Covid-19

School ordered to withdraw stand down direction – Employees not to be stood down to alleviate financial strains of employers

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A recent decision on 29 September 2020 by Commissioner Bissett of the Fair Work Commission has highlighted the expectation for employers to allocate work to employees rather than relying on stand down directions to manage its financial position during the coronavirus pandemic.

Background

In Independent Education Union of Australia v The Peninsula School T/A Peninsula Grammar School [2020] FWC 5180, The Peninsula Grammar School (PGS) stood down selected employees while students were learning remotely, following  the Victorian Government’s directions issued on 2 August 2020 for Stage 4 restrictions. This resulted in 90% of PGS’s onsite facilities being forced to close.

Of those employees who were stood down, Ms Campbell and Ms Lees are library technicians and Ms Pearman is a classroom learning assistant. PGS submitted that it was unable to identify any useful work during the period of remote learning and that this was a ground for standing down the employees under section 524 of the Fair Work Act 2009.

Section 524 relevantly provides that: “an employer may stand down an employee during a period in which the employee cannot usefully be employed because of a stoppage of work for any cause for which the employer cannot reasonably be held responsible”.

The Commission held that a stoppage in the business of the school was a precondition for a stand down because without such a stoppage being made out, the stand downs could not be authorised by section 524.

Stoppage of Work

The Commission referred to a recent decision of the FWC by DP Anderson in Stelzer, where he commented:

(a) what constitutes a “stoppage of work” ….should not be so broadly construed as to include a mere downturn in business activity nor be so narrowly applied as to require the entire cessation of business activity; and

(b) the statutory phrase is a stoppage of work, not a stoppage of the business. For the stoppage of work some defined business activity with respect to which work is performed needs to cease, but not the cessation of business activity entirely.

Commissioner Bissett commented that a mere reduction in available work or a disruption to the way work is done would not alone constitute a stoppage. The terms “stoppage of work” in the legislation connoted a greater meaning than that and if the section was intended to allow stand downs when there are mere disruptions, it would have been specified with words other than “stoppage”. Furthermore, such a liberal interpretation of the section could consequently deprive employees of their fundamental entitlement to work under their employment relationship.

The Commission also found that there were 2 questions that it must ask itself in order to determine whether the requirements in section 524 are satisfied:

  1. Was there a stoppage of work? If the answer is no, then no further enquiry is necessary; and
  2. If the answer to 1 is yes, was the cause of the stoppage for a reason for which the employer could not reasonably be held responsible?

Ms Pearman (classroom learning assistance)

PGS argued that the suspension of classroom learning meant that Ms Pearman’s assistance was no longer required during Stage 4. The Commission observed that the role of PGS is to provide an education to its students. However it did not accept, as PGS submitted, that the business activities to educate were tied to being onsite.

The Commission had no doubt that during the period in which students are learning remotely, the business activities and core responsibilities of PGS continued. Though the delivery of teaching was admittedly different, classes were still running and teachers were still engaging with students. Accordingly, it could not be said that Ms Pearman’s role as a classroom assistant is constrained to the physical delivery of learning in the classroom and ceases when learning is transitioned to being online. The Commission concluded that there had been no stoppage of work for Ms Pearman.

Ms Lees and Ms Campbell (library technicians)

It was clear that there had been a reduction in demand on the library and that some of the work in the library had ceased. However, a few matters came into evidence before the Commission which implied that work had not stopped entirely. Firstly, students and teachers were still using the library online despite not having access to the library’s physical space. Secondly, the librarian had not been stood down which implied that work was still being provided. And lastly, PGS had intended to have the library books relabelled but suspended those plans for the time being as it was not a priority.

The Commission stated that just because PGS did not wish to have relabelling work done at a particular time could not establish that the work of the library had stopped for reasons beyond PGS’ control. Rather it showed that the work had stopped simply because of a direct decision by PGS. As such, the Commission found that there was no stoppage in the business activity of the library.

Fairness

PGS implored the Commission to take into account fairness between the parties in dealing with the dispute, as required by section 526(4) of the Fair Work Act 2009. In particular, PGS contended that the Commission should have regard to economic considerations from the school’s perspective.

