As the COVID-19 pandemic continues to unfold, we are starting to see the widespread economic impact of the crisis. Unfortunately, with entire industries shutting down, the only option for your business to stay afloat may be to cut down on staff costs, particularly if your business is considered a ‘non-essential’ service.  

While the decision to let staff go or reduce their hours is a difficult one, it may be unavoidable for your business in this uncertain climate. 

Before you take any action, it is important to consult your staff. These kinds of decisions are never easy to make, and it is crucial to preserve the morale of the employees who remain with your business. It’s also worthwhile to maintain a healthy relationship with any staff you let go in case you are able to re-employ them in the future. 

As hard as this situation is for the employees you have to let go, being fair and sensitive throughout the process can make a big difference. 

It is helpful that you discuss all their options with them, such as new Centrelink benefits they may be entitled to or relief for residential tenants

Things To Consider Before Letting Staff Go

Before you let your staff go, there are many considerations you should take into account regarding their employment status, Modern Awards and leave entitlements. 

Employees vs Contractors 

Firstly, it is important to know whether your staff are employees or contractors. We’ve written about the distinction between employees and contractors here, but let’s quickly run through it. 

The following factors are relevant to whether someone is a contractor or an employee: 

  • Control: Whether they have autonomy with their work and can control how the work is carried out, provided they complete it
  • Invoicing: Whether they are engaged for a particular job or task and invoice you for it under their own ABN
  • Tools and equipment: Whether they supply their own tools and equipment, and aren’t required to wear a uniform
  • Insurance: Whether they have their own insurance policy.

There are a variety of factors that Fair Work considers when distinguishing between a contractor and an employee (you can read their full factsheet here). 

It is wise to get advice on this if you are unsure because, if your staff member turns out to be an employee, they could make an unfair dismissal claim or a claim to recover any employment entitlements you have denied them. 

On the other hand, independent contractors aren’t eligible to claim employment entitlements or unfair dismissals. 

Categories Of Employees 

So, if they’re not contractors, it is important to know what type of employees you currently employ. Let’s go through them. 

Permanent Employees 

A permanent full-time employee is someone who usually works, on average, 38 hours a week, while a permanent part-time employee works less than 38 hours. 

Permanent employees generally work regular hours each week and are entitled to sick leave and paid annual leave. 

If you terminate a permanent employment, then you are obliged to: 

  1. Give the employee the required notice 
  2. Pay out leave and any other entitlements they are owed

Casual Employees 

On the other hand, casual employees work irregular hours and generally do not have a firm commitment in advance from their employer regarding how long they will be employed for — all of which will be reflected in their employment agreements. 

Often, casual employees are not told the days or hours they will work, and do not get paid sick or annual leave. 

As they are not afforded sick or annual leave, they are accordingly paid a higher rate called a casual loading. 

There is also the concept of employees becoming long term casuals after 12 months of being engaged regularly by an employer. While these long term casuals still do not get paid leave, they may be eligible to take parental leave and request flexible working arrangements. 

Regardless of whether a casual is a long term casual or not, in the case of termination, they are generally not entitled to receive notice or payouts of leave. 

When Does a Casual Employee Become Permanent? 

The true nature of casual employment is one that is intermittent and ad-hoc. 

However, if your casual employees are receiving ‘regular’ and ‘systematic’ hours and work, then they may be able to access certain entitlements. 

If your employee’s work is weekly, starts at similar times and involves much of the same type of work, then they may be entitled to paid annual leave (and other permanent employee entitlements). 

A real life example: WorkPac.  

You may have heard of a case involving WorkPac, which is a labour hire business. 

WorkPac employed a truck driver on a casual basis and this driver worked on a rotating roster that was set 12 months in advance. 

When the truck driver’s employment was terminated, he claimed that he was a permanent employee and, as a result, was entitled to a payment for accrued but untaken annual leave. 

In deciding this case, the Full Federal Court considered the irregular and uncertain nature of casual employment, and confirmed that the employee in question would be considered a permanent one and was therefore entitled to the accrued leave payout. 

So, the moral of the story here is to make sure you’re aware of what type of employees you currently employ to understand what you owe them, particularly if you’re considering letting them go. 

Leave Entitlements 

We’ve written about the legals you need to know regarding leave entitlements, and other things you should be considering when managing your employees during COVID-19, here

Fair Work Pandemic Leave

On 1 April 2020, The Fair Work Commission announced a ‘pandemic’ leave. The rationale behind this is that it will allow employees to keep their jobs if they have been exposed to COVID-19.

Under these changes (which apply to 103 Modern Awards), employees will be able to take two weeks unpaid leave or annual leave at half pay. 

This special leave will last until June 30 (as far as we know under current updates). The Commission believes that this will both encourage self-isolation practices and keep people in employment.  

This is just one of the ways in which employers are being given more flexibility and opportunities to keep their staff on board. 

Modern Awards And Enterprise Agreements 

If a Modern Award applies to your employee, then you are bound by the terms and conditions of their Award. 

Every Modern Award contains a standard consultation clause that requires employers to consult employees if they intend to put significant changes into effect — which can include changes to their regular roster, work hours, or termination. 

The Award also requires you to consult your employee’s representative (who can be another elected employee or a representative from a union). 

So, if you are intending to reduce your permanent employee’s regular hours or terminate them completely, you must notify employees and their representatives. 

