COVID-19 lockdown decisions return to haunt employers

Wednesday 26 August, 2020

Employers in New Zealand will be familiar with the hard decisions that many had to make during and after the COVID-19 lockdown. Faced with up to 100% reductions in revenue, and with wage subsidies not covering the full cost of salaries and wages, many employers reduced their employees’ hours or rates of pay. Unfortunately, in the rush to prepare for Alert Level 4, a number of employers overlooked that employment law prevented them from making changes to employees’ conditions, hours, or rates of pay without their consent. Other employers made employees redundant without following the correct process.

Some affected employees filed personal grievances in the Employment Relations Authority (ERA) against their employer and the initial decisions are starting to be released.

The first case, Dove, relates to employees of a hospice trust employed in ancillary roles: managing retail stores, HR and communications. On 23 March, Level 4 lockdown came into effect in New Zealand. On 25 March, Dove informed all its employees that they would be paid 80% of salary and wages from 30 March to 22 April. The ERA found that the employees had not agreed to the reduction in wages.

Dove later gave 6 employees notice of redundancy, with 8 weeks’ notice of termination, double what was required under the employment agreements. However, Dove stipulated that it would pay 4 weeks’ notice at 80% of salary and wages, and 4 weeks at the wage subsidy rate. Dove argued that by accepting the extended notice period, the employees had accepted the variation to their rates of pay during the notice period. The ERA disagreed because Dove had not discussed the extended notice period with employees. Without consultation, Dove had no legal basis to reduce normal salary or wages during the extended notice period.

The ERA concluded that Dove had breached the Wages Protection Act and the employees’ individual employment agreements by reducing their wages without consent. The ERA rejected Dove’s argument that the redundancy payment was not wages, since the employees had not worked during the redundancy period, on the basis that employees were ready, willing and able to work, but for the intervening COVID-19 lockdown.

In Gate Gourmet, the employer was an essential business providing inflight catering services and was legally allowed to operate during lockdown. However, the impact of COVID-19 on flights meant that the employer was left with practically no work, so had to close down part of its business. Rather than imposing mass redundancies, Gate agreed with its employees that they would be paid 80% of wages, with the option of using annual leave to increase it to 100%. The employees were all on minimum wage and had employment agreements entitling them to be paid for a minimum of 40 hours per week.

When the minimum wage increased on 1 April, at first Gate took the view that it only had to pay the increase to employees who were actually working. Those who were not rostered on and not working would receive 80% of the old minimum wage rate. On 6 April, Gate agreed to apply the minimum wage increase to all employees, working or not, but maintained that it was only required to pay 80% of wages to employees who were not working, due to the agreement. Gate considered that it was not required to pay employees when there was no work.

The ERA held that neither Gate nor the employees could contract out of the Minimum Wage Act. Where there is payment for wages, the Minimum Wage Act applies. If the applicants were ready, willing and able to carry out their jobs in an essential industry, Gate was required to pay them at least minimum wage, regardless of any agreement to the contrary. Employees are entitled to be paid both for work performed and work contracted for, provided they are ready and willing to perform it. Gate had chosen to confirm their employment, rather than restructuring its business, so was held to the current employment terms and conditions.

In retrospect, these decisions suggest it might have been safer for struggling employers to restructure their business, rather than keep employees on at reduced wages, or to have agreed to reduced hours, rather than reduced wages. Dove and Gate are unlikely to be the only ERA cases arising from lockdown; employers may want to review their lockdown actions in the light of these decisions.

If you have concerns about how these ERA decisions might impact your business, our Employment Team can help. Taking proactive steps to resolve employment issues is preferable to waiting for notifications of personal grievance claims.