Can stand down morph into redundancy? – Insights for the savvy executive in a pandemic
Stand down – What is it?
Standing down an employee occurs where an employer is unable to usefully employ an employee. During that suspension, some or all of the terms of the contract of employment are suspended. Notwithstanding this, however, the contract itself continues to exist. This is what distinguishes suspension from termination.
At common law, an employer has no power to suspend the performance of its obligations unless that right is conferred by an express term of the contract.
Provisions of this nature are comparatively obscure and, at least up until now, infrequently used. However, the current public health emergency has brought them into greater prominence.
Circumstances where an executive may be stood down?
Executive contracts of employment commonly provide for stand down in the context of an ongoing disciplinary investigation.
If that is the reason for the stand down, then these circumstances will raise a set of considerations all of their own.
Consideration has to be given as to whether the stand down is to be on a paid or unpaid basis and to its duration.
For example, if a disciplinary process is to be independent and fair, it will usually involve taking a series of steps. This will include the appointment of an independent investigator, the interview of witnesses and providing the employee with a list of allegations. The employee will also need to be afforded an opportunity to take legal advice and respond. The company must then consider the disciplinary outcome and arrange to discuss the findings with the employee concerned.
This could take 5-10 working days or more. It would not be unreasonable for an employer to stand down an employee for that length of period on a paid basis in order to undertake that process. Having said this, you should not ever agree to an “open-ended” stand down period.
Certainly, a stand down clause in the context of investigating misconduct needs to be properly drafted.
However, what happens if the company (or a subsidiary/division) in which you work cannot function because of a pandemic or other public health or civil emergency? Ideally, a stand down clause in the contact of employment should address that situation also.
Impact of Fair Work Act 2009 – stand down without payment
The position at common law is significantly affected by the Fair Work Act 2009 (‘’the Act”). This confers a statutory right on an employer to stand down an employee who cannot be usefully employed. That applies as much to executives as it does to rank-and-file employees.
In a nutshell, the legislation enables an employer to stand down an employee where there has been a “stoppage of work” for any cause for which the “employer cannot reasonably be held responsible.” That is clearly broad enough to include a pandemic.
The legislation also provides that, during the stand down, the employer is not required to make payments to the employee. (Section 524 (1) & (3).
These provisions are now, of course, subject to the Federal Government Jobkeeper Scheme. Those provisions, however, are only temporary and it remains to be seen whether they are to be extended beyond 27 September 2020.
Carveout for executive contracts of employment
The critical thing to note about the stand-down provisions of the Act is that there is a “carveout” in favour of Executive Service Agreements that makes specific provision for stand down. In those circumstances, the Act provides that it is the contract that governs the rights of the parties.
Rather than exposing yourself to the vagaries of the Federal statutory provisions, you are therefore better off ensuring that your contract makes provision for these eventualities. Executive stand down may no longer be the remote possibility that it once was.
Stand down and redundancy
Stand down is meant to address a temporary issue viz “industrial action”, “breakdown in machinery” or “stoppage of work”. Redundancy, on the other hand, is meant to address a permanent issue and amounts to the termination of the contract of employment because your role “is no longer required to be performed by anybody”.
In view of the fact that the stand down provisions in the Fair Work Act 2009 confer on the contract of employment a special role to deal with this issue then, in the case of senior employees, it is an opportunity that should not be lost.
At a minimum, the stand down provisions in your employment contract should provide that:
(a) you remain in receipt of your normal remuneration while any disciplinary process is underway; and
(b) in the event that the stand down is due to a pandemic or other health or civil emergency, you:
(i) remain on your normal remuneration package – or at least an agreed pre-determined portion of it;
(ii) remain suspended for an agreed period of (say, 8 weeks?), on the expiry of which the suspension is deemed a redundancy (at your election); and
(iii) are paid a severance payment in accordance with the Company Redundancy Policy or the Act, whichever produces the higher result. If no such policy exits, then the severance formula set out in the Fair Work Act 2009 would apply reflecting your years of service. For employees with a short period of service of less than one year, there could be an “accelerated” severance payment of 4 weeks. Under the Act, a 4-week severance payment would only be paid in the event of at least one year but less than two years of service. Any such payout would, of course, be in addition to the agreed notice period and annual leave.
With respect to the current COVID-19 pandemic, if your contract of employment makes no provision for stand down in the event of a public health or civil emergency (or confers an unfettered right to stand down), then you are bound by the Fair Work Act 2009. This means that you could be stood down for what could well be an indefinite period without pay.
The COVID-19 pandemic has once again brought into focus the importance of the executive employment contract.
Unless special provision is made in the stand down clause, you could be left (apart from government subsidy) without income for the duration of the stoppage. Your access to a redundancy payment could also be delayed in circumstances where you would prefer to move on.
In the age of pandemics, there needs to be clarity as to the point where you cease to be stood down and instead become redundant. A comprehensive stand down clause in your employment contract should address that issue.
The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult a lawyer for individual advice regarding your own situation.