You will have to discuss the changes and provide information in writing as soon as a definite decision has been made. 

It is also important to note that every Modern Award and enterprise agreement has a dispute resolution procedure set out in it.

Further, if you have an enterprise agreement with your employee, the Fair Work Act would have required you to include a consultation term — either one which you have agreed to, or the model consultation term in the Act. 

All in all, regardless of whether your employee is covered by a Modern Award or an enterprise agreement, they will have to be consulted before initiating a major change that will impact their work. 

Employees In A Union  

If you have made the difficult decision to terminate your employee and they’re part of a union, the Fair Work Act mandates that you consult with their union regarding dismissals in certain circumstances (in addition to the mandatory consultation). 

This is particularly pertinent if you are in a position where you have to dismiss 15 or more employees for economic, technological or structural reasons. 

Alternative Arrangements And Best Practice 

Aside from it being a legal requirement under most Modern Awards to consult your employee when making changes to their work, it is also a fair and practical thing to do before making a decision. 

While consulting your employees, you may be able to find mutually agreeable outcomes you may not have thought of — this is always more favourable than making unilateral decisions which could brew tension. 

It is important to avoid building feelings of resentment among your employees as this can eventuate into Fair Work claims. 

The Fair Work Commission are big advocates of their ‘best practice’ initiatives, which they have designed to help employers create and maintain a happier and fairer workplace. You can read their best practice templates and guides here

Letting Staff Go 

If you genuinely have no choice but to let your staff go, then you can look at reducing their hours, making them redundant, or negotiating with your staff to stand them down. 

Even if cash flow is tight for your business, you need to ensure you’re compliant and paying your employees according to their entitlements. 

While COVID-19 is a massive disruption to workplaces in Australia, laws have not changed in regard to employee termination — you still have to do it in accordance with the law. 

Genuine Redundancy 

One of the only ways to lawfully terminate a permanent staff’s employment is by making them redundant. 

If a redundancy is found to be genuine, then employees cannot claim unfair dismissal. 

Redundancy occurs when: 

  1. The employer doesn’t need the employee’s job to be performed anymore; or
  2. If the employer becomes bankrupt or insolvent

It is important that you do not hire another employee to perform the job of a staff you’re about to make redundant. Also, do not forget your mandated consultation obligations under the employee’s Award or enterprise agreement.

It might not be considered a genuine redundancy if you could have reasonably given that staff member another job within your business.

If these proper steps are not taken, the employee may be able to make an unfair dismissal claim. 

What Is ‘Standing Down’? 

Stand down is a term which means an employer can make their staff take leave (whether it’s paid or unpaid depends on the circumstances).

Under the Fair Work Act, a stand down can happen in special instances, including when there is ‘a stoppage of work for any cause for which the employer cannot reasonably be held responsible.’ 

A stoppage of work is key — you cannot stand down staff simply to cut costs. 

Workplaces that have been shut by government order, for instance gyms, are examples of where a ‘stoppage of work’ is most likely.

A recent example of this is the stand down of 20,000 airline staff who work for Qantas. 

Qantas claimed through standing down employees, they would be able to preserve their employee’s jobs long term. 

We are likely to see this play out across many industries that have been forced to shut down or limit their activities under government direction.

Remember, if you are thinking of standing down your employees, always check their employment contract, their Modern Award (which may have a duty to consult before standing down staff), and their enterprise agreement to ensure you are not in breach of any agreement.

Also check that there aren’t any other creative ways in which your staff might be usefully employed, and see if working from home is an option. 

If you get a stand down wrong, you may have to back pay your staff leave for the period they were stood down, and you may receive penalties.

JobKeeper Payment

As the government quickly responds to the unfolding crisis, new measures are rapidly being announced. It is very important to keep on top of these announcements before making any decisions around letting staff go.

The JobKeeper payment is one such measure that is one of the single biggest government expenditures in the nation’s history. The legislation was passed on 8 April 2020 and the details around eligibility are being further clarified through regulations.

Essentially, businesses who have seen a revenue drop will receive payments of $1500 per fortnight per eligible employee (see here for more details). 

If your business has had to make the difficult decision of reducing staff hours, standing staff down or making them redundant, you should pay careful attention to how the JobKeeper program will affect your business.

Key Takeaways 

This is a situation in which communication with your employees is key. 

It’s important to check your enterprise agreements, Modern Awards (if applicable), and employment contracts (which actually may not allow you to stand down your staff). 

Importantly, you should always attempt to come to an agreement in collaboration with your employees.

Standing down staff or making them take unpaid leave is not a decision to be made lightly, and it is important to make sure these decisions are legally sound. 

If you need help with any of the above, we’re here to help. Our experienced lawyers can be reached on 1800 730 617 or at team@sprintlaw.com.au

Also, be sure to monitor our Coronavirus resource page where we’ll be sharing the latest news and developments as they come in. 

Editor’s note: The information in this article is correct as of 15 April 2020. With the legal landscape surrounding Coronavirus changing so rapidly, we recommend speaking with a lawyer to fully understand your options during this time. 

About Sprintlaw

Sprintlaw is a new type of law firm that operates completely online and on a fixed-fee basis. We’re on a mission to make quality legal services faster, simpler and more affordable for small business owners and entrepreneurs.

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