for employees to return to work should consider implementing JobKeeper enabling stand down directions where available. Where such directions are not available due to eligibility considerations, please contact us to discuss your options.

Katie Sweatman
Partner
+61 3 9958 9605
katie.sweatman@kingstonreid.com

August 13, 2020

Keep calm and carry on accruing paid personal leave based on ordinary fortnightly hours…

Employers can breathe a heavy sigh of relief!

The High Court has, this morning, handed down its much anticipated decision in the Mondelez v AMWU & Ors case.

By a majority (4:1), the Court has overturned last year’s Full Federal Court majority decision which found that section 96 of the Fair Work Act 2009 (Cth) entitles all employees (except casuals), regardless of their weekly hours of work, to 10 days of paid personal leave per year, with a “day” being the portion of a calendar day that would be allotted to working. The High Court majority found that such an interpretation “would give rise to absurd results and inequitable outcomes, and would be contrary to the legislative purposes of fairness and flexibility in the Fair Work Act”.

Today’s decision confirms that a ‘day’ is a “notional day consisting of one-tenth of the equivalent of an employee’s ordinary hours of work in a two-week period” for the purposes of accruing and taking paid personal leave under the Act.

Key Arguments

The key arguments advanced by Mondelez in support of its ‘average day’ construction of the word ‘day’ were that:

• It means that the leave entitlement is effectively converted into hours based on an employee’s ordinary hours of work over a week, regardless of how those hours are distributed throughout the week. For example, an employee who works 36 hours per week will have worked, across a standard five-day working week, 7.2 hours per day on average. Over the course of the year, that employee will accrue 72 hours personal leave, irrespective of the number of days over which that employee’s hours are worked.
• It ensures that leave accrual for part time employees achieves the expected results. For example, a part time worker who works half the weekly hours worked by a full time colleague accrues half the amount of personal leave that the full time employee accrues.
• Interpreting a ‘day’ based on a ‘calendar day’ or ‘24-hour period’ (as the Full Federal Court majority did), produces varied results as to the accrual of personal leave. For example, an employee who works 36 ordinary hours per week at 7.2 hours per day would accrue 72 hours of personal leave per year. Comparatively, if the 36 hours were compressed into 3 x 12-hour shifts, that employee would be entitled to 120 hours of personal leave per year.
• For employees who work different hours on different days, their ‘day’ will vary depending on the day that the leave is taken.

Ultimately, the High Court majority accepted these arguments and rejected the working day construction, finding that such a construction would lead to inequalities amongst employees with different work patterns, resulting in unfair outcomes.

In particular the majority noted that an employee whose hours are spread over fewer days but with longer shifts would accrue more paid personal leave than an employee working the same number of hours throughout the week, with shorter shifts, spread over more days.

The majority also noted that the “working day” construction would discourage employers from employing anyone other than on a five-day working week basis, which would not be consistent with assisting employees to balance their work and family responsibilities.

Upshot

As envisaged in our ‘Looking Ahead – 2020 Insight’ published earlier this year, the High Court has provided employers with certainty as to how paid personal leave is accrued and taken under the Act.

As the decision aligns with the approach that has been adopted by the vast majority of employers since the introduction of the Act, it avoids the prospect of large scale underpayment claims being made by employees seeking to recoup additional payments for personal leave taken in recent years.

Dominic Fleeton
Partner
+61 3 9958 9616
dominic.fleeton@kingstonreid.com

Shivani Gosai
Lawyer
+61 2 9169 8417
shivani.gosai@kingstonreid.com

August 5, 2020

As part of the implementation of Stage 4 restrictions in Metropolitan Melbourne, employers that are able to continue to conduct onsite work must issue their employees with work permits in the prescribed form. Limited exceptions apply for employees at risk of family violence, law enforcement, emergency services workers or health workers who carry employer-issued photographic identification which clearly identifies the employer.

Unless an exception applies, only “Permitted Work Premises” may operate with on-site operations in metropolitan Melbourne. Other businesses must move to working from home, or else close for the period of the restictions. Details of those businesses that are permitted to remain open for onsite work are detailed here: Melbourne coronavirus restrictions on businesses

A copy of the template form for the work permit is here: Permitted Worker Scheme Template

The Department of Justice has indicated that penalties of up to $19,826 (for individuals) and $99,132 (for businesses) will apply to employers who issue worker permits to employees who do not meet the requirements of the worker permit scheme or who otherwise breach the scheme requirements.  There will also be on-the-spot fines of up to $1,652 (for individuals) and up to $9,913 (for businesses) for anyone who breaches the scheme requirements. This includes employers, and employees who do not carry their worker permit when travelling to and from work.

