COVID-19 wage subsidy plan: traps for employers who rush workforce changes

31 Mar 2020
While the new wage subsidy plan announced by the Federal Government on Monday will provide a much needed lifeline to Australian businesses and workers, employers should resist pressure to hastily change existing COVID-19 staffing arrangements until the plan's fine print is confirmed by Parliament.

The wage subsidy plan provides eligible employers a flat rate subsidy of $1,500 per fortnight for existing, stood down and re-hired employees for the next 6 months.

Employers should expect to start fielding inquiries from many stood down and retrenched employees eager to extract the benefit of the subsidy (known as the "JobKeeper Payment"), which exceeds the maximum amount they are entitled to under the Job Seeker allowance. In fact, the PM Scott Morrison has urged people to do just this, stressing that Australians are unable to benefit from both the wage subsidy plan and the Job Seeker allowance.

Before acting too quickly to change existing staffing arrangements employers should remember that:

  • the wage subsidy plan will not be legislated for at least another couple of weeks, meaning that employers risk implementing changes, or agreeing to implement changes, before legislative conditions and restrictions are confirmed; and
  • the usual laws of employment apply, despite the unprecedented nature of this package.

What we know about the proposed JobKeeper Payment

Treasury has released a useful fact sheet setting out the basics of the JobKeeper Payment. From this, we know that:

  • businesses must demonstrate a prescribed reduction in turnover relative to a comparable period a year ago and must not be subject to the Major Bank Levy; 

  • the employer must have been in an employment relationship with eligible employees as at 1 March 2020 and confirm that each eligible employee is currently engaged in order to receive JobKeeper Payments; 

  • the employer has discretion to nominate eligible employees; 

  • eligible employees can include those who have been "stood down" or recently "re-hired" (i.e. after being retrenched since 1 March 2020) and can include full time, part time or long term casuals (a casual employed on a regular basis for longer than 12 months as at 1 March 2020);

  • Not-for-profits entities (including charities) and self- employed individuals may also be eligible; 

  • the $1,500 (before tax) per fortnight is a flat rate - employers must pass on the full subsidy to the employee even if it is higher than their ordinary wages; 

  • while current employees (those who continue to perform duties) must have the difference between the subsidy and their ordinary wage 'topped up' by the employer, employees who have been stood down receive only receive $1,500 per fortnight, even if their original salary was higher; and

  • employers are not required to pay the superannuation guarantee on the $1,500 subsidy.

Potential traps for employers

From what we already know about the JobKeeper Payment, employers may be tempted, or pressured, to to shortly:

  • stand down additional employees in light of the increased safety net that the JobKeeper Payment provides;
  • reduce the working hours and pay of employees who ordinarily receive more than $1,500 a fortnight to avoid paying any additional salary;
  • nominate all long-term casuals to receive the JobKeeper Payment without clarifying the casual nature of the employment relationship; and
  • re-hire retrenched employees so that they can receive the JobKeeper Payment.

Employers must be aware of the potential traps arising from these steps and should seek legal advice before introducing these changes, or giving (potentially binding) assurances to employees that these changes will be implemented from the first week of May (when these payments will start).

Standing down employees

Employers who may be more likely to stand down employees in light of the generous safety net afforded by the new wage subsidy plan must not stand down employees unless they have a basis to do so under either:

  • the Fair Work Act (FW Act); or
  • provisions in any applicable Enterprise Agreement or employment contract.

Importantly, employers must only stand down employees, under the FW Act, during a period in which the employee cannot be "usefully employed" because of a stoppage of work for any cause for which the employer cannot reasonably be held responsible. Stand down must remain a measure of last resort.

The use of stand down provisions by employers in circumstances similar to the COVID-19 outbreak is untested by the Courts and open to challenge by employees. In particular, employees with an ordinary salary higher than $1,500 a fortnight may still challenge the decision to stand them down to recover the difference between the $1,500 and their ordinary salary.

Additionally, as the JobKeeper Payment is a flat rate, some employees who stand to receive the same or more salary under this new wage subsidy scheme (whether they continue to perform their ordinary duties or not), may refuse to perform their usual duties, even when there is work for them to do, potentially, for example, citing health concerns.

An employee who can be "usefully employed" must not be stood down. Any unreasonable refusal to perform ordinary duties by an employee may give rise to a breach of contract, which may give the employer the right to withhold wages. Therefore, employers must make it clear to employees that if there is work for them to do it must be done, unless they have a reasonable excuse (such as needing to take personal or carers' leave).