While the Commission acknowledged that PGS had been impacted by the need to teach students remotely and that it had suffered a reduction in income, it stated that PGS’ version of fairness seemed to weigh heavily in its favour. As the requirement is fairness between the parties the Commission refused to constrain the notion of fairness to just the financial considerations of the employer.

The Commission noted that consequences of a stand down on employees can be immense. Active employment not only provides an economic benefit but also the feeling of self-worth that comes from employment. Accordingly, a minimisation of losses on wages cannot possibly outweigh the impact on stood down employees. Given the importance of work, the Commission held that a stand down direction should not be made simply to resolve a financial strain on the employer.

In any event, the Commission found that notions of fairness in section 526(4) do not justify the stand downs remaining where PGS has no jurisdictional right to stand down because there is not a stoppage of work.

Conclusion

The Commission was satisfied that, in both the library and classroom teaching environment, there had been no stoppage of work for reasons beyond the control of PGS. As the necessary pre-requisite grounds had not been met, the stand down of the employees by PGS were not made in accordance with section 524 of the Fair Work Act 2009. Additionally, the issue of fairness does not justify the stand downs remaining where the prerequisite in section 524 for a stoppage of work has not been met. Hence PGS was ordered to withdraw the stand down directions..

While businesses continue to struggle during these unprecedented times, this decision by the Fair Work Commission is a reminder that the stand down provisions in the Fair Work legislation only allow employers to stand down staff in limited circumstances outside of the JobKeeper rules.

The glaring issue is that section 524 was not drafted with a pandemic or even the potential of working from home in mind. It is manifestly inadequate as a tool for employers who are bleeding financially in the current COVID-19 climate to use as a means of protecting both business solvency and permanent job losses.

This decision may yet be appealed.

If your business is impacted on by these issues or you would like any advice on this area, please contact the Employment Team at Hunt & Hunt.

~ with Michelle Nguyen, Graduate-at-Law

Extension of COVID-19 rent relief scheme in Victoria – Update

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Background

On 20 August 2020 the Premier announced that the Victorian COVID-19 rent relief scheme for retail and commercial leases (which was to expire on 29 September 2020) would be extended to 31 December 2020.  Enabling legislation was given royal assent on 22 September 2020 and on 29 September 2020 the existing regulations (we will refer to them as the “previous regulations”) were amended by the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Miscellaneous Amendment Regulations 2020 (Vic).  We will refer to them as the “new regulations”.  While the changes are loosely described as extending the existing scheme, there are some important differences and key rights and obligations, that both landlords and tenants should be aware of.

Extension period

The new regulations are not retrospective and only cover the period from 30 September to 31 December 2020 (the Extension Period).

The previous regulations continue to apply in relation to the period from 29 March to 29 September 2020.

It’s worth noting that the enabling legislation does not expire until 26 April 2021 which gives the government the ability to further extend the scheme up to that date, if it considered this necessary.

Eligible leases

Under the previous regulations a tenant, in order to be eligible, must have been an “employer”, which had the effect that sole traders were excluded from the scheme.  Under the new regulations tenants who are not “employers” will be eligible for relief during the Extension Period, providing those tenants meet the other criteria, including being entitled to JobKeeper payments.

To be eligible for JobKeeper payments, businesses and not-for-profit organisations need to demonstrate that they have experienced a decline in turnover of:

  • 50% for those with an aggregated turnover of more than $1 billion;
  • 30% for those with an aggregated turnover of $1 billion or less; or
  • 15% for Australian charities and not-for-profits.

Some protections are also afforded to tenants who cease to be entities entitled to JobKeeper payments after 29 September 2020 and consequently fall out of the definition of “eligible lease” under the new regulations.

While tenants that fall into this category cannot make new applications for rent relief, they are still entitled to concessions for outgoings and protections against rent increases during the Extension Period. Further, if a tenant makes an application for rent relief under the new regulations and subsequently becomes ineligible for JobKeeper payments before the application is resolved, it is nevertheless considered an “eligible lease” under the new regulations.

For more information on JobKeeper eligibility requirements, please visit the ATO’s website here.

Rent relief must now be proportional to the tenant’s decline in turnover

The previous regulations made reference to a number of criteria to be taken into account by a landlord in determining its offer of rent relief, one of which was the financial position of the landlord.  As signalled by the Premier when he made his announcement on 20 August 2020, the new regulations now require the rent relief, during the Extension Period, to be in direct proportion to the tenant’s decline in turnover from the relevant premises.  The landlord’s financial situation is not a relevant consideration for determining the relief in the Extension Period.