For further detail on business restrictions in Victoria and Nationally more broadly, Critical Information Factsheets for each State are available for download on the Kingston Reid COVID-19 Resources page.

For further details regarding how the Stage 4 restrictions impact your business or for advice on managing the impacts of the restrictions, please contact a member of the Melbourne Kingston Reid team.

Stay safe.

Steven Amendola
Partner
+61 3 9958 9606
steven.amendola@kingstonreid.com

Dominic Fleeton
Partner
+61 3 9958 9616
dominic.fleeton@kingstonreid.com

Katie Sweatman
Partner
+61 3 9958 9605
katie.sweatman@kingstonreid.com

August 4, 2020

In the recent case of Jamsek v ZG Operations Australia Pty Ltd[1] (Jamsek) a Full Court of the Federal Court of Australia has delivered a significant ruling dealing with the distinction between employees and independent contractors. The case concerned two truck drivers who had contractor arrangements with ZG Operations Australia Pty Ltd (Company). The drivers sought unpaid leave and superannuation entitlements after having worked for the Company for nearly 40 years.

Despite the contracts describing them as “contractors”, it was found that the drivers were actually “employees” within the meaning of the Fair Work Act 2009 (Cth) (FW Act), deemed as “employees” by the Superannuation Guarantee (Administration) Act 1992 (SGA Act) and “workers” for the purposes of the relevant long service leave legislation.

What is the background to the case?

The drivers commenced working for the Company in 1977. In 1986 the Company informed the drivers that their ongoing employment could not be guaranteed and proposed that they become “contractors” and purchase the trucks that they had been driving from the Company. The drivers accepted the proposal. In 2017 the drivers’ services were terminated due to cost-cutting within the Company.

During the period they were engaged by the Company, the drivers did not work for any other business or entity.

After termination, the drivers commenced proceedings in the Federal Court seeking declarations and orders relating to certain statutory entitlements. Although at first instance the drivers were found not to be employees, this decision was reversed on appeal by the Full Federal Court.

Were the drivers employees or contractors?

Past case law has established that there is no single standard for determining the existence of an employment relationship. As a result, the Court must consider all relevant indicia under a “multi-factor test”. The “factors” considered included the following:

The written contracts

Justice Wigney commented that “aside from the fact that the men took over the risk and expense of owning and operating the delivery trucks, little else changed”.[2] The drivers were required to buy the trucks at a specified price and without negotiation under threat of redundancy, and these circumstances “diminish any suggestion that there was a clear mutual intention to alter the nature and structure of the relationship between the parties”.[3] In other words, where the drivers had limited bargaining power, it could not be said that the parties all had the requisite contractual intention to be bound.

Goodwill

Justice Perram considered the question of goodwill to be the most important question before the Court on appeal.[4] His Honour considered the absence of goodwill in the contractor’s purported business, noting that the drivers did not undertake work for any other person nor market their services elsewhere. The profit motivated activity of driving was for the benefit of the Company, not the drivers or their respective partnerships. Any goodwill was therefore actually possessed by the Company.[5] Although not determinative, Justice Perram considered this to be a helpful and important aspect in the consideration of the contractor versus employee question.

Control

While the drivers had some self-determination in their day-to-day driving activities, they were generally required to work set hours. The Company required the drivers to display the Company logo on their trucks and sometimes they were required to wear a Company uniform. While the written contracts allowed the drivers to work for others, the practical result of the requirement for them to work set hours for the Company was that they could not.

Ownership of equipment

While generally the investment in expensive equipment such as trucks would indicate a relationship of independent contractor, the circumstances under which that investment occurred (under threat of redundancy) was significant, as was the requirement for the trucks to bear the Company logo.

Ultimately, the Court in applying the multi-factor test conducted a balancing act and viewed the substantive relationship between the drivers and the Company as a whole, with Justice Anderson finding that:

“a proper consideration of the long relationship between the [the drivers] and the company reveals that the [the drivers] were in fact employees, not independent contractors, during the relevant period. Although there are various factors supporting the characterisation that the [the drivers] were operating an independent business, these factors are outweighed by an appreciation of how the relationship operated in substance.”

What are the conclusions of the case?

The decision meant that the Company was exposed to liability for entitlements under the FW Act, superannuation and long service legislation.

