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15 May 2017 Can you stand down your employees?

By Richard Ottley, Partner and Simon Obee, Associate

A common question for employers is whether and in what circumstances can they stand down an employee.

At common law there is no general right to stand down or suspend an employee without pay absent an express contractual term (see discussion of cases at [65] to [73] of Coal & Allied Mining Services Pty Ltd v MacPherson [2010] FCAFC 83 (12 July 2010)).

The evolving industrial landscape has prompted legislation which provides a statutory right to stand down. This is currently found in section 524 of Fair Work Act 2009 ("Employer may stand down employees in certain circumstances"), and is a section that often causes uncertainty and confusion.

Section 524(1) provides a right for an employer to "stand down an employee during a period in which the employee cannot usefully be employed" because of one of three circumstances set out in the subsection (discussed further below).

As is clear from the drafting of the section – that the "employee cannot usefully be employed" is a prerequisite to rely on the provision. Courts have determined that there will be no right to stand down if there is useful work available which is within the terms of the employee's contract of employment. Though it need not be the work that the employee ordinarily carries out (see: Kidd v Savage River Mines (1984) 6 FCR 398).

Where an employer stands down an employee in reliance on section 524(1), section 524(3) makes clear that the employer is not required to pay the employee during the period of stand down.

The three circumstances in which an employer may stand down an employee under section 524(1) are as follows:

  1. industrial action (other than industrial action organised or engaged in by the employer);

  2. a breakdown of machinery or equipment, if the employer cannot reasonably be held responsible for the breakdown;

  3. a stoppage of work for any cause for which the employer cannot reasonably be held responsible.

The circumstances set out in subsection (a) and (b) are easily understood. It is the circumstance at subsection (1)(c) which traditionally causes more difficulty. In particular, it raises the issue of how far the phrase "…for which the employer cannot reasonably be held responsible" extends?

Clearly it would cover stoppages due to "force majeure" events such as adverse weather, war, terrorism, etc. But what about a situation where there is no work to give employees due to economic factors or a loss of a key client or a contract?

Will it be relevant whether the employer had some "responsibility" for the lack of work, eg because a contract was cancelled due to poor service?

The Fair Work Ombudsman's view on all this appears fairly unequivocal:  "Employees can't be stood down just because there is not enough work." (see: https://www.fairwork.gov.au/pay/pay-during-stand-down-and-severe-weather).

However, uncertainty around the proper operation of section 524 has been perpetuated by the lack of court decisions dealing with the provision. The recent case of United Voice v Philip Cleaning Service Pty Ltd [2017] FCA 392 (21 April 2017) ('United Voice') which touches upon the right to stand down (albeit briefly) therefore deserves attention.

The case concerned the operations of Philip Cleaning Service ('PCS'). All employees relevant in this case were employed on a part-time basis. PCS provided the employees with letters of employment specifying the number of hours they were required to work each week, the time during which that work was to take place and the location of the work.

However, during periods of school holidays – where PCS was not required by its clients to provide cleaners to schools – the employer adopted the position of rostering some employees to do other work and in respect of many others simply not providing any work or any pay.

Along with several other questionable employment arrangements, one of the issues for the Court was to consider the lawfulness of the arrangement of not paying employees who were not required to work during the school holidays.

In her judgment, Jagot J quoted with approval the applicants' submissions on this issue

"24. .......... The submissions for the applicants... were in these terms:
71. A permanent employee is entitled to be paid the amount due in respect of ordinary hours each week. Unlike casual employees, the employer was not entitled to pay them only for hours actually worked. Setting aside cases of properly authorised stand downs, an employee is entitled to wages for attending work even if no work is available: Coal & Allied Mining Services Pty Ltd v MacPherson [2010] FCAFC 83; 185 FCR 383 at [15]; Vehicle Builders Employees Federation of Australia v British Motor Corporation (Aust) Pty Ltd (1966) 8 FLR 70 at 74-75. That is the privilege of permanent workers and is part of the quid pro quo for lower wages associated with permanent work.

72.To the extent that an employer relies on an exception to the general obligation to pay wages—by reason of stand down or otherwise—it bears the onus of proof that the exception applies: Townsend v General Motors Holden (1983) 4 IR 358. That is a particular manifestation of the general principle that a person seeking to rely on an exception to a general obligation bears the onus of proving that the exception applies.

25. I accept these submissions. PCS did not establish any exception to its obligation to pay its employees during school holiday periods for their ordinary hours of work. (our emphasis)

It is useful to refer to the sections of judgments on which the applicants relied.

Paragraph 15 of Coal & Allied Mining Services Pty Ltd v MacPherson [2010] FCAFC 83 is in the following terms:

"Properly understood, a stand down…. encompasses a large range of situations where, for various reasons, an employer is unable to provide useful work for its employees, for a particular period of time, for circumstances beyond its control. The employer may be temporarily deprived of electricity to run its operation. It may not have sufficient component supplies to manufacture its goods, due to industrial disputation by the employees of its suppliers. The employer’s factory may have been flooded. Numerous examples readily come to mind. The need for clauses in industrial instruments dealing with stand downs of this type has long been recognised because, in the absence of such a provision, an employee is prima facie entitled to wages for attending work even if no work is available: see Vehicle Builders Employees Federation of Australia v British Motor Corporation (Aust) Pty Ltd (1966) 8 FLR 70 at 74-75. (our emphasis)

Paragraphs 74-75 of the Vehicle Builders Employees Federation of Australia v British Motor Corporation (Aust) Pty Ltd (1966) 8 FLR 70 (which concerned a stand down provision in an award similar to that contained in the Fair Work Act 2009) states as follows:

"The award provides for engagement by the week, and in the absence of any express provision an employee is entitled to a week's wages for each week of his employment even if there is no work for him to do. Clause 7(b). of the award provides, however, that the employer's right 'to deduct payment for any day the employee cannot be usefully employed because of any strike or through any breakdown in machinery or any stoppage of work by any cause for which the employer cannot be held responsible' is not affected by the provision for weekly employment.

