By Vaughan Granier
There’s a distinct separation between what the Government was trying to achieve by using the Alert Levels to manage the COVID-19 crisis (with the subsequent impact that those Alert levels had on the workplace), and the application of the employment laws that govern NZ workplaces. The employment laws were not suspended or changed in any way during the implementation of Alert Levels, so there was an inevitable dissonance between the two.
We advised that, while there was an overarching requirement to do whatever it took to implement the Alert Levels, there would come a time of reckoning – one where the courts would look back on what had been done and assess those employer actions from the perspective of the workplace laws.
We therefore encouraged employers to ensure that they complied with employment laws as much as was possible, and where that was not for any reason possible, to at least comply with the principle of good faith which underpins all workplace interactions. Principally we advised employers to:
- Vary terms and conditions in writing;
- Obtain agreement by signatures; and
- Implement formal workplace change processes wherever changes were required.
Wage subsidy issues
There were (eventually) clear guidelines about who was entitled to the wage subsidy, and employers who obtained more subsidy than their circumstances entitled them to are being held to account for that, and many are repaying the excess. Looking over recent media reports, it seems that some employers applied out of an abundance of caution, and most out of desperate need. Some applied, received subsidies, and then made employees redundant within the subsidy period. Not returning that money was unlawful. Applying on behalf of casual employees and not paying them appropriately was also unlawful.
Confusion around entitlement to the wage subsidy meant that some employers elected to implement restructurings and redundancies early, as a pre-emptive cost-cutting measure at the outset of Alert Level 4, when they felt they could not afford 80 per cent as a wage minimum to obtain the Subsidy. In the rushed circumstances they often failed to comply with notice periods, consultation requirements and the rights of an employee to obtain advice or be supported by a representative; to the extent that the employer could have complied with these, they should have.
Some employers asked us for advice about undoing those changes and reinstating those employees, once the wage subsidy confusion cleared up. We encouraged them to do so, as it was a good faith return to employment for those former employees, on the best conditions possible at that time, with the only other option being continued unemployment and no access to the job market! We advised employers to clearly state, in writing, how and why that was done, how and why it was possible, and what the future situation would be given the changing Alert levels and changing wage subsidy arrangements. We have not seen a personal grievance arise from those companies.
Reducing pay and working hours
Other employers moved quickly to reduce pay by reducing working hours, and used the subsidy to support payroll costs. Not everyone managed to do that correctly, and these actions have come under scrutiny now as employees have brought grievances. Where employers moved without regard for employment laws, or employment contracts, the die is now cast for them; and if employees were to bring personal grievances, their actions would be judged against employment laws and contracts.
Recent court decisions show that the courts are doing exactly that. The Authority is looking back on employer actions during the COVID Alert levels and applying employment law to those actions.
It is important to note that most, if not all employers were simply doing what they believed was necessary to survive a sudden and dramatic change in economic circumstances. It may seem unfortunate that there could be additional consequences for their actions but, in truth, every employer is responsible for following employment law. And where there is any doubt, every employer is responsible to obtain advice before acting!
In the Eastern Bays Hospice (T/A Dove Hospice) Case  NZERA 266, Dove implemented a pay cut to 80 per cent from 30 March to 22 April, to be reviewed at that later date. They announced this on 25 March, and followed that up by announcing the restructure of various positions, which were shortly thereafter announced to be disestablished. Termination pay included notice pay of four weeks, at the recently implemented 80 per cent pay rate, and four weeks at the Government Wage Subsidy Rate of $585.80 per week.
The case revolved around the lack of agreement by the workers to the reduction in pay to 80 per cent. There was no indication in company records that employees had, in fact, agreed to the reduction. It was announced in a unilateral memorandum issued by Dove. Dove argued that employment agreements and the Wages Protection Act did not apply because “the workers were not ready, willing or able to work”, and the workers had accepted the extended notice period of 8 weeks on certain specific terms.
Dove also argued that because the employees did not work during lockdown they were not entitled to “wages”. This was rejected.
The Authority decided that, in summary, something is not agreed to, simply because it is accepted. There was no proof of agreement on record. Without that proof of agreement, the Authority decided that the changes were unilateral. Even though an extended notice period was given, that also was not agreed to but simply unilaterally decided by Dove.
The Authority held that “in the absence of consultation and agreement to vary the terms…Dove did not have a legal basis to reduce normal wages or salary due…”
The outcome was that Dove was held liable to pay the employees any and all shortfalls in wages, both during the lockdown and during the extended notice period. Effectively, the reduction in pay was held to be a contravention of the Wages Protection Act and of the employee’s employment agreements.
Note: it is questionable whether written consent (for example a signed variation letter containing agreement to change an employees pay to 80 per cent) obtained by the looming threat of redundancy is, in fact, legitimate consent, but this has not been explored by the ERA in any decision to date. Where an obvious and deliberate threat is made, e.g. “Sign or you will be made redundant”, it is probably unlawful; but where redundancy is inevitable if the company does not reduce costs, and the danger is generalised and more a fact of life than a threat, then it may still be legitimate consent.
In the Gate Gourmet case  NZERA 259, Gate Gourmet, an essential business, experienced a downturn in work, and placed employees on 80 per cent pay. During the period in question, the minimum wage rate changed from $17.70 to $18.90. Many employees were then earning less than the minimum rate. There was no indication of bad faith on the part of Gate Gourmet.
They argued that the minimum wage rate did not apply to employees who were not working, and only to employees who were actually working. (employees who were not working were on 80 per cent of the minimum rate that applied when they were stood down, which was $17.70 until 30 March 2020). Gate Gourmet argued that employees who were not working did not in fact have any entitlement to wages and therefore the Wages Protection Act did not apply.
The Authority held, as in the Dove matter, that when employees were not working during lockdown, this was not by choice. The employees were ready and willing, and so were entitled to be paid wages. Gate Gourmet was an essential service but, significantly, also had not attempted any restructuring or workplace change process to vary terms and conditions of employment because of the downturn they were experiencing. Therefore, changing wages to 80 per cent was a breach of employment contracts and Gate Gourmet was required to pay ALL employees at least the minimum wage (including the increase to $18.90) for 40 hours per week, and to reimburse employees where there was a shortfall.
As we can see clearly from these decisions, actions taken because of Alert Level changes do not exempt employers from their obligations under employment law. The guidance is clear that:
- Employment contracts should have been varied by agreement and recorded in writing;
- Force Majeure (Supervening impossibility of Performance) does not apply where the employment contract does not contain that clause;
- The Wages Protection Act applies throughout all Alert Levels if the contracts have not been varied by agreement;
- Acceptance of changes does not constitute agreement to those changes. Agreement is a specific thing evidenced by proof;
- Restructuring processes should have been used where required, rather than relying on the impossibilities created by the Alert Levels.
There is no doubt that businesses have found themselves in dire circumstances. In reading these cases, there is obviously no lack of sensitivity or empathy from the Authority to the plight of businesses. However, it is clear that employment laws were not varied or suspended when Alert Levels were introduced and should have been complied with at all times.
For more information about this article, contact the team at HR Assured.
Vaughan Granier is the National Workplace Relations Manager for HR Assured NZ. He has over 24 years’ experience in international human resources, health and safety, and workplace relations management. With over 10 years working in New Zealand and Australian companies, he provides in-depth support to leadership teams across all areas of HR, Health and Safety, and employee management.