Can you stand down retail employees without pay now?

Whether an employee can be "usefully employed" is a question of fact

Can you stand down retail employees without pay now?

To date of publication, there has been no government directive for all retailers to close or cease trading.

In his announcement on 29 March 2020, the Prime Minister confirmed that there is no directive to close shopping centres although he urged Australians to only shop irregularly and only for essential items which he considered to be "food and supplies". The Prime Minister has referred to this advice as instructions or guidance, rather than a directive.

The Federal and State governments have previously ordered a shutdown of only some businesses including cafes, restaurants, nightclubs and pubs, licensed venues, gyms, spas and beauty services. Stand down without pay pursuant to the Fair Work Act may be available to these employers.

For other employers, there are serious questions around whether employees can be lawfully stood down without pay in the absence of a government directive to close or the existence of an enterprise agreement which deals specifically with stand down with or without pay.

There are limited circumstances that allow a retailer to stand down an employee without pay under the Fair Work Act 2009 (Cth) (Fair Work Act).

By passing the Jobkeeper legislation on 8 April, the Federal Government has extended the circumstances in which some businesses can stand down an employee with pay.  The jobkeeper changes do not allow for standing down without pay, although it is now possible to reduce an employee's hours so that they are only working hours that equate to the $1,500 fortnightly payment that the employer receives. 

Importantly, however, a retailer will only be able to use these new provisions if they can demonstrate the requisite downturn in revenue to qualify for jobkeeper payments (30% reduction for businesses with an annual turnover of less than $1 billion) and where they continue to pay employees.  If a retailer wants to stand down an employee without pay there are still stringent conditions that must exist. 

Essentially, to be able to stand down store employees without pay, a retailer would need to be able to demonstrate that these employee cannot do "useful work" because there is a stoppage of work for a cause for which the retailer cannot be held responsible.

Usefully employed?
Whether an employee can be "usefully employed" is a question of fact and will need to be considered in the specific circumstances of an individual retailer and each employee. The explanatory memorandum to the Fair Work Act sets a high threshold for whether an employee can be "usefully employed":

"if the employer is able to obtain some benefit or value for the work that could be performed by an employee then the employer would not be able to stand down an employee."

Stoppage of work?
In the past a "stoppage of work" has extended to situations such as natural disasters or severe weather events.  There is case law that suggests that a deterioration in business or economic downturn, even if the cause of that downturn is beyond the employer's control, may not be a stoppage of work that qualifies as a stand down event. 

A reduction in sales and foot traffic may be directly referrable to the current health crisis and, perhaps even, the comments and guidance issued by the Federal government.  However, in the absence of a directive that closes retail stores entirely, retailers will need to carefully consider whether there is a stoppage of work in their particular circumstances. For example, it is possible that the imposition of social distancing measures have meant that retailers are unable to operate stores and comply with these measures and, therefore, need to close. 

It is also possible, although untested, that the combination of severely reduced to non-existent sales, the Federal government's latest recommendations against shopping and social distancing directives are, in combination, enough for a court to find there has been, in practical terms, a "stoppage of work".  There is the possibility that landlords may place unacceptable conditions on future trading.

The FWC may need to determine such matters as more retail employers apply stand down without pay.

Where a retailer can still open but is operating at a significantly reduced rate of trade, it is likely that permanent employees will still have a right to be paid. That right continues even if the retailer decides to shut its doors because it cannot afford to keep operating with massively reduced foot traffic. The retailer's alternative is to terminate the employees' employment on the grounds of redundancy.  That, of course, requires the giving of notice (or payment in lieu) and payment of severance/redundancy pay.

An alternative to all this (ie stand down or redundancy) is to talk to the staff to ascertain if they are willing to agree to reduce their hours or take leave (with or without pay) - see further below.

What if we decide to close stores and stand down employees without pay anyway or put them on unpaid leave?
Generally, as long as employees remain ready, willing and able to work, they are entitled to be paid their usual wage. 

