Delta Lockdown 2021 – Adjusting Employee Hours / Redundancies

Lessons from the 2020 Lockdown

New Zealand is settling in for the August 2021 Delta variant Covid-19 lockdown. For employers it comes with a sense of déjà vu.  While this lockdown was unexpected and much faster than the March 2020 events, we now have the benefit of practical experience and a number of judicial decisions on how employers dealt with staff during the March 2020 lockdown which we summarise below.

It is clear from these cases that:

• Lockdowns do not suspend employee rights or employee obligations
• Where an employee is unable to come to work only due to a lockdown, they are ready willing and able to work. and are entitled to be paid as usual
• Employers need to first obtain agreement with their employees before they can make changes to hours and pay rates without agreement from the employee
• Despite the urgency of a lockdown employers are bound by the same obligations to act as a fair and reasonable employer could have and owe a duty of good faith to employees when considering redundancies

In the 15 months since these events we also have the benefit of a number of decisions in the Employment Relations Authority and Employment Court clarifying employers’ obligations in dealing with staff under these trying times which we summarise below.

Wage Variations

1.Raggett v Eastern Bays Hospice Trust t/a Dove Hospice [2020] NZERA 266:

Does an employer need to pay employees when they are unable to come to work due to the Covid lockdown?

It has long been established in the common law that an employer is liable to pay an employee where they are “ready, willing and able to work”.  The lockdowns however raised the curious question that where the Government intervenes and prevents an employer offering work and an employee attending work, can they be said to be “able to work”.

Eastern Bays Hospice applied for the Covid-19 wage subsidy before unilaterally sending a memorandum to all staff advising them that while normal wages would continue for the following days, their pay would then be reduced to 80% and would be later reviewed.  There was no negotiation with staff as to these changes and the workers did not agree to be paid 80% of their wages or salary. 

The employer argued it was released from its obligations under the Wages Protection Act and its staff employment agreements to pay their normal wages and salaries because the workers had not performed service or work under their employment agreement.  It claimed the 80% paid to staff was not wages but more in the nature of an ex gratia payment.  The Employment Relations Authority rejected these arguments on the following grounds:

• In the absence of an employment agreement containing a provision for the suspension of wages or salary for non-performance in circumstances such as a pandemic or Government lockdown event an employer is unable to suspend or cease payment. The Wages Protection Act operates in the context of the relevant employment agreements.
• The Wages Protection Act prevents deductions from wages unless expressly in the circumstances under this Act. The employer attempted to argue that the Act only applied to deductions “for the performance of services or work.” This was rejected as these words were not included in the legislation.
• On the unchallenged evidence the workers were at all times ready, willing and able to work. But for the intervening events of the Covid-19 restrictions and/or the employer’s decision not to require them to attend work they were able to fulfil their obligations under their employment agreements. 

The conclusion from Raggett is that where an employer’s business is shut down due to the lockdown and the employees are unable to come to work solely because of this in the absence of some sort of contractual provision the employer is bound to pay these workers and they are “ready, willing and able” to work and are entitled to be paid as usual.

This decision has been appealed to the Employment Court but unfortunately as at August 2021 a decision has not been issued.

2.Gate Gourmet NZ Limited v Sandu and Ors (2020) NZEmpC 237.

Is a failure to pay for hours at home a breach of minimum wage legislation?

The full Employment Court determined a challenge mounted by staff undertaking work as in-flight catering services to passenger air flight upon lockdown taking effect in March 2020.

While this work was essential and they could have attended work, due to the dramatic drop off in flights the employer could not offer staff fulltime work and they were sent home.   A challenge was mounted on the basis that their employment agreements contractually obliged the employer to make payment for 40 hours work.   It was argued that failure to pay at least minimum wage for 40 hours was a breach of minimum wage legislation.   While the majority of the Court dismissed the personal grievance finding that the minimum wage legislation does not provide for a minimum guaranteed income the majority found that minimum wage legislation provides for a minimum payment in exchange for work performed by an employee, not generally a certain standard of living.  It was found that when the defendants stayed home they were not working for the purposes of the Minimum Wage Act and there is no statutory minimum wage entitlement that arose.

However the Chief Employment Court Judge Christina Inglis dissented from the majority decision stating she found the relevant question is not whether the employee is actually engaged in performing work at the particular point in time they claimed unlawful deduction is made but rather whether their terms and conditions would have them do so.   She stated the majority’s decision:

“In my respectful view ignores this widely understood common law rule that where there are agreed hours of work cancelled by the employer wages remain payable provided that the employee was ready and willing to work those hours.”

“In other words where hours of work are agreed and end up not being performed an employee is still entitled to be paid the amount they would have been paid had the work been performed.”

The minimum wage legislation:

“Reflects the clear common law rule that existed at the time and continues to exist that an employee is entitled to wages in circumstances where they are ready, willing and able to perform work.”

“The reason why they could not work the 40 hours had nothing to do with their default, illness or accident and so no deduction could be made from the minimum wage they would otherwise be entitled to receive.”

Similarly to the Raggett v Eastern Bay of Plenty Hospice decision, leave has been granted for this decision to be appealed to the Court of Appeal but with no decision yet.

