COVID-19, Business Downturn & Unlawful Stand downs

The recent decision of Buttress v Preston James 1 Pty Ltd (2020) reads as a caution to employers considering a stand-down under section 524 of the Fair Work Act (“the Act”), for COVID-19 related business downturns, this is particularly now where circumstances appear to be on the up.

Background:

Ms Buttress (the Applicant) commenced her role as a Principal Consultant in 2018 for a recruitment business, Preston James (“the Employer”). She signed a revised contract in 2019 which provided an annual salary of approximately $105,000 in addition to a monthly commission which ranged from 30% to 60% according to the fees generated.

On 23 March 2020 the Applicant received a phone call from the Respondent’s Group Manager, which was, from the Applicant’s perspective, engineering her termination on grounds of alleged gross misconduct. The Group Manager claimed  that Ms Buttress had contacted a candidate with the intention of working with them in an independent capacity, thereby breaching her contractual responsibilities. Ms Buttress contended the validity of such an accusation and requested evidence to support the claim. The allegations were subsequently rescinded by her employer and nothing further eventuated.

On 27 March 2020, Ms Buttress was informed by a colleague who had recently been exited from the business and received a $20,000 payout, that her Employer may not be able to pay her usual wage. In anticipation of being underpaid, Ms Buttress contacted her Employer who confirmed that she would in fact be paid her usual wage for the month of March.  Moreover, Ms Buttress was assured that despite “things in the market not looking good” her “job was safe”.[1] Despite these assurances, Ms Buttress was not paid for the month of March in accordance with the usual pay cycle. The employment relationship was understandably impacted and began to deteriorate.

Stand Down 1:

On 30 March 2020, Ms Buttress received a further phone call from her Employer asking if she had changed her LinkedIn password. Ms Buttress confirmed that she had changed her password after her Employer ceased paying for the subscription on her behalf. Her Employer did not take this news well and without further discussion, posed three options to Ms Buttress, all of which, detrimentally altered the terms of her employment:

  • be stood down without pay;
  • agree to a contract variation whereby she would be paid commission only; or
  • agree to a new contract of employment working only 2 days per week.

Ms Buttress communicated her willingness to assist the business and be flexible to accommodate for the impacts of COVID-19 but contended with the appropriateness of permanent changes to her contractual arrangements. She subsequently requested these options be put to her in writing. Contrary to the verbal offer of three alternative options, Ms Buttress was presented only with a stand down notice in writing. Namely, she was advised that “due to unforeseen circumstances relating to coronavirus and the impact that it is having on businesses Australia wide and globally, it is with great regret we have no alternative than to stand you down from your normal work activities with immediate effect.” Moreover, this correspondence specified that for the stand down period, Ms Buttress was not entitled to any pay, nor to any other entitlements.

Notwithstanding the standdown order, Ms Buttress received a call from her Employer on 2 April 2020 informing her that she could resume working conditional on a reduced salary. This offer of re-employment was declined on the following basis;

  • having been stood down due to a stoppage of work, Ms Buttress queried how there could be “work” to do?;
  • the arrangements being in breach of her contractual entitlements; and
  • the proposed arrangement would result in a delay of 3-4 months before any payment would be received by her.

Shortly after this discussion, the redundancy offer was retracted, and Ms buttress was informed of her revised choice between engaging with JobKeeper or being stood down. On 3 April 2020, she was provided with a new contract which contained a $60,000 salary reduction, shorter notice period and reduced commission. Ms Buttress was unwilling to sign the new contract with reference to the significantly reduced entitlements contained therein.

On 13 May 2020 Ms Buttress proposed terms of departure to her Employer, informing them that where a resolution could not be reached, she would be seeking to enforce her legal rights. Throughout her stand down period, she had been forwarding business leads to the Group Manager who would subsequently undertake the work previously performed by Ms Buttress including organising interviews and forwarding viable candidates to clients.

On 19 August 2020 Ms Buttress was informed by her Employer that the business was undergoing a restructure whereby her role was placed at risk of becoming redundant. Shortly thereafter, on 24 August 2020, she was informed of the companies impending wind up resulting in her retrenchment. Notably, she was advised that payment in lieu of notice would not be made.

The Claim:

Ms Buttress claimed that she was unlawfully stood down between 30 March 2020 and 6 July 2020 and further, that her Employer was not entitled to lawfully stand her down for the period between 4 August 2020 and the impending termination of her employment on 24 November 2020.  

Her Employers contended that she had been lawfully stood down in accordance with section 524(1) of the Act.

Section 524(1) of the Act relevantly provides the following:

Employer may stand down employees in certain circumstances

  • An employer may, under this subsection, stand down an employee during a period in which the employee cannot usefully be employed because of one of the following circumstances:

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

(b) a breakdown of machinery or equipment, if the employer cannot reasonably be held responsible for the breakdown;

(c) a stoppage of work for any cause for which the employer cannot reasonably be held responsible.”

  • 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).

