Articles > COVID-19

If my business cannot operate, can staff be stood down?

March 27, 2020   Ezra SarajinskyPhilip Evangelou

On Monday 23 March businesses offering “non-essential” services were ordered to close in order to help reduce transmission of COVID-19 by practising social distancing.

Businesses operating the following list of services are subject to the shut down requirements:

  • Pubs, registered and licensed clubs (excluding attached bottle shops) and hotels (excluding accommodation)
  • Gyms and indoor sporting venues
  • Cinemas, entertainment venues, night clubs and casinos
  • Restaurants and cafes (excluding services for takeaway and home delivery)
  • Places of worship, religious gatherings, or funerals (in enclosed spaces, only with very small groups, and where the 1 person per 4 square metre rule applies).

The Fair Work Act (s 524) allows an employer to stand down employees without pay in particular situations, including where there is a stoppage of work for reasons not caused by the employer and where an employee cannot be usefully employed. Stand down provisions can be set out in employment contracts or relevant enterprise agreements, and these should also be looked at as to how they may be applicable in these circumstances.

Employers that are affected partially by the shut down orders may be able to stand down those employees that can no longer be usefully employed because the functions they performed have essentially cease. An example would be a pub with an attached bottle shop standing down all staff except for those required to maintain the take away bottle shop retail outlet.

But what about circumstances, where the business is suffering from lowered demand for their services? Can employees be stood down? The Fair Work Ombudsman has taken the clear view that “employees can’t be stood down just because there is not enough work.” Another way of looking at this, is that employees cannot be stood down because the business is experiencing a harsh economic impact, but only for the full or partial shutdown of the business. Furthermore, businesses that provide goods and services to businesses that have been shut down under these orders (eg a company that distributes alcohol wholesale to pubs), are unlikely to be able to stand down employees.

When employees are stood down by business subject to the shut down orders, certain employee entitlements still stand, as per the relevant provisions in the Fair Work Act:

  • Leave continues to accrue (annual / personal leave / long service)
  • Employees can access personal and carer’s leave
  • Employees need to be paid for public holidays where it would otherwise fall on a day where they have been stood down.

Employees are within their rights to request annual leave during this period, though employers can also refuse paid leave at this time for cash flow reasons. It would be unlikely that an employer could cancel paid leave during the stand down that had been approved earlier.

Employees subject to a stand down are entitled to claim welfare payments. This should bring relief to employees and employers alike. 

When standing down employees, employers should provide staff with information on claiming welfare payments, a formal letter confirming their employment, hours of work and salary rate, and confirm they have been stood down without pay.

Employers should be aware of the narrow scope for standing down employees, and consider other ways of managing employees and costs saving measures.

About Ezra Sarajinsky

Ezra SarajinskyEzra is a founder of OpenLegal. Having spent the last decade working with startups, small businesses and corporates, Ezra is evolving a client-centric experience that tightly integrates digital technology with project managed services. His legal focus is employment, corporate and migration law.

About Philip Evangelou

phillipPhil is a director at OpenLegal. He has over 16 years experience working in private practice and in-house counsel in Sydney and London, giving him expertise in employment law, IP, finance, leases, dispute resolution, insurance and contracts.