The case has been remitted to the primary judge to determine the questions of compensation, breaches of legislation and penalties.

The key points to be taken away from Jamsek are:

• Where a written contract expresses that the relationship is not an employment relationship, this is not determinative;
• All the surrounding circumstances will be considered when determining the true nature of any contractual relationship;
• Strong indicators of an employment relationship include factors such as contractors having little opportunity to work elsewhere, deriving their sole income from the arrangement and carrying the company’s logo on their equipment and clothes;
• If a worker has no independent capacity to generate goodwill, this may be an indication of an employment relationship, as the goodwill is likely possessed by the employer;
• If someone is mistakenly regarded as an independent contractor, an employer may be subject to civil penalties in addition to liability for employment entitlements; and
• This case creates confusion and the potential for “double dipping” claims where state “owner driver legislation” already provides for employment-style benefits for transport owner-drivers who are engaged as contractors.

If the distinction between independent contractors and employees is unclear or you consider there may be a borderline case in your business, you should seek further advice.

What can businesses do to limit their exposure to superannuation liability?

There is a potential for businesses to be exposed to superannuation liability even though the relevant indicia suggest that the person performing work is truly a contractor. Although this perennial issue is often overlooked, individual contractors engaged for their labour may be considered to be an “employee” for superannuation purposes and if so, are entitled to superannuation contributions.

Fortunately, the Federal Government has introduced an amnesty which allows for the back payment of unpaid superannuation without the payments attracting certain penalties and charges. In addition, payments of superannuation under the amnesty arrangements may be tax deductible. However, with the amnesty expiring on the 6 September 2020, businesses should take action as soon as possible to assess their potential superannuation liability for individual contractors.

You can listen to our podcast ‘Is a contractor truly a contractor?’ which discusses the implications on engaging independent contracts, by clicking here.

Miriam Power
Special Counsel
+61 8 6381 7052
miriam.power@kingstonreid.com

Oliver Marshall
Lawyer
+61 8 6381 7056
oliver.marshall@kingstonreid.com

[1] [2020] FCAFC 119.

[2] Jamsek, [16].

[3] Jamsek, [201].

[4] Jamsek, [9].

[5] Jamsek, [11].

July 30, 2020

From 28 July 2020 until 27 July 2021, an employer or self-employed person in Victoria who fails to notify the Victorian WorkCover Authority (WorkSafe) of certain confirmed COVID-19 cases will be guilty of a criminal offence.

Background

The Occupational Health and Safety Act 2004 (Vic) requires employers and self-employed persons to notify WorkSafe of certain “incidents” at a workplace under their management and control immediately after becoming aware that they have occurred. These are commonly referred to as notifiable incidents.

The Act identifies many types of notifiable incidents but also allows such incidents to be prescribed by regulations.

The Act also requires that sites where notifiable incidents occur not be disturbed until released by a WorkSafe inspector, other than in very limited circumstances.

What has changed?

On 28 July 2020 the Governor of Victoria made the Occupational Health and Safety (COVID-19 Incident Notification) Regulation 2020.

The Regulation deems a notifiable incident to have occurred if an employer becomes aware that:

• an employee;
• an independent contractor engaged by the employer; or
• an employee of the independent contractor engaged by the employer,

has received a confirmed COVID-19 diagnosis and attended the workplace within the infectious period.

The Regulation defines “confirmed COVID-19 diagnosis” as a positive result for a person who has undergone a diagnostic procedure for COVID-19.

The “infectious period” starts 14 days prior to the earlier of the onset of symptoms consistent with COVID-19 or a confirmed COVID-19 diagnosis, and ends when the person receives a clearance from isolation from the Department of Health and Human Services.

The Regulation also requires self-employed persons who have received a confirmed COVID-19 diagnosis and attended the workplace within the infectious period to notify WorkSafe of those matters.

What does this mean for employers and self-employed persons in Victoria?

For the next 12 months, an employer or self-employed person who becomes aware of a confirmed COVID-19 case of the kind captured by the Regulation will need to:

• notify WorkSafe immediately upon becoming aware of the case, by the fastest means possible;
• provide written notification to WorkSafe within 48 hours of first being required to notify WorkSafe, using the form published on WorkSafe’s website; and
• ensure that the workplace (or the part of it) that the person attended is not disturbed – other than for the purpose of protecting the health or safety of a person or taking essential action to make the site safe or to prevent a further occurrence of an incident – until a WorkSafe inspector arrives at the site or such other time as a WorkSafe inspector directs.

