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Letter to Employee Advising Stand Down | Leave without Pay Policy | Redundancy Checklist | Letter to Employee - Termination Due To Redundancy | Reference letter for employee

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Warning: COVID-19 and using this letter

Standing down employees without pay 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 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 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 not made up work.

This commentary is intended to help you understand your options and decide what is right for your business. Please contact Australian Business Lawyers & Advisors if you have specific questions or need legal advice on the issues facing your business during COVID-19 including whether or not you can lawfully implement a stand down. 

Who can use this correspondence

This document can be used by all employers throughout Australia, except the following excluded employers:

  • Non-constitutional corporation employers in Western Australia
  • State public sector employees (i.e. employees of a Minister, the Governor, or the Crown) and
  • Local government employers — except in Tasmania and Victoria.
  • Excluded employers may however, wish to use this document, but they should first obtain legal advice.

Commentary

When is an employer permitted to stand down an employee?

The Act permits an employer to stand down an employee when the employee cannot usefully be employed because of any of the following circumstances:

  • Industrial action which is organised or engaged in by the employees of the business; or
  • A breakdown of machinery or equipment for which the employer cannot reasonably be held responsible; or
  • A stoppage of work for any reason for which the employer cannot reasonably be held responsible. For example, this may include a natural disaster ie. Cyclone, flood, bushfire etc.

An employer is not required to pay an employee during a stand down period.

What if the business has an industrial instrument or contract of employment containing stand down provisions?

If there is an industrial instrument (for example, an award or enterprise agreement), or a contract of employment that applies to an employee’s employment that contains a provision relating to stand down, the provision in those instruments may apply. If you are unsure of whether a provision in an industrial instrument or a contract of employment relating to stand down applies, you should seek specific advice.

However, such a provision will only apply where it permits an employer to stand down an employee where the employee cannot be usefully employed, due to the reasons listed above (being industrial action, breakdown, or a stoppage of work). If the provision allows an employer to stand down an employee for a reason other than that listed above, an employer will not be permitted to stand down an employee for that reason.

What if the industrial instrument or contract of employment contains other pre-conditions?

It is not uncommon for an industrial instrument or contract of employment, which allows an employer to stand down an employee, to provide other pre-conditions to be met before an employee can be stood down.

Common pre-conditions include the requirement to consult with employees, or to provide employees with a certain amount of notice.

Therefore, employers must ensure that they comply with the provisions of a stand down provision in any relevant industrial instrument or contract of employment before implementing a stand down.

Use of other leave accrual entitlements during stand down period

This letter provides employees with the option of making an election to use any accrued leave entitlements (such as annual leave or long service leave) during the stand down period.

Whilst an employer is not required to pay an employee during a stand down period (subject to any terms to the contrary in an industrial instrument or contract of employment), employees may elect to use any accrued entitlements during the period to ensure that they continue to receive payment.

Any approval or non-approval for the taking of leave accruals should be in accordance with any applicable workplace policy, and the relevant legislation.

While this letter may be used to stand down employees who cannot usefully be employed because of industrial action, it should not be used for employees who are taking industrial action as payments to employees taking industrial action are prohibited under relevant legislation.

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Who can use this policy

This policy can be used by all employers.

Commentary

Employers may wish to provide leave without pay in certain circumstances, for example, where an employee has exhausted an entitlement to paid leave. This Leave Without Pay Policy will assist employers to outline when they will be prepared to provide such leave to employees.

More Important Information

The policy also helps to make clear to employees what is expected of them if they take unpaid leave, for example, how often they need to correspond with their employer and what information they need to provide. This will assist employers who are considering whether to treat an employee as having abandoned their employment. It is recommended that all arrangements for leave without pay are confirmed in writing.

You may wish to supplement this policy with other leave policies.

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Who can use this checklist?

This checklist can be used by all employers throughout Australia, except the following excluded employers:

  • Non-constitutional corporation employers in Western Australia;
  • State public sector employees (ie employees of a Minister, the Governor, or the Crown); and
  • Local Government employers — except in Tasmania and Victoria.
  • Excluded employers may however, wish to use this document, but they should first obtain legal advice.

