Australia: How do I protect my business from supply chain interruptions?

Last Updated: 14 July 2012
Most Read Contributor in Australia, September 2016

The recent experience of Ford Australia being required to stand down 1800 staff in response to supplier CMI Industrial being locked out by its landlord highlights the importance of effective business interruption strategies. If your business operates in an industry which requires multiple suppliers of product at low margins you will need to be prepared for interruption of supply, both upstream and downstream.

There are a range of actions that an employer can take where it may be exposed to the risk of a forced temporary shut down or reduction in production, resulting in a temporary surplus of labour.

Laying off supplementary labour

If you supplement your workforce with on-hired workers supplied by a labour hire agency, your capacity to cease or reduce the supply of those workers at short notice will depend on the terms of the relevant labour supply agreement. These agreements will usually contain provisions dealing with the notice required to change labour supply requirements and the cost of doing so. In addition, you will need to consider how long it will take for normal labour supply to resume and whether there is any guarantee that the same labour hire workers can be provided again. Obviously, the nature of the workplace will be significant (for example, in fly-in-fly-out workplaces it will harder to reduce labour hire requirements at short notice).

If you supplement your permanent workforce with directly engaged casuals or independent contractors, your capacity to layoff these workers at short notice will again depend on the terms of their engagement. In this regard, casual employees with more than 6 months' regular employment are likely to have access to unfair dismissal remedies under the Fair Work Act 2009 (Fair Work).

Enforcing paid leave

You might require permanent employees to take paid annual leave during a period where supply has been interrupted. Your capacity to enforce this requirement will depend on the terms of any applicable enterprise agreement, award or employment contract. In the case of award/agreement free workers, Fair Work entitles an employer to impose a reasonable requirement to take annual leave. A requirement is likely to be reasonable if the employee has accrued excessive annual leave or the employer's business is being shut down.

State long service leave legislation generally requires at least one month's notice to be given of an employer's requirement for an employee to take long service leave. However, employees may agree to take paid leave at short notice if faced with the alternative of being stood down without pay (see below).

Standing down employees

Fair Work provides a scheme for employers to stand down their employees (casual and permanent) without pay during a period when they cannot be usefully employed because of:

  • industrial action (other than industrial action organised, or engaged in by the employer i.e. lock out);
  • a breakdown of machinery, if the employer cannot reasonable be held responsible for the breakdown; or
  • a stoppage of work for any cause for which the employer cannot reasonably be held responsible.

If an employer cannot continue with production because of an interruption to its supply chain through the failure of a third party supplier to deliver components on the terms agreed, this would be a stoppage of work "for which the employer cannot reasonably be held responsible".

The circumstances in which an employee "cannot usefully be employed" do not arise merely because it is not ideal or optimal for the current workforce levels to be maintained. If there is some benefit or value for the work that could be performed by the employee then the employer would not be able to stand down an employee under Fair Work.

The stand down provisions of Fair Work will only operate if an enterprise agreement or employment contract covering the employee does not make provision for stand down.

The following table details the key issues to consider with the use of shut down provisions in employment contracts. The table highlights that for practical purposes if there is a need for an enterprise specific shut down clause in respect of award covered employees, it is best addressed through an enterprise agreement.

Award/Enterprise Agreement Coverage Can a stand down clause be included in a contract? What regulates the right to stand down employees?
Award applies to employment Yes, but the employer will not be able to avoid providing the minimum terms and conditions prescribed under the award during the stand down period. As such, a clause could be drafted that the over-award component of remuneration is applied towards the minimum wage entitlement payable during a stand-down period. If a separate stand down clause is necessary, consideration should be given to an enterprise agreement. Stand down provision in employment contract, or if there isn't one, Part 3.5 of Fair Work.
Enterprise agreement applies to employment but does not contain a stand down clause Yes, provided the enterprise agreement states that ordinary hours do not include periods when an employee is stood down Stand down provision in employment contract, or if there isn't one, Part 3.5 of Fair Work.
Enterprise agreement applies to employment and contains a stand down clause Yes, provided that it is consistent with stand down clause in enterprise agreement (enterprise agreement provision will prevail to the extent of an inconsistency) Stand-down clause in enterprise agreement and (to the extent that it is consistent) any contractual provision.
Award/agreement free Yes, but the contract should provide that ordinary hours do not include periods when an employee is stood down Stand down provision in employment contract, or if there isn't one, Part 3.5 of Fair Work.

You can bargain for the inclusion in an enterprise agreement of provisions designed to enable workforce flexibility in the event of business interruption. For example, you could seek the inclusion of provisions into an enterprise agreement for:

  • the company's right to implement "operational shut downs" of a certain maximum duration each year during which employees will be expected to take annual leave;
  • stand down rights to be available in a broader range of circumstances than that provided in Part 3.5 of Fair Work.

You should appreciate that the exercise of the stand downs under an enterprise agreement will be subject to the consultation and dispute resolution processes provided for elsewhere in the agreement. These limitations are capable of being enforced by Court order. For example, if employees are given notice of stand downs and a union is able to establish in a Court an arguable case that you did not comply with the consultation mechanisms in the agreement, a Court might grant an interim order preventing you from giving effect to the stand down.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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