Requiring employees to take unpaid leave because the employer has made a decision to close stores is likely to amount to a breach of the employees' employment contracts and the General Retail Industry Award 2010 (Retail Award).

Currently, there are other options that are available to retailers where a decision is made to shut down stores, including encouraging employees to take annual leave or reaching agreements with employees to take unpaid leave.

Can we reduce pay, working hours or other entitlements?
Many retailers are currently negotiating reductions in pay and working hours with store employees as a means of preserving the workforce and avoiding redundancies.  In the current uncertain job market, employees are generally willing to consider such measures.

In most circumstances a reduction in an employee's take home pay can only be done with the employee's agreement. Variations to working hours, pay and other entitlements require careful consideration of the employment contract and the Retail Award.  Importantly, a proposed change in working hours also triggers consultation obligations under the Retail Award.

The changes to the Fair Work Act that were passed yesterday will now allow an employer who qualifies for jobkeeper payments to direct employees not to work, work reduced hours or work on different days - but only if the employee cannot be usefully employed for their normal work hours due to the impact of COVID-19. Importantly, during this type of stand down, the employer cannot reduce the employee's wage or hourly rate. The employee will receive the higher of the Jobkeeper payment (likely to be $1,500 per fortnight) or the amount they would be entitled to for the work performed that fortnight.  

The jobkeeper changes will also allow eligible employers to direct employees to undertake different duties or perform work at different locations while they are receiving jobkeeper payments, subject to some conditions relating to safety, reasonableness, consultation and notice.

Retailers are always entitled to seek the agreement of its employees to a reduction in entitlements, pay and benefits. As noted above, employees may be willing to reach such an agreement if the alternative is a redundancy of their position.

It is also important to remember the various protections available to employees if an employer decides to reduce entitlements or terminate in circumstances where they are ill or injured or because they have family responsibilities. Under the Fair Work Act, an employee is protected from being dismissed because of a temporary absence due to illness or injury.

Can we force our store employees to take annual leave?
The Retail Award allows retailers to direct employees to take annual leave if there is a close down of operations (clause 32.5).

However, the Award requires employers to give employees at least 4 weeks' notice before the leave commences. The impracticality of this requirement in the current circumstances has been, in part, addressed by the recent amendments to the Fair Work Act. 

Under these changes, an eligible employer can agree with its employees (who are receiving Jobkeeper payments) that the employee will take accrued annual leave. An employee must consider and cannot unreasonably refuse such a request from their employer. An employee can refuse the request if it would leave the employee with a balance of less than 2 weeks accrued annual leave. For employers who do not yet qualify for the jobkeeper scheme, it is still necessary to comply with the terms of the Retail Award.   

Currently, it is preferable to obtain the agreement of employees that they take annual leave, without the need for a direction that may breach the Retail Award in terms of notice provided. The employment contracts and an applicable leave policy (if any) should also be considered to determine whether these impose any limitations on directing employees to take annual leave.

Can we force our employees to take paid personal leave?
No. Paid personal/carer's leave can only be taken by an employee when they are not fit for work because of personal illness or injury or to provide care or support to a member of the employee's immediate family or household.

Paid personal leave may be available to employees who are required to care for a child in circumstances where schools have closed.

What should we do now?
While there is no current government directive requiring all retailers to close, this is a rapidly developing situation and it is possible that such a directive will be made by the Federal or a State government soon with various exclusions for essential services.

In the interim, employers are now requesting employees to take annual leave, or negotiating with employees for reduced hours or even leave without pay where the employer is not yet able to invoke the Fair Work Act provisions and stand down employees without pay. The jobkeeper changes will assist some badly impacted retailers to stand down employees with pay, even in circumstances where there has not been a total "stoppage of work".

As the ability to stand down employees depends on individual circumstances, please do not hesitate to reach out to our employment specialists in our dedicated Consumer Goods and Retail Industry Group for further advice. 


Kellie-Ann McDade is a Partner, Baker & McKenzie

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