(3) If an employer stands down an employee during a period under subsection (1), the employer is not required to make payments to the employee for that period

Legal Considerations:

The court established three essential requirements which must be present for a stand-down to be considered valid:[2]

  1. One or more of the three circumstances specified in section 524(1)(a)-(c) of the Actmust exist: Circumstances Requirement.
  • It must be the case that the relevant employee “cannot be usefully employed”: No Useful Work Requirement.
  • The fact that the employee “cannot usefully be employee” must arise “because of” the relevant circumstances: Causation Requirement.
  • Stoppage of work” under section 524(1)(a) of Act:

Stoppage of work for this purpose should “not be so broadly construed as to include a mere downturn in business activity” nor should it be so “narrowly applied as to require the entire cessation of business activity”.[3]  For a stoppage of work to have occurred, an aspect of defined business activity which necessarily requires performance must cease. The business activity itself, however, need not cease in its entirety. The mere reduction of available work will not amount to a stoppage of work for the purposes of implementing a lawful stand down. To allow for such an interpretation, would be in contradiction to an employee’s fundamental entitlement to be renumerated when they are ready, willing and able to work in accordance with their employment contract.[4]

  • “No Useful Work” to be performed during the stand down period:

An employer cannot suggest that the “no useful work” requirement is satisfied where there is, for the relevant period, work available for the employee, which if performed during that period and having regard to the probable course of an employer’s business would contribute beneficially to the reasonable and efficient conduct thereof.[5] Relevantly, the court emphasised that an employee may remain usefully employed pursuant to section 524 of the Act notwithstanding an employers’ preference, as a matter of convenience, that they cease working.[6]

 The Findings:

With respect to the first requirement, in considering whether a genuine stoppage of work had occurred in accordance with section 524 of the Act, the Commission found against the Employer. In reaching this conclusion, the Commission noted the following;

  • Correspondence between the parties communicating the stand-downs did not identify how COVID-19 was stopping the Employer from performing work.
  • The stand down direction suggested a downturn in work, referencing “market conditions deteriorating, driven by a new lockdown in Victoria”. The Commission was not persuaded of the relevant connection between the Victorian lockdown and the Employers capacity to operate in the Western Australian market.
  • The absence of any mandatory business closures in the Employer’s sector in Western Australia during either stand down period.
  • The Commission’s perception, on the evidence provided, was that the stand down directions were intended to force Ms Buttress into a resignation thereby avoiding their obligation to compensate for the 3-month notice period contained in her employment contract.

The Commission was similarly sceptical of the Employer’s claims with respect to the assertion that there was no useful work available for Ms Buttress throughout her stand down period. In light of the evidence available, the Commission found that there was in fact work to do, that had been performed by her Employer during her stand down period. Moreover, it was found that opportunities for Ms Buttress to perform useful work would have increased considering the fast-paced improvement of the Western Australian economy and job-market.

The Commission was satisfied that the final causation element would likewise not have been met. Both stand downs were considered unlawful with reference to Ms Buttress’s willingness to negotiate temporary changes to her working arrangements with the view of mitigating against COVID-19 and the associated business challenges.  Namely, the Employer had refused Ms Buttress from returning to work unless she agreed to permanent, adverse amendments to the terms and conditions of her employment. The Commission, in this respect, found such conditions and their permanent nature to be unreasonable considering the temporary market conditions being addressed.

Employer Takeaways:

Despite the flexibility and scope afforded to employers in light of COVID-19 and the extreme economic hardship faced by many businesses, employers should exercise caution when relying on COVID-19 as a basis for imposing significant changes on employees, be it hours of work, renumeration rates or the re-negotiating of contract terms.

The Courts will look to the sincerity of an employer’s intentions with respect to the alteration of an employee’s working conditions in assessing whether the stand down, dismissal or redundancy is lawful. This is especially the case where the alteration constitutes adverse action and significantly affects an employee on a long-term basis.

Employers are encouraged to seek advice prior to ‘cost cutting’ with respect to an employee’s position based on COVID-19 and its economic impact. If you, or someone you know, is seeking clarification regarding such action, our Employment Team are available to assist you in guiding you through such circumstances.

For more information on Employment-related topics and COVID-19 impacts in the legal landscape, please visit our website or book an appointment a member from our Employment Team.

This article was written by Ashleigh Craig and Brittany Everett


[1] Buttress v Preston James 1 Pty Ltd [2020] FWC 5927, [19]-[20].

[2] Buttress v Preston James 1 Pty Ltd [2020] FWC 5927, [54].

[3] La Plume v Thomas Foods International Pty Limited t/a Thomas Foods International [2020] FWC 3690, per Deputy President Anderson.

[4] Marson v Coral Princess Cruises (N.Q.) Pty Ltd T/A Coral Expeditions [2020] FWC 2721, [12].

[5] Re Carpenters and Joiners Award 1967 [1971] CAR 479.

[6] Buttress v Preston James 1 Pty Ltd [2020] FWC 5927, [75].

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