Commentary

What is a redundancy?

Termination of employment due to redundancy is a form of dismissal by the employer.  It carries with it the concept of involuntary termination of the employee’s employment.  However, rather than being a fault based dismissal, redundancy is usually caused by factors such as economic conditions, business efficiency, or technological development.

More Important Information

Generally speaking, termination of employment due to redundancy occurs where:

  • an employer has made a definite decision that the employer no longer wishes the job the employee has been doing to be done by anyone;
  • that decision leads to the termination of the employee's employment; and
  • there are no reasonable redeployment opportunities (including within the employer's associated entities).
  • Under the Fair Work Act 2009 (Cth) ('Act') a dismissal will not be unfair where the person’s dismissal was a case of a genuine redundancy. Under the Act a redundancy will be genuine if:
  • the job will no longer be required to be performed by anyone because of the changes in the operational requirements of the employer’s enterprise; and
  • the employer has complied with any obligation to consult contained in an applicable modern award or enterprise agreement.

Possible redeployment

Ensuring that any redundancy is a genuine redundancy and exploring redeployment opportunities will assist employers in defending an unfair dismissal claim brought by an employee on the basis that the redundancy was not genuine and the terminiation of employment was harsh, unjust or unreasonable.

Accordingly, employers must consider, prior to terminating an employee due to redundancy, whether it would reasonable in all the circumstances for the person to be redeployed within:

  • the employer’s enterprise; or
  • the enterprise of an associated entity of the employer.
  • Record keeping
  • Employers should keep records of attempts made to re-deploy employees. Records of employer attempts to search for alternate jobs and the reasons why redundancy was necessary should also be retained (in the event a claim is made). Additionally records should be kept of the discussions with employees in connection with these matters. Employers should update the personnel file to note termination was due to redundancy.

Legal advice

You should seek legal advice if you are unsure when terminating an employee whether the circumstances constitute a redundancy. If the termination of an employee's employment is incorrectly classified as a redundancy and a redundancy payment is made, there may be taxation consequences for both the employer and employee. You should obtain taxation and legal advice about these issues if you are unclear as to the true nature of the termination.

Additional obligations apply when you are terminating the employment of 15 or more employees. Before carrying out a redundancy employers should consult their enterprise agreements and awards to ensure they comply with any relevant requirements.

Mandatory severance pay

National system employers should be aware that the Act introduces mandatory severance pay for employees made redundant in workplaces that are not a 'small business employer' as defined by the Act.

An obligation to provide severance pay under the Act applies from 1 January 2010. Importantly, continuous service (relevant to the calculation of severance pay) under the Act will only start to accrue from 1 January 2010 where an employee previously had no entitlement to severance pay as at 31 December 2009. Advice should be sought in relation to severance payments if you are unsure of your obligations under the Act.

Further considerations

Where 15 or more employees will be terminated due to redundancy, employers must notify Centrelink of the redundancies prior to any termination. If any of the employees are union members, employers must also notify the relevant unions prior to the termination of the employees. A form of that notification is available at this website.

Appropriate care needs to be taken in selecting employees for redundancy in order to avoid unlawful discrimination claims.

If you are unable to meet all the requirements in the checklist, you should seek legal advice.

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Who can use this correspondence

This document can be used by all employers throughout Australia, except the following excluded employers:

  • Non-constitutional corporation employers in Western Australia;
  • State public sector employees (ie employees of a Minister, the Governor or the Crown); and
  • Local Government employers — except in Tasmania.
  • Excluded employers may however, wish to use this document, but they should first obtain legal advice.

Commentary

What is a redundancy?

Termination of employment due to redundancy is a form of dismissal by the employer.  It carries with it the concept of involuntary termination of the employee’s employment.  However, rather than being a fault based dismissal, redundancy is usually caused by factors such as economic conditions, business efficiency, or technological development.

