The Coronavirus Pandemic (COVID-19) has caused a significant increase in stress and anxiety for many businesses across many sectors of the economy. We are finding that businesses are asking questions in two areas in particular:
- How to manage employees during these difficult times; and
- How to manage situations where you cannot complete contracts because of a breakdown in supply chains, or because your employees are unable to work.
In this article, we provide answers to some of the most common questions we are receiving in relation to these issues.
Can I stand down my employees due to the situation with the coronavirus?
There are a couple of options in the event that you need to stand down your permanent employees due to the coronavirus (casual employees can be stood down at any time).
The answer will depend on the circumstances that make the stand down necessary. For example:
- 1. If you need to stand down employees because there simply is no work available; or
- 2. If you want to shut down the business of your own choice because of your own concerns that employees should not be in close physical proximity to each other, or for some other reason.
Option 1 is what will probably apply in a state-wide shutdown. In Option 1, you may stand down employees without pay under section 524(1)(c) of the Fair Work Act, which allows an employer to stand down employees where work has stopped for reasons that they cannot reasonably be held responsible, and they do not have other work for them. You don’t need to get approval from the employees.
The Award or Enterprise Agreement might also contain some clauses with requirements for a stand down. But we usually find it will be similar to what is in the Act.
In Option 2, whether you can stand down employees without pay will depend on how necessary it is – i.e. has the coronavirus situation made it necessary to stand down employees, such that the stoppage of work is something beyond your control.
During a period of stand down on these genuine grounds, it is not necessary to pay your employees.
During a period of stand down, it is still treated as continuous service and their employee entitlements will continue to accrue.
What do I need to tell my employees if I am considering standing them down?
Most Awards require you to consult with your employees about major workplace changes, including providing them with details in writing of the proposed changes and how it will affect them.
Can I ask my employees to take paid annual leave or long service leave?
Generally, a decision for an employee to take paid annual leave or long service leave should be reached by the employer and employee together. However, employers can require employees to take annual leave in certain circumstances. Any such decision must be reasonable and comply with any specific requirements in the relevant Award or Enterprise Agreement.
Am I required to provide my employees with paid annual leave or long service leave if they ask for it?
An employer is required to consider an employee’s request for leave. However, an employer can decide not to allow an employee to take paid leave where they have reasonable grounds for doing so.
Can I ask my employees to work reduced hours on a temporary basis?
You can ask your permanent employees to work reduced hours as part of a partial stand down under section 524(1)(c) of the Fair Work Act, due to a stoppage of work for which you cannot be held responsible.
If you want to reduce a permanent employee’s hours outside of that situation, the answer will depend on the conditions of their employment agreement. Generally, you would need the employee’s consent to significantly reduce their hours.
I have a contract that I will not be able to fulfil? What can I do?
Speak to the other party! The effects of the coronavirus are economy-wide, and every business will need to make adjustments. Often commercial, rather than legal, solutions will be the most effective.
If the other party is not receptive to your concerns, the starting point at common law is that parties are absolutely liable to perform their contractual obligations, unless the doctrine of frustration can be invoked to terminate the contract.
The doctrine of frustration only applies if:
- Neither party is at fault for the failure to perform the contract; and
- Complying with the contract has become “radically different” to what the parties envisaged when they entered into the contract.
Delay or increased costs due to supply shortages will not normally frustrate a contract, as such events are reasonably foreseeable. That said, the current situation (if extended long enough) may make the contract practically impossible to perform and may allow a party to terminate the contract on the basis of frustration. At common law, termination only applies prospectively – that is the contract is terminated from the time of the frustrating event. Any moneys owed and/or paid prior to termination (including deposits) would remain payable/be able to be retained if already paid.
The provisions of the Australian Consumer Law and Fair Trading Act 2012 modify this situation to some degree, and allow the courts or VCAT to make adjustments to amounts paid and payable, both before and after termination to take into account a number of matters, including works already performed and value already provided.
What is a force majeure clause and how can they potentially operate in circumstances such as the spread of COVID-19?
The common law position regarding contracts and the doctrine of frustration can be overridden by the parties by the terms of their contract. The parties need to look to see if there is a “force majeure” clause. Such a clause, if present, will usually expressly provide for what happens if a contract is affected by events such as disease, government intervention, etc.
You should check your existing contracts to see if a force majeure clause covers the present situation caused by the coronavirus.
While it is too late for existing contracts, where you are entering into new contracts, we recommend addressing what happens in the event that your business is unable to fulfil the contract for reasons arising from the coronavirus.
How can Sharrock Pitman Legal assist?
There are many other questions that businesses will have in the days and weeks ahead. If you would like further information on the matters in this FAQ or on any other commercial matter, please do not hesitate to contact us on 1300 205 506 or fill in the contact form below.
The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.
Liability limited by a scheme approved under Professional Standards Legislation.
For further information contact
Mitchell is the Managing Principal of our law practice.
He is an Accredited Specialist in Commercial Law (accredited by the Law Institute of Victoria). He also deals with areas of Employment Law, Wills & Estate Planning and Probate. For further information, contact Mitchell on his direct line (03) 8561 3318.