Thinking | 4 August 2020

COVID-19 Victoria: what Stage 4 restrictions mean for the manufacturing sector

By Ed Paton, David Dickens, Alison Baker and Michael Henderson

Victorian Premier Daniel Andrews announced yesterday the details of Victoria’s Stage 4 restrictions for workplaces in metropolitan Melbourne. Workplaces are closed commencing 11.59pm on Wednesday 5 August 2020, unless otherwise permitted.

The treatment of workplaces depends on the industry. Some workplaces will be closed for on-site work, some will be open for on-site work if they have a COVID Safe Plan and some are subject to restricted operations or industry-specific requirements. The intention is that these closures will last six weeks. This is subject to Directions that may be made by Victoria’s Chief Health Officer.

Workplace closures

The detail of the workplace closures is complex, the time to implement is extremely tight and the questions are many. As with the business closures that followed the first wave, many businesses will be scrambling over the next couple of days to work out the impact for them. For some it will be clear and for others less so. Businesses that traverse multiple sectors and complex manufacturing businesses with a broad range of products, for example, will need to work quickly to interpret the scope of the closures and the impact on their businesses.

As with the first wave of closures, critical decisions must be made. Employers are deeply concerned for the health and safety of their workers in respect of COVID-19. They are concerned about the financial impact of closing (and whether that will be temporary or terminal). Directors are concerned about their employees, other stakeholders (including creditors) and the risk of personal liability. The current moratorium on insolvent trading does not absolve directors from complying with their other directors’ duties.

Businesses in the first round of closures in Victoria sometimes had to choose whether to close or not to close with a lack of clear and detailed information. If they closed and stood down workers where they were not required to close, they could face wages claims and penalties for standing down workers illegally. If they were required to close and did not close, then they faced penalties for failing to comply with the Directions.

There are also a raft of contractual issues that arise when a business closes and cannot perform its obligations. It may or may not be able to rely on force majeure or frustration of contract. There will be many employers who will turn to JobKeeper for much needed support for their employees if they meet the required criteria. If the lockdown is extended, it’s worth noting the payments will reduce under JobKeeper 2.0. Tenants will need to engage (or re-engage) with their landlords to seek relief. Some businesses may be forced into insolvency.

We discuss below the impact of workplace closures on the manufacturing sector in Victoria. The full list of sectors and their restrictions can be found here.

Manufacturing in Victoria

Manufacturing is a huge sector in Victoria. Manufacturing in Victoria accounted for close to 13% of Gross State Product (approx. $59.084 billion) and 8.7% of employment in 2018/19.[1] Preserving manufacturing jobs in Victoria is critical. There are many different manufacturing activities undertaken in Victoria and within metropolitan Melbourne.

The closures apply to metropolitan Melbourne; however, there are some state-wide restrictions and industry-specific obligations, in particular, for meat, meat product and seafood processing and distribution centres. These are considered high-risk and are subject to an industry-tailored High Risk COVID Safe Plan. It appears these processing and distribution operations (including supermarket distribution centres) will operate at a 33% reduction of peak workforce. Employees will not be able to move between work sites, which may create labour supply issues.

Other industries that must comply with a High Risk COVID Safe Plan (as well as Universal COVID Safe Plan obligations) include Warehousing, Distribution Centres, Meat Processing and Cold Storage. It’s important to note that many manufacturing businesses operate warehouses and these will need to comply also.

Ancillary businesses involved in the production, supply, manufacture, repair, wholesale, distribution, transportation or sale of equipment, goods or services necessary for the operations of a permitted work site can remain open for on-site work with a COVID Safe Plan.  There are special skeleton staffing requirements for safety or environmental reasons or where manufacturers provide an ancillary service critical to the operation of a permitted activity or industry. This includes the manufacturing of polymer, rubber, chemicals, metals and products derived from them. Examples of permitted activities or industries include agriculture and farming, food manufacturing and transport.

Forestry activity for the production of pallets is listed as open for on-site work with a COVID Safe Plan; however, wood product manufacturing is listed as closed. This would appear to be an anomaly and a concern for wooden pallet manufacturers. Plastic pallet manufacturers will be pleased to see that the manufacture of polyethylene and resins is open for on-site work subject to a COVID Safe Plan.

Automotive and transport equipment

Transport equipment manufacturing that is critical to public transport services and spare parts manufacturing that is critical to continuity of services can remain open for on-site work with a COVID Safe Plan. Heavy truck manufacturing can continue also. However, motor vehicle and motor vehicle parts wholesaling is listed as closed. Retail is closed. Motor vehicle parts for emergency repairs can be sold on-site by agricultural retailers only using drive through. Other open workplaces (with a COVID Safe Plan) include road and other transport, transport support services, vehicle repair servicing and maintenance. Under the category of Other Services that are open for on-site work, the list includes motor vehicle and machinery repair by exception. Also, automotive, machinery and equipment repair and maintenance are permitted to operate where they are providing support to a permitted service or industry or where required to maintain the health and safety of Victorians at home or at work. There is an anomaly here since parts are required for service and maintenance and the guidance suggests retail and wholesale channels are not available. Presumably supply of parts direct to trade will be necessary.

Food, pharmaceutical and medical

Victoria accounts for nearly 30 per cent of Australia's food and fibre manufacturing, and food and fibre exports.[2] Based on 2016 data, the Melbourne region is responsible for a food processing gross value of $24.3 billion. Melbourne’s main food/beverage sectors are meat processing, dairy products and beer/winemaking.[3]

Unsurprisingly, food and beverage product manufacturing can remain open for on-site work with a COVID Safe Plan. Pharmaceutical products are in the same category. Naturally, manufacturers who are involved in the manufacture of medical equipment and PPE including cloth masks can remain open for on-site work with a COVID Safe Plan. However, what happens if a textile manufacturer has one line manufacturing masks and the rest of the factory makes other textile products? Textile manufacturing, textile product manufacturing, clothing and footwear manufacturing are all examples of manufacturing that is closed for on-site work. Should manufacturers only operate lines for some products and not others? In small organisations this might mean that to operate they will incur full overheads including administration but have substantially reduced operating revenue. This will obviously impact profitability and viability.

High Risk COVID Safe Plan

There are other prominent sectors that require a High Risk COVID Safe Plan. Aged care is included on the list.

In his press conference on 3 August 2020, the Premier referred to workers in abattoirs being required to wear PPE such as gowns, masks and face shields. What a tailored High Risk COVID Safe Plan looks like for the new list of sectors will become clearer in coming days. All open businesses will have until 11:59pm Friday 7 August to enact a COVID Safe Plan. This plan must focus on safety, prevention and response in the event that coronavirus is linked to the workplace.

Where to from here?

There are many supply chain issues that have been considered in the detailed but clear document issued by the state government on 3 August 2020. There will be knock-on effects on retail in regional Victoria where goods normally manufactured in metropolitan Melbourne will not all be available for at least six weeks. There will be interstate supply issues too and product that is not being manufactured obviously cannot be exported. Manufacturers themselves will need to be confident that their suppliers can continue to operate and supply them what they need.

When it comes to implementation for many businesses, including manufacturers in metropolitan Melbourne, many will need assistance from advisors, industry groups and government authorities. A workplace on-site shutdown with exceptions was always going to be complex as well as costly. Let’s hope we can all make it work. We may be able to find guidance in the New Zealand experience. Let’s hope we can share the same positive results.

[1] IBISWorld State of Play: Social Distancing Effects on State Economies - 23 April 2020.
[2] global.vic.gov.au
[3] Food Processing: Invest in Victorian agriculture and food (August 2018).

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