Failure to do any of these things could result in the employer or self-employed person being charged and found guilty of criminal offences, and liable to a maximum fine of $198,264 (for a body corporate) or $39,652 (for an individual) per offence.

If you are in any doubt as to whether a confirmed COVID-19 case is notifiable to WorkSafe, or as to the steps that you should take at the relevant worksite after becoming aware of a notifiable COVID-19 case, contact us at Kingston Reid to discuss.

Dominic Fleeton
Partner
+61 3 9958 9616
dominic.fleeton@kingstonreid.com

John Makris
Partner
+61 2 9169 8407
john.makris@kingstonreid.com

July 22, 2020

In the current climate, employers should not bank on avoiding redundancy pay because a contract has come to an end as a result of not being renewed. A reasonable expectation that it would have continued could require a different approach to restructuring your workforce.

The entitlement to redundancy pay under the National Employment Standards is excluded in several situations, including where the employee’s employment is terminated because the employer no longer requires the job to be done by anyone due to the “ordinary and customary turnover of labour”.

In Berkeley Challenge Pty Ltd v United Voice [2020] FCAFC 113, the Full Federal Court held that:

• the reasonable expectations of ongoing employment held by employees are critical, but not the only factor, in determining whether the particular termination was due to the ordinary and customary turnover of labour;
• termination due to “ordinary and customary turnover of labour” refers to situations in which termination is common or usual, “both in the sense that it is commonly observed and in the sense that it is habitual or of longstanding practice”; and
• termination of employment due to loss of a commercial contract needs to be a feature inherent in the nature of the particular kind of business, and not a feature that was made normal for the particular business by the employer’s own practices in terminating employees.

The Court was satisfied that the employer’s practice of not paying redundancy to long-standing employees employed as security guards and cleaners to help service its commercial contracts, and whose employment ended when those contracts ended, did not constitute the “ordinary and customary turnover of labour”.

As a result, those former employees are entitled to redundancy pay.

What’s the upshot? 

It means that the scope for employers (and particularly contractors whose businesses rely on servicing major contracts using large workforces) to rely on the ordinary and customary turnover of labour exception will be much narrower where redundancies arise from the loss of commercial contracts.

Employers need to carefully review this decision, identify the contracts where they may be at risk of having to pay redundancy pay, and seriously consider accruing contingency funds to cover redundancy payments in case they need to be made at contract end.

You can listen to our podcast ‘Is it really over’ which discusses this issue in more detail by clicking here.

Duncan Fletcher
Partner
+61 8 6381 7050
duncan.fletcher@kingstonreid.com

Dominic Fleeton
Partner
+61 3 9958 9616
dominic.fleeton@kingstonreid.com

July 21, 2020

July 2, 2020

In a continuing uncertain environment, the Fair Work Commission’s (FWC) temporary variations to a number of modern awards sunsetted on 30 June 2020, but a lifeline has been extended, with the extension of the operation of a number of the temporary variations, with differing effects.

In the midst of the Commission’s efforts to provide employers and employees with temporary relief, planned changes to scope the Miscellaneous Award took effect from 1 July, with the effect that very few non-managerial/professional employees will be left without safety net modern award entitlements.

COVID-19 still warrants variations to award – FWC

In welcome news, the FWC has decided to extend the period of operation of the COVID-19 related variations to modern awards.

On 28 March this year, the FWC granted a joint application from employers and unions to vary the Clerks Award to help manage the challenges COVID-19 was placing on business and employees (read about the changes in our article here).

The FWC also granted similar variations to the Hospitality and Restaurant Industry Awards, the Vehicle Repair Award and a number of others. On its own motion, it varied a further 99 awards. The variations include an entitlement to unpaid ‘pandemic leave’ and the flexibility to take twice as much annual leave at half pay.

The temporary changes were due to end on 30 June 2020. However, the FWC has granted an application by parties to extend the application of the variations to between one and 12 months.

The FWC has extended the operation of the variations as follows:

No More Gaps – changes to the Miscellaneous Award effective 1 July

A Full Bench of the FWC, presided by Vice President Hatcher, recently confirmed its decision to vary the coverage of the Miscellaneous Award. The decision has wide ranging impacts for employers and employees, particularly those covered by industry awards that had confined classification descriptors.

The decision is effective from 1 July 2020.

What exactly has changed?

The key change is who is excluded from coverage of the Miscellaneous Award. Historically, it has not covered an employee whose employer was covered by an industry award, but who did not fall into one of the classification levels therein. The Commission has now removed this exclusion.

