As the COVID-19 pandemic continues to unfold, we are starting to see the widespread economic impact of the crisis. Unfortunately, with entire industries shutting down, the only option for your business to stay afloat may be to cut down on staff costs.  

While the decision to let staff go or reduce their hours is a difficult one, it may be unavoidable for your business in this uncertain climate. 

Before you take any action, it is important to consult your staff. These kinds of decisions are never easy to make, and it is crucial to preserve the morale of the employees who remain with your business. It’s also worthwhile to maintain a healthy relationship with any staff you let go in case you are able to re-employ them in the future. 

As hard as this situation is for the employees you have to let go, being fair and sensitive throughout the process can make a big difference. 

Things To Consider Before Letting Staff Go

Before you let your staff go, there are many considerations you should take into account regarding their employment status and leave entitlements. 

Employees vs Contractors 

Firstly, it is important to know whether your staff are employees or contractors.

The following factors are relevant to whether someone is a contractor or an employee: 

  • Control: Whether they have autonomy with their work and can control how the work is carried out, provided they complete it;
  • Invoicing: Whether they are engaged for a particular job or task and invoice you for it under their own name or business entity;
  • Tools and equipment: Whether they supply their own tools and equipment, and aren’t required to wear a uniform; and
  • Insurance: Whether they have their own insurance policy.

There are a variety of factors that are considered when distinguishing between a contractor and an employee. 

It is wise to get advice on this if you are unsure because, if your staff member turns out to be an employee, they could make a claim for unfair dismissal or to recover any entitlements you have denied them. 

On the other hand, independent contractors aren’t eligible to claim employment entitlements or unfair dismissals. 

Categories Of Employees 

So, if they’re not contractors, it is important to know what type of employees you currently employ. Let’s go through them. 

Permanent Employees 

Permanent employees generally work regular hours each week and are entitled to sick leave and paid annual leave. 

If you terminate a permanent employment, then you are obliged to: 

  1. Give the employee the required notice; and
  2. Pay out leave and any other entitlements they are owed.

Casual Employees 

On the other hand, casual employees work irregular hours and generally do not have a firm commitment in advance from their employer regarding how long they will be employed for — all of which will be reflected in their employment agreements. 

Often, casual employees are not told the days or hours they will work, and do not get paid sick or annual leave. 

Regardless of whether a casual is a long term casual or not, in the case of termination, they are generally not entitled to receive notice or payouts of leave. 

Letting Staff Go 

If you genuinely have no choice but to let your staff go, then you can look at reducing their hours, making them redundant, or negotiating with your staff to stand them down. 

Even if cash flow is tight for your business, you need to ensure you’re compliant and paying your employees according to their entitlements. 

While COVID-19 is a massive disruption to workplaces around the world, laws have not changed in regard to employee termination — you still have to do it in accordance with the law. 

Genuine Redundancy 

One of the only ways to lawfully terminate a permanent staff’s employment is by making them redundant. 

If a redundancy is found to be genuine, then employees cannot claim unfair dismissal. 

Redundancy occurs when: 

  1. The employer doesn’t need the employee’s job to be performed anymore; or
  2. If the employer becomes bankrupt or insolvent

It might not be considered a genuine redundancy if you could have reasonably given that staff member another job within your business.

If these proper steps are not taken, the employee may be able to make an unfair dismissal claim. 

Key Takeaways 

This is a situation in which communication with your employees is key. 

It’s important to check your employment contracts (which actually may limit your legal options). 

Importantly, you should always attempt to come to an agreement in collaboration with your employees.

Standing down staff or making them take unpaid leave is not a decision to be made lightly, and it is important to make sure these decisions are legally sound. 

If you need help with any of the above, we’re here to help. Our experienced lawyers can be reached at [email protected]

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