In employment law, there has never been a shortage of change. However, COVID-19 has brought about changes and challenges for employers like we have never seen before.
In this update, we point out what KCL Law sees as the top 5 issues for employers to keep in mind this week.
1. The right to stand down without pay is limited
For employers who are hearing about other businesses, such as Qantas, standing down employees without pay, it is tempting to think that there is a general right to do this given the unprecedented pressure COVID-19 is placing on businesses, the public sector and the non-profit sector.
Employers can’t stand down employees without pay unless they have a basis to do so under either the Fair Work Act or the terms of an Enterprise Agreement or employment contract. The announcements made so far on the JobKeeper Payment don’t change this, although employers should keep an eye on this issue, as it has been foreshadowed that the Fair Work Act may amended as part of this package of changes.
The current requirements under the Fair Work Act require that the stand down be only during a period in which:
- the employee cannot be ‘usefully employed’;
- there is a stoppage of work; and
- the stoppage is for any cause for which the employer cannot reasonably be held responsible.
The application of these provisions in a pandemic scenario is, as yet, untested by the courts or the Fair Work Commission. While, say, the closure of a beautician business because of an enforceable government direction, is likely to be a situation when an employer can stand down their employees without pay, other situations are not so clear. Generally, a reduced rate of business is not considered a basis to stand down employees without pay under the Fair Work Act.
If an employer wrongly stands down employees without pay, they may find themselves in the Fair Work Commission defending a dispute regarding the stand down, and potentially face claims for back pay and potential penalties if they have breached the minimum pay and entitlements provisions of awards and/or the Fair Work Act. In most cases, an employee has 6 years to bring such claims, so the fact that they are not bringing them now does not provide any comfort that it won’t happen down the track.
2. It is possible to reduce an employee’s hours in some circumstances
In the current environment, employees are more willing to accept variations to their contracts so that their hours are reduced and their weekly pay is reduced consistent with this reduction in hours.
The major legal issues to note in relation to reducing contracted hours are:
- A unilateral reduction of a permanent employee’s hours by an employer is usually unlawful.
- Most awards and enterprise agreements impose obligations on employers to consult with employees prior to any major changes.
- Awards and enterprise agreements may contain restrictions about changing hours of work. As a result of COVID19, the Fair Work Commission has made temporary variations to the Clerks — Private Sector Award (the Clerks Award), the Hospitality Industry (General) Award (the Hospitality Award) and the Restaurant Industry Award 2010 (the Restaurant Award) to enable employers to reduce hours, but with certain restrictions.
- Even if an award allows a reduction in hours and all the award requirements are satisfied, proceeding with reducing an employee’s hours without their individual agreement may be in breach of the employment contract.
- It is important to carefully document each employees’ agreement to reductions in hours — we can assist with this documentation.
- Allow employees ample time to consider any proposed variation to their contracted hours. Don’t ask them to agree on the spot, as this may allow an employee to later claim they agreed under duress.
The Federal Government is proposing that the Fair Work Act be amended to allow employers to reduce an employee’s hours in certain circumstances as part of the JobKeeper Payment initiative. However, at the time of writing this article, whether this will become law and what the details will look like is unknown, but is likely to be clarified later this week.
3. Senior employees are agreeing to take pay cuts and it’s usually lawful
Similarly, in the current environment, senior employees are more willing to show flexibility on the pay cut front. Top tips to keep in mind are:
- A unilateral reduction in pay by an employer is usually unlawful, so take care to reach agreement with employees.
- There is no need to treat everyone the same, but make sure differences are not based on a discriminatory ground (eg. gender, family commitments, disability, age or race).
- Carefully document each employee’s agreement to reductions in salary.
- Don’t forget about bonuses and incentives — do they need to be altered as well?
- Consider whether the employees are award or enterprise agreement covered. Some senior employees are and these instruments can impose additional obligations.
4. Having employees take annual leave or unpaid pandemic leave during this time may assist
Annual leave
An employer can ask its employees to agree to take accrued annual leave. If employees agree, this reduces the employer’s liability on the balance sheet.
The ability of an employer to direct employees to take annual leave, varies depending on whether or not they are covered by an award or enterprise agreement and, if so, the terms of that instrument.
If there is no award or enterprise agreement that applies to the employee, an employer can direct an employee to take annual leave if the direction is reasonable. The Fair Work Ombudsman has stated that circumstances where the employer is shutting down its business because of the impact of the coronavirus would be considered reasonable. Other factors that are likely to be relevant are:
- how much notice the employer gives that the leave is to be taken;
- whether the employee has accrued an excessive amount of annual leave; and
- how much accrued annual leave the employee will have remaining after they take the period of annual leave as directed by the employer.
In welcome news, the Fair Work Commission has decided to vary the Clerks Award, the Hospitality Award and the Restaurant Award to enable:
- annual leave at half pay in certain circumstances;
- the ability of an employer to direct an employee to take accrued annual leave in wider circumstances than was previously the case.
We also note that the Fair Work Commission has also proposed that a further 103 awards be temporarily amended to enable annual leave at half pay in certain circumstances, but these amendments have not yet been made.
Unpaid pandemic leave
The Fair Work Commission has also foreshadowed an intention to vary most awards to include two weeks unpaid pandemic leave. This is to apply if the employee is required to work at a premises operated by an employer and is:
- required, by government or medical authorities or acting on medical advice, to self-isolate; or
- otherwise prevented from working by measures taken by government or medical authorities in response to the COVID-19 pandemic.
5. Making decisions based on the JobKeeper Payment is risky until we know more details
The announcement of the JobKeeper Payment has provided some reassurance to employers. However, there are a series of unknowns at this stage, such as:
- exactly how the ‘turnover’ test will work;
- where a business commenced in the last 12 months, whether the requirement for casual employees to who have been with their employer for at least the previous 12 months as at 1 March 2020 will apply; and
- whether a business can ask an employee to agree take a pay cut so that their wage becomes $1,500 per fortnight, where such a wage is otherwise unlawful pursuant to an award or enterprise agreement.
We should know more about these issues later this week.
More information
For more information or advice, please contact a member of our Employment and Workplace Relations team on (03) 8600 8888.
Note: This update is a guide only and is not intended to constitute legal advice.