Finally, there are currently no restrictions on employers' right to unilaterally decide which eligible employees will be nominated to receive the JobKeeper Payment (although this may change when the legislation is finalised). In theory, an employer can freely decide which employees should be re-hired or even to refuse to nominate an eligible employee who would receive more from the JobKeeper Payment at no additional cost to the employer.

Employers must keep in mind the usual laws affecting employment when selecting employees, or groups of employees, including by ensuring that selection of eligible employees:

  • is not based on a protected attribute (ie. race, sex, family commitments, disability or age), which could give rise to a breach of discrimination laws; and
  • could not give rise to complaints of adverse action if an employer decides not to nominate the employee to receive the JobKeeper Payment.

Changing terms and conditions of employment in light of the JobKeeper Payment

Employers who cannot afford to pay the difference between the JobKeeper Payment and ordinary hours may wish to reduce the employee's ordinary hours and wages so that they only receive the JobKeeper Payment.

Unions and other employee groups have expressed concern about this, and it is possible that these groups may lobby, and the Labor opposition may push for in Parliament, special provisions in the final JobKeeper Payment legislation that stop employers from doing this.

In any case, again, the usual laws affecting employment will apply in this case, including that:

  • any reduction of working hours and pay may be subject to terms set out in a Modern Award, Enterprise Agreement or employment contract;
  • at least in the first instance, employer's should seek agreement from the employee before making this change; and
  • employers should exercise caution in unilaterally changing an employee's terms and conditions, as a substantial change may be construed by a Court as a redundancy situation, where the employee will be entitled to a redundancy payment.

Nominating casual employees

Employers should seek legal advice before nominating eligible casual employees to receive the JobKeeper Payment.

There is a risk that nominating 'long term' casuals for the JobKeeper Payment may be later construed as evidence of a permanent relationship, which could expose the employer to potential misclassification claims which may result in liability for back-payments for unpaid employee entitlements.

While employers should not be discouraged from nominating 'long term' casuals for the JobKeeper Payment, misclassification risk may be managed by clarifying the nature of the relationship when first communicating the decision to nominate the casual employee for the wage subsidy.

Re-hiring employees

While the Federal Government has specifically stated that employees who were retrenched after 1 March 2020 and who have been re-hired may be eligible to receive the JobKeeper Payment, the Prime Minister has said that it will be left to the employer and employee to determine how any termination payments will be dealt with once an employee has been re-hired. However we would expect the final legislation to provide more guidance on this issue.

In particular, it is not yet clear whether:

  • employers will have a right to claw back termination, or redundancy, payments previously paid to the employee by keeping a portion of the JobKeeper Payment;
  • the employee has to be employed on the same terms and conditions of employment as they were on before their previous employment was terminated for the employer to receive the JobKeeper Payment; and
  • the termination and re-hire will break continuous service (although some Modern Awards or Enterprise Agreements may already allow for unbroken continuous service if the employee is re-hired within a certain period).

Employers must also be mindful that any steps taken to-hire an employee may expose it to liability, including in relation to:

  • unfair dismissal: when making an employee's position redundant it is important that the employer can prove, if challenged that the redundancy was "genuine". If an employee is re-hired shortly after being made redundant, they may have a strong case that the initial redundancy was not "genuine" as the re-hire would demonstrate that the position does still exist; and 

  • tax treatment: the Australian Taxation Office (ATO) will only provide a tax concession for a 'redundancy payment' that arises as a result of a "genuine redundancy". One factor that the ATO will consider when determining whether the redundancy is "genuine", is whether there was a previous agreement to re-hire the employee. By re-hiring a redundant employee because of the wage subsidy announcement, may evidence that there was an agreement between the parties to re-hire the employee once the employer's financial position strengthened.

Some employers may wish to re-hire former employees and immediately stand them down so that they can receive the JobKeeper Payment. While the details are yet to be realised, the Federal Government has made clear that this payment is not another form of welfare and that employees must remain employed or, in the case of a stand down, connected with the employer to receive the JobKeeper Payment.

It is currently unclear how employers will need to evidence the employment relationship and what the consequences will be for employers if payments are claimed incorrectly, including whether the ATO (who will administer this scheme) will have the right to claw back JobKeeper Payments from employers.

Employers should therefore refrain from re-hiring employees until after the wage subsidy plan has been legislated and receive legal advice before re-hiring any employees who have been made redundant.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.