Who does the Miscellaneous Award now apply to?

The Miscellaneous Award covers employers in Australia and their employees who:

1. Fall into the classification levels in the award; and
2. Who are not covered by any other modern award.

It is designed to cover those employees who perform work that has traditionally been award covered but have somehow slipped through the cracks of award coverage.

However, the Miscellaneous Award does not cover:

• managerial employees and professional employees such as accountants and finance, marketing, legal, human resources, public relations and information technology specialists;
• employees who perform work that is not of a similar nature to work that has traditionally been regulated by awards; or
• employees who, because of the nature or seniority of their role, have traditionally not been covered by awards (whether Commonwealth or State awards).

Determining whether someone falls into these last two categories (Fair Work Act Exclusions) should be approached carefully. This is particularly so for low-paid employees performing lower-skilled manual work functions.

Who is the decision particularly relevant to?

The decision is most relevant for employers who employ people who are not managerial or professionals, but who consider those employees to be award free. It is possible those employees are covered by the Miscellaneous Award. For employers entering into bargaining, the extended application of the Miscellaneous Award may have implications on the assessment of the better off overall test for cohorts that have previously been assessed on the basis that they are award free.

To determine if an employee is covered by the Miscellaneous Award, you need to ask:

1. Does the employee work with a level of supervision and responsibility that means their position falls into the classification levels in the Miscellaneous Award?
2. Are they covered by any other modern award?
3. Are they managerial or professional employees?
4. Are they excluded from modern award coverage by the Fair Work Act Exclusions?

If the answer to the first question is ‘yes’, but ‘no’ to the remaining questions, then the position is now likely covered by the Miscellaneous Award. Answering the last question can be difficult and may require a detailed historical analysis of whether the work they perform has ever been regulated by awards.

Katie Sweatman
Partner
+61 3 9958 9605
katie.sweatman@kingstonreid.com

Peter Willink
Lawyer
+61 2 9169 8413
peter.willink@kingstonreid.com

June 24, 2020

COVID-19 has seen the Fair Work Act 2009 (Cth) (the Act) stand-down provisions being used like never before.

Historically, unpaid stand down has not been available in cases of business deterioration, raising questions about the capacity to stand employees down as a consequence of COVID-19 related impacts. The Fair Work Commission has now given some clarity to the application of these provisions, which will be of particular relevance to employers who do not have access to JobKeeper enabling directions.

Although the capacity to stand down employees without pay in response to the sudden impact of COVID-19 has been unclear so far, the Fair Work Commission (FWC) decision in Michael Marson v Coral Princess Cruises has provided some certainty to employers relying on these provisions under s 524 of the Act to survive commercial fallout.

This decision supports the position that extraordinary plunges in market demand may trigger the lawful stand down of employees because they cannot be usefully employed. The decision also offers some useful insights into what it means for an employee to be ‘usefully employed’.

Employers eligible for JobKeeper can issue JobKeeper enabling stand-down directions to eligible employees. The principles applicable to a s 524 stand down will have some application to aspects of such a stand down under the JobKeeper legislation; however, the critical distinction is that a complete stoppage of work is not necessary to invoke a stand-down direction.

Background to Michael Marson v Coral Princess Cruises

In March 2020, Coral Princess Cruises faced desperate commercial circumstances when government directives aimed at suppressing the spread of COVID-19 caused the cruise line’s business operations to be suspended. To mitigate mounting losses, Coral Princess Cruises stood down 107 employees without pay under s 524.

One employee, Mr Marson, notified the FWC, arguing that because certain day-to-day administrative functions remained, there was no stoppage of work requisite to invoke the stand down. Mr Marson also argued that he could still be usefully employed by carrying out small administrative tasks.

The FWC held that Mr Marson’s stand down was lawful, clarifying the availability of stand down as a mitigating action available to businesses in times of overwhelming economic catastrophe – a good outcome for employers.

When can you stand down an employee without pay

Under s 524(1) of the Act, an employer can stand down an employee if that employee cannot be usefully employed for prescribed reasons, including:

‘a stoppage of work for any cause for which the employer cannot reasonably be held responsible’.

To meet the requirements of the section, the stoppage of works must mean that the employee is temporarily unable to be usefully employed.

An employee will not be treated as being stood down pursuant to s 524 where they are taking authorised paid or unpaid leave (see s 525). The Federal Court recently clarified that a period of personal leave does not affect a period of stand down, as discussed in our Legal Insight here.