The structure of relief for the Extension Period remains the same – at least 50% of the relief granted must we waived by the landlord and the remainder deferred for a minimum period of 24 months.  For example, if a tenant’s turnover has declined by 90%, the landlord is required to waive 45%, another 45% will be deferred and the tenant must pay 10%.

As a result of this change of emphasis, the new regulations go into some detail in relation to how decline in turnover is calculated and what documents can be produced to evidence this decline.

Process for requesting and determining rent relief during the Extension Period. 

As with the previous regulations, the process is commenced by the tenant making a written request for relief.  The landlord must then make a rent relief offer within 14 days (unless a different time frame is agreed between the parties in writing), following which the parties must negotiate in good faith and endeavour to agree on a relief package.

An important difference with the new regulations is that a tenant is only entitled to relief from the date from the date it gives the landlord a written request accompanied by the by the information and materials required under the regulations.  It is therefore vitally important for tenants to make this written request as soon as possible.

The new regulations are much more specific than the previous regulations, in relation to the information and material to be included with the tenant’s request for rent relief.  We summarise below the requirements under the new regulations:

  1. the tenant must include a statement to the effect that the lease is an eligible lease and is not otherwise excluded by the new regulations, and must set out the tenant’s decline in turnover that is associated only with the premises (discussed below);
  2. the tenant must provide information that evidences the tenant is an SME entity and is entitled to JobKeeper payments; and
  3. the tenant must include information that provides evidence of the tenant’s stated decline in turnover (which must be stated as a percentage), including at least one of the following:
    • extracts from the tenant’s accounting records;
    • the tenant’s BAS;
    • statements issued by an ADI (i.e. a bank) in respect of the tenant’s account; or
    • a statement prepared by a practicing accountant.

On receipt of a written request which includes all this information a landlord has sufficient information to satisfy itself that the tenant is eligible for relief under the scheme, and to calculate the amount of rent relief to be offered, based on the tenant’s decline in turnover.

The Victorian Small Business Commission provides helpful guidance on this step, including an example form of written request.  For more information on the process and to access the example form of written request, visit the VSBC website here.

Calculating the decline in turnover

As mentioned above, the new regulations make it clear that decline in turnover must be calculated only by reference to the decline in turnover associated with the premises under the lease.  If a tenant operates from more than one premises it will need to separate its turnover figures for the premises in question.  It seems likely that on-line sales, where a customer attends the particular premises to “click and collect”, would be included in the turnover for those premises.

In calculating the decline in turnover for the purpose of calculating the rent relief, the new regulations adopt the actual decline in turnover test outlined by the Australian Tax Office, which you can view here.

This process allows the use of a “basic test” to determine the decline in turnover or, where that test is not suitable for the relevant circumstances, a number of “alternative test” options are available.

The “basic test” requires the tenant to estimate its turnover from the date it requested rent relief until 31 December 2020. It must then compare this estimate to the corresponding period in 2019 to determine the percentage change.

There are a number of alternative tests that can be used where the basic test would not be appropriate in the circumstances.  By way of example, if a tenant’s turnover is not cyclical, it must use the tenant’s average monthly current GST turnover as a comparison, calculated in accordance with the details set out by the Australian Tax Office.

We emphasise that the necessary materials and calculations must be supplied with the written request for rent relief.  If they are not provided, or are insufficient or defective, it may be that the written request does not satisfy the requirements of the regulations and accordingly the tenant may not be entitled to rent relief until the full and correct information is provided to the landlord.

Can a relief agreement made under the previous regulations be revisited?

The intention of the new regulations is to enable tenants to obtain, during the Extension Period only, rent relief that is directly proportional to their decline in turnover.  The new regulations are not retrospective and do not allow for adjustment of rent relief already agreed under the previous regulations.

However, where a rent relief agreement entered into under the previous regulations covers a period extending beyond 29 September 2020, the new regulations allow a tenant to request a variation so that the rent relief under that agreement, for any time that falls within the Extension Period, is in direct proportion to its decline in turnover.  Any such request must be made in accordance with the process set out in the new regulations, including the provision of evidence of decline in turnover as set out above.