In light of Raggett and the dissenting judgment in Gate Gourmet NZ Limited we consider that where the sole impediment to an employee working is the lockdown and where there is no provision in the employment agreement for wages to be reduced or suspended and the employee does not agree as part of a negotiation to reduce or suspend their wages, an employer is bound to continue paying their wages in these circumstances.

It is therefore critical to negotiate with an employee and reach agreement on any wage or hour reduction. Many employees will be open to such an agreement if it helps avoid redundancies.

Covid Redundancies

3. De Wise v Sollys Freight Limited (2020) NZERA 285.

Lockdowns do not move the obligation to act as a fair and reasonable employer when considering redundancies. 

Sollys Freight reduced the size of its workforce in response to the changed business conditions brought about by the Covid-19 restrictions.  Two terminated employees raised personal grievances alleging unjustified dismissal.   The employer applied for Covid-19 wage subsidies signing the statutory declaration that it would use reasonable endeavours to retain the employment of those staff identified.   The Employment Relations Authority instead found no evidence of any steps being taken by the employer to retain the employment of these staff.   The termination was made early on in the process when the company knew or ought to have known that the wage subsidy would soon be in play and had it engaged in a process of consultation alternatives to redundancy would likely have been identified. 

While a dismissal is not unjustifiable solely because of defects in the employer’s process if those defects were minor and did not result in the employer being treated unfairly, the Employment Relations Authority found that good faith is central to an employment relationship and the way the employer acted denied the employee any prospect of maintaining the employment relationship.

With respect to a second employee it was found that no information was provided to the employee about the circumstances which caused the employer to come to the view that it could no longer wait for a wage subsidy payment and needed to make redundancies immediately.  The employee was given no opportunity to comment.  It was further found the employer selected this employee on the basis they were found to be “not particularly reliable” whereas the employee did not have any opportunity to comment or object to this finding. 

The Authority found both terminations were unjustifiable and it was found no fair and reasonable employer could have found that the employees had genuinely become surplus to their requirements when only days before they had sent reassuring statements to all staff that their employment could be maintained if the wage subsidy was to be received. 

This decision shows that even when employers are faced with the urgency of a lockdown and attempting to ensure the viability of their business, this does not remove an employer’s obligation to engage in a consultation process and make decisions as a fair and reasonable employer could.

While it could be expected in such a scenario that any redundancy process could be truncated, undertaken by Zoom and perhaps with less formality that can be expected in ordinary times the employer is still held to the same employment standards.

Legal advice is critical in undertaking redundancy process, particularly when an employer is looking to truncate or shorten the timeframe for consultation.

4. De Sousa v Bayside Fine Food Limited (2001) NZERA 27.

The final decision we summarise contained slightly unusual facts where the staff working at the Bayside Fine Food Café had clauses in their employment agreement stating:

“If the employer’s business is interrupted by unforeseen events beyond its control (for example…Governmental action…or health epidemic or pandemic) the employer may be unable to provide work for you to perform.  If this happens the employer will endeavour to consult with you before determining whether our employment relationship can reasonably continue.”

“You acknowledge the employer will not be required to provide you with work or pay your remuneration where your usual work is not available due to business interruption.”  

Approximately one week before lockdown and before the lockdown announcement was made, the employer unilaterally informed all staff that it was shutting down the business in light of the Covid-19 pandemic due to its elderly clientele and the fact they did not consider the business to be financially viable in light of the effects of Covid-19. 

Despite the over-reaching clause which appeared to apply exactly these circumstances the employer was still bound to follow a consultation process and undertake an assessment of whether the roles were in fact redundant before coming to its conclusion to close the business and make all staff redundant.

The Authority dismissed the argument that the employment relationship had been frustrated as the café was able to operate at the time the decision was made.  

Conclusion

While two of the decisions above are subject to appeal, they make it clear that despite the haste, uncertainty and panic which occurred in the early days of the 2020 lockdown, employers were still bound by their obligations to act as a fair and reasonable employer could, to act in good faith and any adjustments to wages or decisions to make staff redundant needed to be undertaken in consultation and agreement with these staff members. 

While at the time any bypassing of these by these minimal standards was undertaken with a view to ensuring business survival, employers need to take a step back and consider the long term implications of these decisions and whether they could be justified in the Employment Relations Authority if challenged after the lockdown passes.

While we now have the benefit of hindsight and some judicial authority for how to handle the 2021 Delta lockdown there will likely be the swifter movement of the Delta variant and the more rapid Government response assures a fresh set of challenges for employers.

Andrew Riches (Partner)

Email: andrew.riches@saunders.co.nz

Mobile: 021 982 115

Claire McCool (Senior Associate)

Email: claire.mccool@saunders.co.nz

Mobile: 021 885 086

Deborah Hendry (Lawyer)

Email: deborah.hendry@saunders.co.nz

Mobile: 022 153 0220

Our Employment Team seamlessly shifted to working from home and is available to answer any  questions or assist with any employment issues during the current lockdown.  We would encourage you to make contact before taking any substantive action with respect to your staff.

For more information on Covid-19 and its status, check the following websites:

• New Zealand Government – Unite Against COVID-19: https://covid19.govt.nz/
• The World Health Organisation: https://www.who.int/
• The New Zealand Ministry of Health: https://www.health.govt.nz/
• Your local District Health Board website.