What constitutes a ‘stoppage of work’

Implementing a s 524 stand down requires a relevant stoppage of work.

As a reflection of the rapidly evolving law in this area, what constitutes a stoppage of work will be further considered by the Federal Court in Qantas Airways Ltd v Australian Licensed Aircraft Engineers Association.

In this case, the ALAEA is challenging the validity of the stand down of Qantas aircraft engineers on the basis of both:

1. whether there was a ‘stoppage of work’; and
2. whether the volume of work available justified the extent of the stand downs.

The key question for the Court in the Qantas case is whether there was a sufficient stoppage of work to trigger the stand-down provisions in the circumstances that a skeleton crew was able to continue work while the engineers were stood down.

In the Coral Princess Cruises case, the FWC confirmed that a total cessation of the employer’s trade or business constituted a ‘stoppage’ for these purposes.

Mr Marson’s argument that there had not been a ‘stoppage’ because he still had residual administrative tasks was not successful.

The FWC accepted Coral Princess Cruises’ argument that although administrative functions incidental to the business’ core activities remained, they did not go to the issue of whether the ‘work’ of the employer (carrying passengers) had ‘stopped’.

Therefore, any residual, maintenance, or administrative tasks still being done by a reduced workforce does not affect a ‘stoppage of work’ for the core workforce for the purposes of s 524(1)(c).

When is an employee not ‘usefully employed’

The other key element of a s 524 stand down is the need to establish that the employee cannot be usefully employed because of the stoppage of work.

The employee’s capacity to be usefully employed must be considered in relation to their work role, not the employee themselves. Once performance of an employee’s role no longer generates a ‘net benefit’ to the business, it may mean there is no useful employment for the employee for the relevant period.

Where there is not the volume of work available to keep an employee ‘usefully employed’, the employer is not required to create alternative work.

In this case, the FWC has maintained the position that s 524 requires that in order to rely on the provision, there must be a substantiated causal link between the stoppage of work and the circumstance where the employee cannot be usefully employed.

Accordingly, if there are other factors that mean that an employee cannot attend work (for example, if the employee is suspended due to alleged misconduct) this may not be treated as a stand down.

If an employee cannot be usefully employed for a prolonged period, a redundancy situation may arise.

Fairness and Good Faith Requirement

The FWC stressed that a decision as to whether an employee is ‘useful’ must be made with fairness and in good faith.

However, as pointed out by the FWC, while a crisis is still unfolding it is rarely possible to know all the facts, deliberate on those facts, and act upon them in a reasoned way.

Therefore, when considering if an employer has acted with fairness and in good faith, their actions will be considered broadly and not compared to the standard available with hindsight.

This decision is relevant to employers considering whether a stand down may be the answer to safeguarding their business’ financial position while preserving as much of the employment relationship with employees as possible.

For employers eligible for JobKeeper

For eligible employers, an alternative to invoking s 524 is to issue a JobKeeper enabling stand-down direction. Unlike a stand down under s 524, the JobKeeper provisions do not require a stoppage of work.

However, JobKeeper enabling stand-down directions are only exercisable in respect of employees receiving JobKeeper payments.

A JobKeeper enabling stand down may be exercised to direct employees:

1. not to work on one or more days that they usually work; or
2. to work:
   1. for a shorter period than usual; or
   2. less hours overall than usual.

Given the greater flexibility under a JobKeeper enabled stand down, eligible employers may wish to consider standing employees back up from any s 524 direction, and then issuing a JobKeeper enabled stand down for all or part of their hours of work.

Kingston Reid can guide employers through this process.

Key Takeaways

Stand down is intended to be a last resort to ease financial pressure on employers while enabling both employer and employees to preserve the employment relationship.

The making of a stand-down direction, under either s 524 or the JobKeeper provisions, is not without a degree of legal risk, but the evolving interpretation of these provisions will give some comfort and clarity to employers forced to stand down large parts of their workforces.

The FWC decision does serve as a useful reminder of the need to consider carefully whether an employee can perform useful work, and this consideration should be undertaken on an ongoing basis.

Even if the Federal Court reaches a similar view to the FWC in the Qantas proceedings, it is likely that stand downs that extend for a prolonged time will be scrutinised, and pressure placed on employers to stand employees back up at the earliest opportunity.

Katie Sweatman
Special Counsel
+61 3 9958 9605
katie.sweatman@kingstonreid.com

Aimee Ford
Lawyer
+61 3 9958 9610
aimee.ford@kingstonreid.com