Redundancy, Pay Cuts and Stand Down in the face of the Coronavirus

Pay Cuts? Stand Down?  Redundancy? This is a difficult time we are currently in as we see clients, friends of the firm and connections take hit after hit during this time of pandemic status of the coronavirus.  No doubt there will be a plethora of opportunity for Employers after this outbreak is satiated however in the meantime difficult decisions will need to be made. 

Stand Down (with or without pay)

Although certain regulatory bodies have been very quiet around this issue, there are stand down provisions in the event there is a stoppage of work for which an Employer cannot reasonably be held responsible.  Section 524(1)(c) of the Fair Work Act 2009 (Cth) (FW Act) applies as follows:

(1)  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.

[emphasis added]

However, this is not a blanket opportunity for Employers to utilise the Coronavirus pandemic as a way to stand down employees without pay.  Traditionally this provision is used in situations of natural disasters such as integral equipment being destroyed due to a fire or floods.  The case law is quite strong on this provision, namely, a direct causal connection between the event and stand down must be established.  If there is no causal connection the stand down provisions will not be legally utilised.

Secondly, s 524 requires an exhaustion of options – that is, steps have been taken to secure more work and that all available work has been given to appropriate employees – with the understanding that the rest of the employees who may be stood down cannot be usefully employed. This cannot be for an indefinite period of time and it is arguable (on a strict case by case basis) that employees could be stood down due to the financial challenges that the coronavirus entails.

Keep in mind any stand down that falls foul of the of s 524 can form a dispute application.

Pay Cuts

For those wanting to take another step to alleviate the pain financially pay cuts might be an avenue worth exploring.  That is, asking employees to take salary cuts for a temporary period of time.

It is important if you wish to take this step that a discussion take place with staff and employees are given an opportunity to give genuine consideration to such a request.  Many staff during these trying times will (depending of course on a number of variables) be willing to take a short term hit to their wages to keep the business afloat.  There are numerous examples of such cases occurring successfully during the GFC.

Those discussions must be confirmed in writing. Any deductions in pay (or pay cut) can only be utilised if it is authorised in writing and principally for the benefit of the employee.  There is an argument that increased job security in this difficult time is for the employee’s benefit and because the coronavirus has impacted other businesses who are similar the ability to find a job with similar terms may be difficult.  We stress that employees need to exercise caution when utilising permitted deductions.

In any event, directing employees (as opposed to asking employees) to take a pay cut will be an unlawful direction.

Extreme care should be taken when asking staff to take a pay cut.


In these trying times there is very much an argument that termination of employment could be affected by way of a redundancy. A genuine redundancy is when an Employer does not require the work of an employee to be done by anyone. Tasks can be performed by other employees or delegated to others however, the role itself requires no one to perform the position.

There are consultation provisions provided for in most modern awards and even with award free employees we always recommend Employers undertake some type of consultation process.  There are many benefits to undertaking a consultation one of which is that the employee themselves may come up with a solution that the Employer had not thought of.

If an Employer has less than 15 employees they are not normally bound to pay redundancy pay as for others this will be as follows:

Period of continuous service Redundancy pay 
At least 1 year but less than 2 years 4 weeks
At least 2 years but less than 3 years 6 weeks
At least 3 years but less than 4 years 7 weeks
At least 4 years but less than 5 years 8 weeks
At least 5 years but less than 6 years 10 weeks
At least 6 years but less than 7 years 11 weeks
At least 7 years but less than 8 years 13 weeks
At least 8 years but less than 9 years 14 weeks
At least 9 years but less than 10 years 16 weeks
At least 10 years 12 weeks*

Notice will also need to be considered – either paid in lieu or worked out by the employee.  Leave entitlements accrued such as annual leave that are payable will also be required to be paid out.

There are also options under the FW Act to apply to the Fair Work Commission to have the redundancy pay reduced.  To be successful, we always recommend that an Employer seek advice from an Employment lawyer as certain steps will need to be taken in the redundancy process to be successful.

Above is some guidance for Employers – although not definitive it should answer 70% of the questions around this issue and the coronavirus. We also strongly suggest employers read our article on dealing with coronavirus in the workplace by clicking here.

For all Employers we offer an obligation free consultation – please call 07 3876 5111.

Written By

Jonathan Mamaril 
NB Lawyers – Lawyers for Employers [email protected]  +61 (07) 3876 5111

About the Author

Jonathan Mamaril  leads a team of handpicked experts in the areas of employment law and commercial law who focus on educating clients to avoid headaches, provide advice on issues before they fester and when action needs to be taken and there is a problem mitigate risk and liability.