Nothing Cruisy About COVID-19 Stand Down

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