More Important Information

Generally speaking, termination of employment due to redundancy occurs where:

  • an employer has made a definite decision that the employer no longer wishes the job the employee has been doing to be done by anyone; and
  • that decision leads to the termination of the employee’s employment.

Under the Fair Work Act 2009 (Cth) (the 'Act') a dismissal will not be unfair where the person’s dismissal was a case of a genuine redundancy. Under the Act a redundancy will be genuine if:

  • the job will no longer be required to be performed by anyone because of the changes in the operational requirements of the employer’s enterprise; and
  • the employer has complied with any obligation to consult contained in an applicable modern award or enterprise agreement.

In order to avoid the risk of an unfair dismissal claim, employers must consider, prior to terminating an employee due to redundancy, whether it would be reasonable in all the circumstances for the person to be redeployed within:

  • the employer’s enterprise; or
  • the enterprise of an associated entity of the employer.

Employers should keep records of attempts made to re-deploy employees. Records of employer attempts to search for alternate jobs and the reasons why redundancy was necessary should also be retained (in the event a claim is made). Additionally records should be kept of the discussions with employees in connection with these matters. Employers should update the personnel file to note termination was for redundancy.

If you are unsure when terminating the employment of an employee whether the circumstances constitute a redundancy, you should seek legal advice about this matter. If the termination of an employee's employment is incorrectly classified as a redundancy and a redundancy payment is made, there may be taxation consequences for both the employer and employee. You should obtain taxation and legal advice about these issues if you are unclear as to the true nature of the termination. 

Additional obligations apply when you are terminating the employment of 15 or more employees. Before carrying out a redundancy employers should consult their agreements and awards to ensure they comply with any relevant requirements.

Mandatory Severance Pay

From 1 January 2010, employers should be aware that mandatory severance pay is payable on redundancy to eligible employees. There are however certain exemptions from that obligation.

Some of the common exemptions from the obligation to provide severance pay are detailed below:

  • the employer employs less than 15 employees
  • an employee has less than 12 months continuous service with the employer
  • the employee is a casual
  • the employee is terminated because of serious misconduct
  • the employee is employed for a specified task, or a specified period of time, or for the duration a specified season
  • a training arrangement applies to the employee (other than an apprentice) and his/her employment is for a specified period of time, or limited to the period of the training arrangement
  • the employee is an apprentice
  • an industry-specific redundancy scheme in a modern award applies to the employee, or the industry specific redundancy scheme from the modern award which covered the employee is incorporated into an enterprise agreement which applies to the employee.

Modern awards may also include exemptions from the obligation to provide severance pay. A number of other potential exemptions apply from the obligation to provide severance pay. Given the complexity of this area, it is advisable for employers to seek advice to confirm that they can apply a relevant exemption from the obligation to provide severance pay.

Further considerations

Where 15 or more employees will be terminated due to redundancy employers must notify Centrelink of the redundancies prior to any termination. If any employee is a member of a union, employers must also notify the relevant unions prior to the termination of the employees. A form of that notification is available at this website.

Appropriate care also should be taken in selecting employees for redundancy in order to avoid discrimination claims.

Important: The template letter we have provided has an optional 'Schedule of Entitlements' section which you can complete and include in the letter. It is very important that you check the monetary entitlements you record in the schedule are correct, before providing the letter to the relevant employee(s). If you have over-calculated the entitlements owed and present this to the employee(s), you may in some circumstances be bound to pay the additional amounts you have offered, despite the fact a miscalculation has occurred.

Likewise, if you have under-calculated the entitlements owed, you may be in breach of a relevant industrial instrument or applicable legislation, which may lead to a financial penalty, damages and/or interest on the unpaid entitlements, being imposed. Calculations are often quite complex, particularly for long-serving employees, so it is recommended that you check them thoroughly. If you are unsure of the correct entitlements to offer or pay, you should seek legal and relevant financial and taxation advice.

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Who can use this document 

This document can be used by all employers.

