By Claire Mansell - 25 Mar 2020
With the nation now in lock-down phase as a result of the
Covid-19 crisis, many employers are considering how they can look
after their businesses as well as their employees. For some,
government subsidies will allow a degree of continuity in staffing
whilst others will need to make changes that will adversely affect
their employees. We touch upon some key topics below.
Reducing hours
Reducing employee working hours appears to be a popular choice
for employers seeking to reduce overheads during a period of little
to no income. Employment agreements must have any agreed hours of
work specified in the agreement or, if no hours of work are agreed,
an indication of the arrangements relating to the times the
employee is to work. Check the express terms of your employment
agreements in the first instance to determine whether the proposed
reduction of hours is provided for under the agreement.
If your employment agreement does not specify how hours may be
varied, then any proposed reduction in hours must be mutually
agreed upon by both the employer and the employee following
consultation.
To remain eligible for the wage subsidy (discussed in detail
below), the employee's hours of work must not be reduced by more
than 20% where possible.
Payment of wages during lock down
Prior to the government mandated lockdown, employers were asking
whether they had to pay wages for Covid-19 related absences. Our
advice to employers remains that when absences are at the request
of an employee, they should be treated the same as any other
request for a leave of absence, i.e, if leave was requested because
an employee or their dependant was sick, then that employee should
be paid any sick leave entitlements they have accrued. Should leave
extend beyond the leave accrued, then the employer and employee
could reach an agreement as to whether annual leave, or unpaid
leave would apply.
When an employer has no work available for employees, the
default position is that employees who are "ready, willing and
able" to work, should be paid accordingly. It is for this reason
that the government has stepped in with wage/leave subsidies for
employers.
As at midnight Wednesday, New Zealand entered a four week
lockdown. This is a mandatory directive that is at the behest of
government, not employees or employers. Some employers will argue
that because their employees are not "able" to come into work, they
need not continue to pay them during this period. What that
argument effectively says is, the contract has been "frustrated".
This occurs when an extraordinary and unforeseen event makes it
impossible for the parties to perform the obligations created by
the contract. We note also that the remedy for contractual
frustration is to bring the agreement to an end permanently, not to
place the employee on unpaid leave.
Whether or not this argument will succeed remains to be seen,
although it is a high threshold to cross and employers would be
wise to consider the availability of wage/leave subsidies and the
ability to work from home before attempting to terminate agreements
on the grounds of frustration. In addition, some employment
agreements will set out what will happen during such an unforeseen
event (a force majeure clause).
Some employees may prefer to end an agreement so they can be
eligible for other employment opportunities or unemployment
benefits. Conversely, some employers will prefer to retain their
current staff in order to pick up where they left off once this
virus has run its course. Each employer will need to consider their
individual circumstances, and the terms of their employment
agreements, before deciding on the appropriate course of
action.
Forced Annual and Sick Leave
Employers may require an employee to take paid annual leave
at a time nominated by the employer, but only if the employer and
employee have been unable to reach an agreement regarding when the
employee can take annual leave. Employers must give no less than 14
days' notice of their intention to require the employee to take
paid annual leave.
Employers must bear in mind that they still retain an obligation
to act in good faith when requiring employees to take annual leave.
It remains to be seen whether or not requiring employees to take
annual leave during the shut down is in good faith and will likely
depend on the individual circumstances of each case. In addition,
employees should not be compelled to take annual leave in order to
be eligible for the wage subsidy scheme.
Sick leave can only be used if the employee or their dependant
is ill or injured. It would not be appropriate to require employees
to take sick leave in any other instance.
Redundancy
Employers who find themselves unable to operate either at all,
or at reduced capacity, will almost certainly find themselves with
a surplus of staff and will have to consider making
redundancies.
If an employer is proposing to make a decision that will, or is
likely to, have an adverse effect on the continuation of
employment, they are required to provide to the employees
affected-
- access to information, relevant to the continuation of the
employees' employment, about the decision; and
- an opportunity to comment on the information to their employer
before the decision is made.
This means employers will need to consult with their employees
about the proposal and take time to receive and consider their
feedback before making a final decision. If you are minded to make
redundancies, we recommend that you seek our advice regarding a
fair process.
Contractors
People working under a contract for services (independent
contractors) will in most cases, be deemed to be contractors to
whom the duty of good faith, and the personal grievance provisions
of the Act, do not apply. This means that these agreements can be
terminated without the procedural fairness requirements under the
employment law regime. Any contract must also be terminated in
accordance with the terms of the contract. Business should review
the terms of any contract carefully before terminating.
However, it is important that employers consider whether the
agreement is in fact, a contract for services. The
Employment Relations Authority has the ability to declare a
contractor to be an employee in certain circumstances. The
Employment Relations Authority will consider the full factual
matrix to determine the real nature of the relationship including
the terms of the contract, the parties' intentions, control and
integration, and industry practice. The question will however, be
determined on the facts of any given situation.
New starters
Employers may wish to revoke offers of employment made
immediately prior to the Covid-19 crisis however, once an
individual has accepted an offer of employment, that offer cannot
be withdrawn.
A person who accepts an offer of employment acquires rights
(even before finalising the terms of employment or signing an
agreement). The Employment Relations Act 2000 definition of
employee includes a person intending to work. Accordingly, the
duties of good faith, and the personal grievance provisions of the
ERA apply to people who have accepted an offer of employment, even
if that employment has not yet commenced. This means that the
intending employee must be treated like an ordinary employee.
Wage subsidies
As of 23 March, Cabinet agreed to remove the cap on the
Government's wage subsidy scheme. Important changes to the scheme
include:
- lifting of the previous $150,000 cap;
- new businesses and high growth firms are eligible for the
scheme (subject to eligibility conditions);
- self-employed people with variable monthly incomes are eligible
for the scheme (subject to eligibility conditions); and
- the scheme does cover registered charities, non-governmental
organisations, incorporated societies and post-settlement
governance entities.
On 27 March 2020 it was announced that businesses could still
apply for the wage subsidy even though it was not possible to pay
80% of their employees' normal wages or salary for the 12 weeks
period. However, the entire amount of the subsidy must be paid to
the employee. Employees should not be compelled to take annual
leave in order to receive the subsidy. The direction from the
government was that they would rather employers apply for the wage
subsidy rather than make employees redundant.
Other criteria still apply, including
- The business must be registered and operating in New
Zealand;
- The employees are legally working in New Zealand;
- The business has experienced a minimum of a 30% decline in
actual or predicted revenue over the period of a month when
compared with the same month last year, and that decline is related
to Covid-19;
- The business has taken active steps to mitigate the impact of
Covid-19;
- The business must make best efforts to retain employees and
pay them a minimum of 80% of their normal income for
the subsidised period if possible.
If the business is eligible, they may be entitled to be paid a
flat rate of $585.80 for each employee working 20 hours or more per
week, or $350 for each employee working less than 20 hours per
week. The subsidy is paid as a lump sum and covers 12 weeks
per employee.
Given the unprecedented action of a nationwide shut down, many
of the questions that we face have never been contemplated before
and our existing legislation and case law do not necessarily
provide clear answers. However, the over arching obligation of good
faith remains paramount, and should be the guiding principle for
both employers and employees when dealing with each other in the
coming weeks.
Contacts
Claire
Mansell