We start, therefore, from the position that an employee who is on a weekly engagement is prima facie entitled to a week's wages. If, being ready and willing to work, he is told by his employer that he need not report for work the next day as there is no work for him to do, he is nevertheless entitled to be paid for that day, unless the employer can show that the employee cannot be usefully employed on that day for a reason falling within the clause above quoted."

Although in United Voice, the facts were complex and the court did not dwell on the issue of stand down for long, we note that – having approved the applicants' submissions on stand downs – it then found (in the next breath) that "PCS did not establish any exception to its obligation to pay its employees during school holiday periods". The judgment is arguably support for the proposition that the stand down provisions in section 524 of the Fair Work Act 2009 cannot be relied on to stand down permanent (part time) employees without pay merely because of intervening holiday periods.

Another somewhat challenging area of section 524 of the Fair Work Act 2009, relates to stand down provisions contained in employment contracts or enterprise agreements.

The three circumstances where an employer may stand down an employee under section 524 (1) as noted earlier in this article, do not apply where stand down provisions already exist in employment contracts or enterprise agreements which are apposite to the circumstances of the stand down. In the words of section 524(2):

"(2)  However, an employer may not stand down an employee under subsection (1) during a period in which the employee cannot usefully be employed because of a circumstance referred to in that subsection if:
(a)  an enterprise agreement, or a contract of employment, applies to the employer and the employee; and
(b)  the agreement or contract provides for the employer to stand down the employee during that period if the employee cannot usefully be employed during that period because of that circumstance.
Note 1:       If an employer may not stand down an employee under subsection (1), the employer may be able to stand down the employee in accordance with the enterprise agreement or the contract of employment.
Note 2:       An enterprise agreement or a contract of employment may also include terms that impose additional requirements that an employer must meet before standing down an employee (for example requirements relating to consultation or notice)."

The intention of section 524(2) is discussed in the Explanatory Memorandum to the Fair Work Bill:

"2080.            An enterprise agreement or a contract of employment may provide for stand down in a wider range of circumstances than as provided in this Part (subclause 524(2)).  If an enterprise agreement or a contract of employment does not provide for stand down, or authorises stand down in more limited circumstances, or does not deal with one of the specified circumstances in subclause 524(1), then the provisions for stand down set out in this Part will apply. 
2081.            A note alerts readers that if an employer is unable to stand down an employee under subclause 524(1) an employer may be able to stand down the employee under an enterprise agreement or a contract of employment
2082.            If an employer stands down an employee under an applicable enterprise agreement or contract of employment, the employer is required to comply with the terms of the enterprise agreement or contract of employment in relation to the stand down, including (for example) any consultation requirements or any requirement to continue to make payments to the employee.  A failure to comply with those requirements may constitute a breach of the terms of the agreement or contract of employment.  Where an employee is stood down under the terms of an enterprise agreement, any dispute about the stand down could be dealt with under the agreement’s dispute settlement clause (if it so provides)." (our emphasis).

It is clear then, that (as with a stand down pursuant to section 524(1)) that the first requirement of a stand down is that an employee cannot be usefully employed.

However, it is also reasonably apparent that it is possible for a contract of employment or an enterprise agreement to provide for different (ie narrower or broader) set of circumstances in which a stand down can be effected than those listed in section 524(1).

Interestingly the provision exculpating the employer from paying an employee during stand down, is only expressed to be referrable to section 524(1) (see section 524(3)). However it is considered that the legislation having authorised a stand down through a contract of employment or enterprise agreement, decided to leave it to those instruments to calibrate the circumstances of payment.

Another area of uncertainty in contractual / enterprise agreements is whether there is any limit on the circumstances in which the parties can agree that a stand down can be implemented.

Could – for example – the employer in the United Voice case have legitimately agreed with its staff (through their contracts or any enterprise agreement ) that permanent employees could be stood down during the school holiday period? If so, is it open to an employer to agree with its employees that stand downs without pay can be implemented where the lack of work is based on purely economic factors? It is difficult to do other than to speculate on the answer to this question.

Whilst s 524 does not seek to circumscribe the criteria for standing down employees pursuant to a contract or enterprise agreement, it is considered that certainly an enterprise agreement would be less likely to be approved if it was not consistent with the criteria in s 524(1). Contracts may enjoy a greater latitude but it is suggested that stand down criteria in contracts which give an employer a discretion to stand down employees based on factors within the employers' control, are more likely to be open to challenge.   

Richard Ottley, Partner  |  Phone: +61 2 9233 5544  |  Email: rbo@swaab.com.au
Simon Obee, Associate  |  Phone: +61 2 9233 5544  |  Email: sro@swaab.com.au

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This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

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