When a business finds financial conditions to be unfavourable, there may be an attempt to reduce the cost of labour; and so the various ways of approaching this issue must be carefully managed. 

During challenging conditions or related problems with financial arrangements, some businesses will need to scale back operations. This may mean that a number of positions within a section of an enterprise will become redundant. 

For businesses where many of the affected employees are highly skilled and have been trained by the company, the business may prefer to offer them reduced hours as an interim measure — in the hope that business activity will improve in the immediate future — rather than lose them altogether through redundancies. 

 

Stand down provision

The Fair Work Act 2009 contains a provision that allows for the standing down of an employee(s) without pay because of a stoppage through no fault of the employer. Because the circumstances in the case are beyond the employer’s control, can these employees be stood down without pay for the duration, instead of their positions becoming redundant? 

 

When can you lawfully stand down an employee?

Under s524 of the Fair Work Act, an employer may stand down an employee without pay during a period in which the employee cannot be usefully employed because of a stoppage of work for any cause for which the employer cannot be reasonably held responsible. 

The industrial courts and tribunals have generally held that economic factors are not circumstances under which an employer can stand down an employee without pay. This would include a downturn in business, the reasons for which may be the general economic climate, market-related or a lack of available finance. 

 

Are there other approaches? 

In order to work a short week, the employer would need to approach each affected employee and obtain their agreement to alter the contract of employment so that the employee may work reduced hours during a particular period. 

An alternative to part-time work may be each employee accessing any accrued annual leave to cover the day they cannot be usefully employed, although this solution would also require the agreement of each employee because the employer does not have a unilateral right to send an employee on annual leave. 

Another alternative is to allow an employee to access accrued long service leave (where applicable), although taking this leave is usually subject to the relevant state or territory long service leave legislation. 

In the absence of an agreement on any of these options with an employee, redundancy is the only alternative. 

When considering their options, it may assist each employee for the employer to provide an estimate of the anticipated period of time the company expects the poor economic conditions that currently affect the company to continue. 

 

Standing down employees under an enterprise agreement or contract of employment

Under section 524 of the Fair Work Act, an employer cannot stand down an employee if an enterprise agreement or employment contract applies and includes provisions for stand down during periods when the employee cannot be usefully employed due to industrial action (excluding employer-organised action), machinery breakdown, or work stoppage where the employer is not reasonably responsible.

If such an agreement or contract exists, the employer generally must adhere to its specific terms for standing down employees.

Employers should be aware that enterprise agreements or employment contracts might include extra conditions, like the need for consultation or notice, before a stand down can occur. Always review the enterprise agreement to ensure you are meeting all requirements.