Timing will also be important here, as the entitlement to adjustment of the existing rent relief may only apply form the date the formal request is made.

Dispute resolution process

As foreshadowed in the Premier’s announcement on 20 August 2020, the dispute process in the new regulations does enable a tenant, in limited circumstances, to seek a binding order from the Victorian Small Business Commission, to resolve a dispute regarding rent relief.  This only applies to disputes with respect to rent relief during the Extension Period, and disputes already in progress under the previous regulations will continue according to the procedures outlined in those regulations.

If a binding order is made, a landlord or a tenant may apply for the order to be amended or revoked.  Either party also has a right to apply to VCAT for a review of a binding order, or any amendment or revocation of a binding order, or of a decision by VSBC not to make a binding order or not to amend or revoke a binding order.

However, given the far more prescriptive nature of the new regulations, in terms of calculating the rent relief in direct proportion to decline in turnover, its seems likely the need for dispute resolution or determination regarding rent relief during the Extension Period will be much reduced.

Moratoriums against rent increases and evictions

The moratoriums against rent increases and evictions relating to rent payments continue until 31 December 2020. The moratorium has been extended to include evictions for non-payment of outgoings.

Importantly, the moratorium only applies if the tenant is complying with the process for seeking rent relief under the regulations, including good faith negotiations, and where a rent relief agreement has been entered into, only while the tenant is complying with that agreement.  It’s possible that a tenant who delays in making a written request for rent relief could lose the benefit of the moratorium, although there is some uncertainty here since the new regulations do not specify a timeframe for making that request.

Our Property Group can provide advice and assistance on all issues concerning the Covid-19 rent relief scheme in Victoria, including the significant changes to rights and processes under the new regulations.

 

~ with Christian Mennilli, Graduate at Law.

Disclaimer

This article is intended to provide general information only. It is not an exhaustive or accurate summary of the law, nor is it intended as legal advice and cannot be relied upon as such. Please seek legal advice specific to your circumstances should you require assistance.

Insolvency relief to be extended to 2021

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The Government has announced it will extend the temporary insolvency relief in a bid to give viable businesses the opportunity to recover from the economic crisis of 2020.

The move will see the temporary relief extended until 31 December 2020.

The decision to extend the temporary relief, which was due to expire at the end of September 2020, comes in an attempt to prevent further job losses and avoid another massive hit to the economy.

“The extension of these measures will lessen the threat of actions that could unnecessarily push businesses into insolvency and external administration at a time when they continue to be impacted by health restrictions. These changes will help to prevent a further wave of failures before businesses have had the opportunity to recover,” said Josh Frydenberg.

“As the economy starts to recover, it will be critical that distressed businesses have the necessary flexibility to restructure or to wind down their operations in an orderly manner. The Government will continue to help businesses successfully adapt and restructure so that they can bounce back on the other side of this crisis.”†

The temporary relief measures include:

Statutory Demands

  • The minimum threshold for creditors to issue a statutory demand on a company has been increased from $2,000.00 to $20,000.00.
  • The time-frame for a company to respond to a statutory demand has been increased from 21 days to six (6) months.

Bankruptcy Proceedings

  • The minimum amount of debt required for a creditor to seek the issue of a bankruptcy notice against a debtor has been extended from $5,000.00 to $20,000.00.
  • The time-frame for a debtor to respond to a bankruptcy notice has been increased from 21 days to six (6) months.
  • The period of protection a debtor receives after making a declaration of intention to present a debtor’s petition has been increased from 21 days to six (6) months.

Insolvent Trading

  • Directors will be relieved of their duty to prevent insolvent trading with respect to any debts incurred in the ordinary course of the company’s business during the period in which the interim relief measures are in effect.

Hunt & Hunt Lawyers national insolvency team will continue to monitor the changes to insolvency laws and provide further updates as new information becomes available.

Please contact Hunt & Hunt Lawyers if you require further information, or to discuss your specific circumstances

Related article

Temporary changes to insolvency laws amid the COVID-19 pandemic

Authors

Jessica Egger, Lawyer
Matt Gauci, Partner

 

†  7 Sep 2020, The Hon Josh Frydenberg MP & The Hon Christian Porter MP joint media release, ‘Extension of Temporary Relief for Financially Distressed Businesses’

 

Extension of temporary COVID-19 Corporations Act amendments

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On 31 July 2020, the Treasurer, Josh Frydenberg, announced that the Morrison Government would extend certain features of the temporary Coronavirus response legislation for a further 6 months.

