Business guide to COVID-19

Temporarily shutting down part or all of your business

Last updated: 1 April 2021

Australian Business Lawyers & Advisers (ABLA) has prepared this update on what to think about when considering temporarily shutting down a business.

Natural disasters and pandemics can place businesses in circumstances where they are unable to usefully employ an employee or group of employees. In some instances, employers can 'stand down' these employees without pay. This is usually seen as a last resort and employers will often allow employees to exhaust any available paid leave (such as annual leave) before considering a stand down. As with many other COVID-19 related decisions you should consider balancing affordability, culture and engagement with the law before deciding what to do. 

The Fair Work Act 2009 contains provisions authorising employers to stand down employees in certain situations. Employers may also be permitted to stand down employees:

So, you need to ask yourself:

  • if they have an employment contract that contains stand down provisions, or
  • if they have an enterprise agreement that contains stand down provisions.

If any of the above apply to your business you should seek specific advice before implementing a stand down as the general rules may not apply to you.

It is vitally important that the rationale and implementation of a stand down direction is conducted in accordance with the relevant provisions of the legislation. Under the Fair Work Act 2009, an employer can initiate a stand down if there is a stoppage of work for which the employer cannot reasonably be held responsible and the employee cannot be usefully employed as a result.

It is critical that there is a stoppage of work to trigger a stand down. That is, all or part of the business must cease operations in order to lawfully stand employees down without pay.

So, you need to ask yourself:

  • Is there a stoppage of work?
  • Is it for a reason that is reasonably outside your control?
  • Can the affected employees be employed to perform useful work? 

You cannot stand down an employee if there is useful work available within the ambit of their usual job and employment contract (focus on the employee's role and job description to make this assessment). Useful work does not have to be the work that the employee ordinarily performs but needs to be genuine productive work. Employees should be offered the opportunity to take any paid leave that they have available during a period of stand down.

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See the following examples to understand if a stand down is an option in certain circumstances

The government issues an order requiring certain businesses to close in response to a COVID-19 outbreak. You run a car mechanic workshop and are not permitted to open to customers under the terms of the order.

This would satisfy the stoppage of work trigger but you still need to consider whether your employees can be usefully employed.

You determine that none of your employees would be able to perform any work from their homes. You get the team to clean up the workshop for the first couple of days and then ask them to take annual leave - a request to which they agree. 

Unfortunately, their annual leave is exhausted before you are permitted to reopen and you are left with no choice other than to implement a stand down without pay. 

You provide the employees with a properly drafted letter implementing the stand down. This would be a proper basis to implement a stand down without pay for the remaining employees.

Assume that you run a restaurant. You have 11 full-time employees - three chefs, seven-floor staff and a bar person.

A close contact of all three chefs tests positive for COVID-19 and your chefs are directed to self-isolate for 14 days as a result. You ring around and find no replacement chefs.

Working from home won’t help your type of business and until the chefs come back you decide that you are left with no choice but to shut the business.

All of your employees are new and have very small annual leave balances which they exhaust in the first week after the chefs are isolated.

You are struggling to manage the cost of the rent with no trade and decide that the only option is to stand down the remaining employees without pay because you simply cannot operate the business without the chefs. 

You provide the employees with a properly drafted letter implementing the stand down. This would be a proper basis to implement a stand down without pay for the remaining employees.

Your business makes pizza ovens and is unable to obtain parts essential to manufacture the ovens from China as a result of backlogs from your supplier.

You have explored whether your employees can be usefully employed on anything else but they cannot. 

You provide the employees with a properly drafted letter implementing the stand down. This would be a proper basis to implement a stand down without pay for the remaining employees.

Your business operates bus tours, primarily aimed at overseas visitors. Due to border closures, your core market has dried up. You have tried to adapt by introducing tours aimed at domestic tourists, but business is still down 40%.

You have cut all the casual employee hours and you are now unsure whether you can keep the door open. Your permanent employees have exhausted their annual leave allowing you to run a skeleton roster for a period.

Having some customers is good but it’s not enough to keep you going.
Can you shut the business and stand the employees down without pay?

This is a difficult example and will require a detailed discussion about your circumstances

You will likely be able to implement a stand down at some point in this situation but given the potentially significant ramifications of getting a stand down direction wrong, if this is your situation please exercise caution and call us for specific advice.

REDUNDANCIES

It is also important to note that stand downs are temporary in nature and are intended to ‘freeze’ the employment relationship as an alternative to termination. Employees cannot be stood down indefinitely and, if it becomes clear to the employer that they will not be in a position to resume their employment, the employee would still be entitled to any termination benefits that might ordinarily apply (e.g. notice and redundancy pay).

If you decide that redundancies are required, it is important to remember there are three requirements for a genuine redundancy to best avoid an unfair dismissal claim:

1. The business must no longer require the person's job to be performed by anyone because of changes in operational requirements, and

2. The business must consult with any employees who are covered by a modern award or enterprise agreement (in accordance with the relevant consultation provision), and

3. It must not have been reasonable in all the circumstances for the person to be redeployed within the business or an associated entity.

If redundancies are implemented, you must consider your obligation to provide:

  • redundancy pay,
  • provide notice of termination (or payment in lieu),
  • and other statutory or contractual entitlements.

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