Can employees be stood down during an economic downturn?

Q&A

Can employees be stood down during an economic downturn?

When a business finds economic conditions to be unfavourable, there may be an attempt to reduce the cost of labour; and so the various ways of approaching this issue must be carefully managed.

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When a business finds economic conditions to be unfavourable, there may be an attempt to reduce the cost of labour; and so the various ways of approaching this issue must be carefully managed.

This question was recently sent to WorkplaceInfo.

Q  Due to the prevailing economic conditions in our industry and related problems with our financial arrangements, some of our activities will need to be scaled back.

This will mean that a number of positions within a section of the enterprise will become redundant.

Because many of the affected employees are highly skilled and have been trained by the company, we would rather offer them reduced hours as an interim measure — in the hope that business activity will improve in the immediate future — rather than lose them altogether through redundancies.

We are considering offering them reduced hours as an interim measure until there is (hopefully) an increase in business later in the year.

We note that the Fair Work Act 2009 contains a provision that allows for the standing down of an employee(s) without pay because of a stoppage through no fault of the employer.

Because the circumstances in the case are beyond the employer’s control, can these employees be stood down without pay for the duration, instead of their positions becoming redundant?

A  Under s524 of the Fair Work Act, an employer may stand down an employee without pay during a period in which the employee cannot be usefully employed because of a stoppage of work for any cause for which the employer cannot be reasonably held responsible.

The industrial courts and tribunals have generally held that economic factors are not circumstances under which an employer can stand down an employee without pay. This would include a downturn in business, the reasons for which may be the general economic climate, market-related or a lack of available finance.

Other approaches

In order to work a short week, the employer would need to approach each affected employee and obtain their agreement to alter the contract of employment so that the employee may work (say) part-time during a particular period.

An alternative to part-time work may be each employee accessing any accrued annual leave to cover the day they cannot be usefully employed, although this solution would also require the agreement of each employee, because the employer does not have a unilateral right to send an employee on annual leave.

Another alternative is to allow an employee to access accrued long service leave (where applicable), although taking this leave is usually subject to the relevant state or territory long service leave legislation.

In the absence of an agreement on any of these options with an employee, redundancy is the only alternative.

When considering their options, it may assist each employee for the employer to provide an estimate of the anticipated period of time the company expects the poor economic conditions that currently affect the company to continue.

Source: Paul Munro, IR Consultant.
 
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