Until 21 March 2021, company directors can continue to use certain interim amendments to the Corporations Act to satisfy their legal obligations, such as the ability to hold AGMs online and execute documents electronically.

The Treasurer’s announcement however did not specify whether the provisions:

  • extending the period a company has to respond to a statutory demand from 21 days to six months;
  • increasing the minimum debt threshold for issuing a statutory demand on a company from $2,000 to $20,000; and
  • granting directors temporary relief from personal liability for insolvent trading for debts incurred in the ordinary course of the company’s business,
    would also be extended for a further 6 months.

We will provide updates on this matter as more details are released.

If you would like further information or advice on how these changes could assist your company, please contact our Corporate & Commercial Team at Hunt & Hunt.

Full details of the announcement are available here.

JobKeeper 2.0: New payments structure confirmed with continued flexibility expected to follow

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After much speculation, the Federal government announced the extension of the JobKeeper payment scheme, JobKeeper 2.0, on 21 July 2020, to assist businesses to recover following the impacts of the COVID-19 pandemic.

The scheme will commence on 28 September 2020 when the existing scheme ends, and continue until 28 March 2021.

New JobKeeper payment arrangements

JobKeeper 2.0 continues to assist businesses in their financial recovery, but their eligibility will need to be reassessed and the payments will be scaled back and organised into two tiers for full time and part time employees.

Businesses and not-for-profits will need to demonstrate that they have met the relevant continuing decline in turnover test in the June and September quarters to access payments after 28 September 2020. Eligibility will be reviewed again in early January 2021 for the period to 28 March 2021.

The JobKeeper Payment rate will be gradually reduced and paid in two tiers, depending on an employee’s hours worked:

28 September 2020 – 3 January 2021

More than 20 hours / week: $1,200 per fortnight for eligible employees who worked for 20 hours or more a week in the four weeks before 1 March 2020

Less than 20 hours / week:  $750 per fortnight for eligible employees who worked for 20 hours or less a week in the four weeks before 1 March 2020

4 January 2021 to 28 March 2021

More than 20 hours / week: $1,000 per fortnight for eligible employees who worked for 20 hours or more a week in the four weeks before 1 March 2020

Less than 20 hours / week: $600 per fortnight for eligible employees who worked for 20 hours or less a week in the four weeks before 1 March 2020

What about JobKeeper enabling directions?

Equally important to the JobKeeper scheme is the enabling directions which give employers a level of workplace flexibility designed to keep employees attached to their businesses.
Since April 2020, employers have been lawfully permitted to make changes to the working conditions of their employees which would not otherwise have been allowed, including reducing working hours, assigning alternative duties, allowing work to be performed from home, and reaching agreement about taking annual leave. Information about the current JobKeeper enabling directions can be found here.

As the law stands, these flexible directions are scheduled to cease on 28 September 2020, in line with the first phase of JobKeeper.

Whilst the Federal Government’s latest announcement concentrated on the amended JobKeeper payments, it is inevitable that this workplace flexibility will also be extended until March 2021 with similar changes to the enabling laws and the Prime Minister has said as much in recent press interviews. There may yet be some changes introduced or negotiated in Parliament, which we will report on as events unfold.

Man Overboard! – Stand Down in the Time of Covid-19

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In March, Australian businesses faced the impacts of Covid-19 and Government restrictions aimed at combatting the spread of the virus, which were being introduced quickly and before the JobKeeper scheme and other initiatives to support the economy could catch up.

Employers hurried to protect both cash flow and their workforce, but existing IR options were more limited and blunter than the JobKeeper directions which became available after 9 April 2020. You can see our earlier pieces on JobKeeper stand down directions and the other more flexible options available to employers participating in the wage subsidy regime.

Back in March, employers looked to their enterprise agreements or section 524 of the Fair Work Act and wrestled with industrial stand down provisions which were clearly not designed with Covid-19 in mind.

On 25 May 2020, the Fair Work Commission handed down its first decision arising from a stand-down dispute in the Covid-19 era.

