Business guide to COVID-19

Temporarily shutting down part or all of your business

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

Last updated 17 March 2020

Where an employee or group of employees cannot be usefully employed for a period because of a stoppage of work for which the employer cannot reasonably be held responsible, then you may ‘stand down’ that employee or group of employees for that period without pay. This is usually seen as a last resort. Employers usually exhaust employees taking available paid leave such as annual leave before considering standing down without pay and as with many other COVID-19 related decisions you should consider balancing affordability, culture and engagement with the law before deciding what to do. 

Natural disasters and pandemics, such as the current COVID-19 pandemic, can place businesses in circumstances where they are unable to usefully employ an employee or group of employees 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.

If you have a stand down provision in an enterprise agreement or an employment contract you must get specific advice on the terms of this before implementing a stand down as the general rules may not apply to you. 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 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 employees 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 not made up 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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These options are illustrated in the following examples: 


Example 1 - restaurant

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

All three Chefs call you and say a mate has been tested for COVID-19 and they need to self-isolate for 14 days. 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 function 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.

Example 2 - car mechanic

The Government issues orders or advice to the community that all businesses are to be closed except food shops and pharmacies.

You run a car mechanic workshop.

This would satisfy the stoppage of work trigger but you still need to consider whether the employees can be usefully employed; working from home etc.

You get the team to clean up the workshop for the first couple of days and then ask them to take annual leave. 

Unfortunately their annual leave is exhausted before the Government shut down ends 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.

Example 3 - pizza oven manufacturer

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.

Example 4 - retail store

It’s June 2020 and your shop has been hit hard by COVID-19. Sales are down 40% but so far the Government has not instituted a close down like the one in Spain and Italy.

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 potential significant ramifications of getting a stand down direction wrong if this is your situation please exercise caution and call us for specific advice.

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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; an
  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.

 

Preparing your employees for remote working, leave from the workplace or temporary business closure? To protect your business and people we have a range of support documents for your business.