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Furlough is not a common term used in Australia. However, there is an equivalent known as ‘stand down’. Stand down is when an employer places an employee on unpaid leave rather than discontinuing their employment. There are various circumstances where you, as an employer, would consider standing down an employee. For example, there might be a stoppage of work outside of your control. Employees are still considered to be employed during this time and not terminated. Essentially, the individual’s employment is put ‘on pause’ until the business can operate again. This article outlines the aspects of stand down that you need to consider before using this power in your workplace. 

Standing Down Employees

When there are periods of no work available for your staff, you might consider standing down employees. This is essentially sending your employees home without pay since you cannot usefully employ them. There are three key reasons you might stand down an employee:

  1. industrial action (other than an industrial action organised/engaged in by you);
  2. breakdown of machinery or equipment, if you cannot reasonably be held responsible for the breakdown (e.g. if you had the machine fixed but it still broke down); or
  3. a stoppage of work where you cannot be reasonably held responsible (e.g. government direction or natural disaster). 

Many employers have sought to issue stand downs during the coronavirus outbreak. In particular, the stoppage of work (third reason) and business closures from government directions supported their right to use stand down. Likewise, the unfortunate shut down of suppliers was another factor leading to the stoppage of work. 

Slow Down of Work vs Stoppage of Work

Unfortunately, a slow down in business is not a legally valid reason to stand down employees. 

In this type of situation, your options are to:

  • discuss alternative options with your employees, such as taking annual leave or long service leave (if applicable);
  • discuss a change of duties with your employees, like moving to a lesser role or changing from full-time to part-time (all options are subject to mutual agreement); or 
  • consider potential redundancies

If you are in this situation and wish to take up one of the above options, seek advice prior to acting. Indeed, there are several steps to take and requirements you must meet to do this lawfully. 

Proving Stoppage of Work

To rely on the third reason, you must prove three elements.

First, there is a stoppage of work, so your business ceases to operate. It does not include a slow down of work as this is technically not a stoppage of work.

Second, you can no longer usefully employ an employee because of the stoppage. Likewise, you cannot alter their role or move them into another role in the business. Importantly, if you can move the employee to an alternative role, you should consider this rather than standing them down. 

Finally, you must also prove that you are not responsible for the stoppage, such as flooding due to a natural disaster. 

If you wish to implement stand down, seek legal advice about your obligations and what requirements are involved. 

Risks if You Invalidly Stand Down an Employee

If you invalidly stand down an employee by accident (i.e. you did not know your actions were invalid), you should attempt to resolve the situation immediately. Importantly, there are a number of risks you should note. 

Unfortunately, an invalid stand down breaches the Fair Work Act. Since it is likely your business did not pay your employees during this time, the risk involves an underpayment of wages. From a financial perspective, you will need to back pay your staff for the period they were on the invalid stand down. Unfortunately, this could be a considerable amount to pay back during an already difficult time for your business. 

Additionally, if the Fair Work Ombudsman (‘Ombudsman’) become involved, a Fair Work Inspector will be appointed to investigate your breach. Where they are under a reasonable belief that the stand down was invalid and this has caused an underpayment of wages, you will receive a Compliance Notice. If you receive this notice, you must make full back payments to the employee or employees within a specific period of time.

You may also receive a fine, up to $1,332 for an individual or $6,660 for the business. 

It is a misconception that if a business makes a breach, then they are liable for the fine. However, this is not true. Indeed, the Ombudsman has the power to fine you, as the individual, if they believe it is necessary. 

Further, in serious situations where you invalidly stand down your employees on purpose, the Ombudsman may take the matter to court. Here, the maximum penalties a court may impose are $133,200 per contravention for an individual and $666,000 for a corporation.

Taking Leave While on Stand Down

Employees on stand down can take certain types of leave but not others. For instance, they cannot take paid personal leave (sick and carer’s leave) or compassionate leave during stand down. However, they are able to take annual leave, long service leave, and other paid leave under the Award, Enterprise Agreement or employment contract. 

Notably, you must still pay your employees for public holidays that fall during the stand down period. This also applies if the employee would have normally worked on the day of the public holiday. 

Further, keep in mind that an employee’s personal leave and annual leave continue to accrue even when you stand down an employee without pay. 

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Key Takeaways

The words ‘furlough’ and ‘stand down’ are terms for essentially the same type of situation. Furlough describes a situation where you still employ your workers, but they are not actively working in the business. In particular, this may be due to a stoppage of work outside your control. Indeed, strict rules apply to when and how you use stand down, so it is essential to get legal advice before taking action. Likewise, where you use stand down incorrectly, several risks can arise, including back pay of wages, potential fines to the business and yourself and potential court proceedings. 

If you need help understanding furlough and your obligations as an employer, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions

What does it mean to furlough an employee?

The words ‘furlough’ and ‘stand down’ are terms for essentially the same type of situation. Furlough describes a situation where you still employ your workers, but they are not actively working in the business.

In what circumstances can I stand down employees?

There are various circumstances where you might stand down your employees. For example, you cannot usefully continue employing your staff because of industrial action, a breakdown of machinery or a stoppage of work. 

Business is slow at the moment. Can I stand down my employees?

There is a difference between a slow down of work and a stoppage of work. In a stoppage of work, your business ceases to operate. This is when you can validly stand down your employees since you do not have any reason to usefully employ them. However, you cannot stand down an employee during a slow period of your business.

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