It has important lessons for employers who were forced to move before JobKeeper was introduced, and for employers who (for one reason or another) are not participating in the scheme.  It also provides a signpost for what to expect after the JobKeeper scheme ends on 27 September 2020, unless extended or replaced.

Facts

On 26 March 2020, Coral Expeditions – a cruise operator in the heavily-hit tourism sector – stood down one of its Marine Superintendents. This was part of a 50% workforce reduction with the hope of returning to normal operations in June.

Due to government regulations to combat the spread of the virus, Coral Expeditions was no longer able to conduct its business: revenue had dropped to zero and it had made several refunds for cancelled cruises.

The Marine Superintendent performed a range of tasks, and was primarily “responsible for the overall performance of the Marine Division. This extends to vessel maintenance, crewing and compliance to company and legislative requirements pertinent to the operation of the vessels.”

He argued that although cruises had been cancelled, his administrative responsibilities meant his role was still required, so there was no stoppage of work for him. He claimed that there was still work he could do, and that some of his duties were being performed by others, so he sought to be re-engaged by Coral Expeditions.

Interpretation of s 524 Fair Work Act

In this case, Deputy President Lake identified the three primary criteria which must be satisfied for a stand down to be lawful under s 524(1) of the Fair Work Act 2009:

  1. The employee must be stood down during a time in which they cannot be usefully employed.
  2. Secondly, one of the three sub-criteria must be present. The one the Company relied on was that there had been a stoppage of work for which the employer could not be held responsible.
  3. The employee cannot be usefully employed because of the stoppage.

Decision

The Deputy President commented that the concept of a “stoppage of work” had not been the subject of significant judicial commentary. His Honour looked at decided cases for guidance and determined:

  • The Fair Work Act required the identification of some event which involved work being consciously halted for some reason and ordinarily for some identified period of time.
  • A mere reduction in available work cannot constitute a stoppage.
  • Where an employer’s business in not trading but there are still limited functions that can be performed, then this is a stoppage of work because there has been a cessation of trade. His Honour stated that Coral Expeditions’ business activities had:

“entirely halted and should, therefore, be properly characterised as a stoppage of work. This continues to be the case regardless of whether some administrative or caretaker functions of the business continue to be required – these functions do not properly represent the ‘activity’ of the business.”

It was then necessary for the Deputy President to consider whether the Marine Superintendent could be usefully employed, despite the stoppage of work.  His Honour stated that the test of “useful employment” comprised of two parts:

  1. An assessment of the work available – “it must be determined if there is useful work and then the number of employees required to perform that useful work.”
  2. A more general analysis of the conduct of the employer against notions of good faith and fairness, including the economic consequences to the employer.

Analysis – applying the law to the facts

The fact that 107 employees, or 50% of the workforce had been affected, and that the business also took a range of other measures to reduce overheads – including reallocation of duties, a hiring freeze, delaying scheduled maintenance – showed that the decision to stand down the Marine Superintendent was not malicious and was taken in “good faith”.

The Marine Superintendent’s tasks had largely diminished, since his HR duties reduced when the ship crew was halved and maintenance and attendances with regulatory bodies were delayed. This meant his remaining tasks could be reallocated.

The Deputy President concluded with some excellent maritime metaphors:

“This case concerns a cruise line that has had no opportunity but to lay up all its ships and halt all voyages: Coral Expeditions has stood down its employees in an attempt to stay afloat. Australia, and the rest of the world, continues to sail through the uncharted waters of a pandemic not seen for 102 years and the Respondent has made a genuine attempt to salvage their operation against crushing financial conditions. To eschew economic considerations in a time such as this would be contrary to both the case law and notions of fairness. These facts constitute a total and government mandated stoppage of work and epitomise the purpose of Part 3-5 of the Act. In these circumstances, I find that the Applicant is not capable of useful employment and the claim is therefore dismissed.“

This case is significant because it relates to actions that the employer took to deal with the COVID-19 pandemic.  In coming months there will likely be more, including in the areas of genuine redundancy, unfair dismissal, under payments (e.g. interpretation of the JobKeeper subsidies) and breach of contract.

We will continue to provide updates as developments unfold. If you have any questions or for assistance with specific issues, please don’t hesitate to get in touch.

Michael Marson v Coral Expeditions [2020] FWC 2721 (25 May 2020)