Commentary 

Employees may seek a letter of reference from their employer on termination of their employment. The contents of the reference will be particular to the circumstances of each employee but will usually include details about the employee’s employment, such as length of employment and position(s) held, as well as a comment about such things as the person’s skills, experience, and ability to work as part of a team etc.

More Important Information

In contrast, a Statement of Service simply sets out the period of service, position(s) held, and duties performed by the employee during their employment. Unlike a letter of reference, the statement of service provides no indication of the quality of service provided by the employee.

Before deciding whether to provide a letter of reference or a statement of service, you will need to check if there are any industrial instruments, policies, or procedures in your workplace which require either document to be provided to a departing employee. If there are, you will need to comply with the requirements outlined in those documents when providing either document.

Whether to provide

Accordingly, if there is no statutory requirement to provide either a 'letter of reference' or a 'statement of service', you will need to consider whether you wish to provide either document, or which is the most appropriate document to provide.

Some businesses have made it a workplace policy not to provide references for any employees, due to the legal risks associated with providing references. Alternatively, some organisations choose to nominate an authorised member of management to provide oral references if contacted by a future potential employer, but not a formal letter of reference. This partly enables the organisation to retain control over what is said about the employee in question, but still contains risks.

Legal risks

There are a number of legal risks associated with providing references for employees. For example, if you provide a reference which is not accurate and a future employer relies on it in employing one of your former employees, then that employer may commence legal action against you to recover any loses they suffer by relying on that reference. Similarly, if you provide a reference which defames the employee, you may find yourself defending a defamation action.

Whilst there are some legal risks, a reference can be a valuable job hunting tool for a departing employee. If you want to provide a letter of reference bear in mind the following:

It is important that you are honest when providing references.

Make sure the reference accurately reflects the employee’s employment with your organisation. It is a good idea to check the employee’s personnel file, as well as with the employee’s supervisors, managers, and HR to check what you are saying is correct.

Do not exaggerate and do not generalise. For example avoid generalisations about the values and standing of the employee. Don’t say 'John is completely honest and trustworthy'. If you wish to make a comment about an employee’s values and standing, always relate it back to your personal experience with the employee whilst they were in your employ. For example, say 'during the period of John’s employment I found him to be honest and dependable in his interactions with me'. That way, if an issue arises later on that the employee has not been 'trustworthy and dependable' with his/her future employer, you have confined the statement to your experience and not made a generalisation about the values and standing of the employee.

To minimise the legal risks which can be associated with providing references, a reference should only be used for those employees the business feels confident in recommending to future employers. For those employees the business does not wish to provide a reference for, the statement of service document can be used. If you cannot honestly provide a good reference for the departing employee, do not provide a bad one which rubbishes the employee. Instead, offer to provide the employee with a statement of service.

If you decide your organisation will provide a written or oral reference for appropriate employees, consider nominating an authorised officer in your organisation who is authorised to provide such references. This person can collect information from the relevant employee’s supervisor, manager, and HR for the purposes of providing a reference. This way your business can keep track of what references are provided and what is said. The authorised officer should have sufficient training and experience to provide an appropriate reference. Knowledge of, and compliance with, the organisation’s workplace policies and laws (such as privacy, discrimination, OHS etc) is necessary. Nor should the officer defame the employee. If no-one else in the organisation is permitted to provide references, this policy should be clearly communicated to all workplace participants.

Likewise, if your policy is not to provide references at all, this should be clearly communicated to all workplace participants.

The reference you will create using this service is a generic 'to whom it may concern' document, with some options included so you can more closely adapt it to your needs. You may still need to amend the reference once it is completed to suit your specific requirements and/or to comply with any relevant industrial instruments, workplace policies, or procedures.

Further information

Further information on how to use this document can be found at the 'How to use correspondence' link on the Correspondence page of the HR Advance website.

An Employment Separation Certificate is a certificate in which an employer provides basic employment details of a former employee who wishes to apply to Centrelink for unemployment benefits. Use this form to certify important employment information. Access the Centrelink Separation Certificate here.

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