COVID-19: Anarchy does not rule, OK?!

Employment Issues and COVID-19 – Updated 1 April 2020

To re-state a phrase that has been doing the rounds among employment lawyers:  This is a Pandemic; not Anarchy.  COVID-19 is not a free pass to forget about employment law, good faith, or any of the usual contractual and statutory obligations that we normally apply. 

The Government has made it very clear that getting a Wage Subsidy does not give a business license to run roughshod over employment law.  In fact, in order to apply for a Wage Subsidy, an employer now (as from 4pm 27 March 2020) needs to declare (among other things):

  • Its application for, and receipt of, the Subsidy does not override the employer’s existing obligations under the Employment Relations Act 2000;
  • It will not make any changes to the employer’s obligations under any employment agreement, including to rates of pay, hours of work and leave entitlement, without the written agreement of the relevant employee;
  • It will not unlawfully compel or require any of the employees named in the application to use their leave entitlements for the period the employer is receiving the subsidy for those employees.

So what are some of the key things that employers need to remember?

The test for justification still applies 

Every action that the employer takes may (potentially) be judged against the justification test in s103A of the Employment Relations Act 2000 (the ER Act). Employees can still raise grievances if they feel that they have been unjustifiably dismissed, or have been disadvantaged in their employment by an unjustified action of the employer.

The test for justification looks at whether the employer’s actions (what the employer did) and how the employer acted (the process followed) were what a fair and reasonable employer could have done in all the circumstances.  The current circumstances are unusual, to say the least, and this will be factored into any assessment, but there is still an expectation that employers will act fairly and reasonably.  Varying employment agreements, suspending or standing down employees, disciplinary action, and of course termination (whether pursuant to a force majeure/business interruption clause or for ‘normal’ redundancy), still need to be substantively justified and employers must follow a fair process.  This will require consultation – investigating the circumstances, putting a proposal and supporting information to the employee, receiving and genuinely considering the employee’s feedback, and only then, making a decision.

Unilateral variation of an employee’s terms is not OK 

In the employment agreement, employers and employees have agreed on a set of terms.  Changing these terms will require the agreement of both parties.  There may be some flexibility ‘built in’ to the agreement (e.g. around hours, duties or things like discretionary payments) but any other changes will require agreement.  Unilaterally changing someone’s employment agreement is very unlikely to meet the requirements of s103A of the ER Act, even in a pandemic situation.

On this note, employers need to remember that while using ‘best efforts’ to pay an employer 80% of their wages may meet the terms of the Wage Subsidy, if the employee is working in an Essential Business or Working From Home (WFH), 80% is very unlikely to comply with the terms of the employee’s employment agreement.  If they are unable to pay 100% of the employee’s wages, employers need to deal with the shortfall – either by seeking the employee’s agreement to reduce hours or pay, or by using some form of leave.

Holidays Act 2003 also still applies 

A few things about leave:

  • If a person is taking annual holidays, they cannot be working at the same time. Sounds obvious, but annual leave cannot be used to top up the pay of an employee who is actually working.
  • Annual holidays can only be ‘cashed up’ in the normal way – i.e. only entitled leave, only one week per year, and only at the employee’s request.
  • Annual holidays should be taken by agreement – i.e. the employer and employee need to agree on when annual holidays will be taken. Only failing agreement can the employer direct the employee to take annual holidays, the employer must still give 14 days’ notice and the direction must be in good faith, fair and reasonable.
  • Remember that while employer and employee can agree to the employee taking annual holidays in advance of entitlement, the employer cannot direct it.
  • Sick leave can only be taken when the employee is sick or injured, their spouse is sick or injured, or someone who depends on the employee for care is sick or injured. There is a real risk in employers/employees ‘agreeing’ to use sick leave in other circumstances, as this does not meet the requirements of the Holidays Act, and may mean that sick leave ‘taken’ during the pandemic is actually still available for the employee at a later date.

What about a trial period? 

Yes, trial periods still apply, and employers may use a valid trial period to terminate employment.  The key word is ‘valid’ – remember that the clause must contain all the statutory requirements, the employee must have signed the agreement containing the trial period before starting work, the employer cannot have had 20 or more employees at the time the trial period was signed, the termination must take place within the 90 days, and notice must be given.  Trial periods are tricky beasts, and we strongly recommend you seek advice before using a trial period to terminate employment.

Note also that if an employer has, before 27 March, applied for a Wage Subsidy for an employee on a trial period, the employer must use ‘best efforts’ to retain the employee for the full period of the subsidy.  If the employer applied for the Wage Subsidy after 4pm 27 March, it must retain the employee for the duration of the subsidy (this is very likely to mean that the 90 day trial period will expire before the subsidy does).

Redundancy should be a last resort 

We are hearing some shocking stories of employees being made redundant without reason, consultation or any sort of human compassion.  If an employer applied for a Wage Subsidy prior to 4pm 27 March 2020, the employer undertook to use ‘best efforts’ to retain the employee for the period of the subsidy (i.e. 12 weeks).  “Best efforts” is a stringent test.  It will require at least the justification we would normally expect of a redundancy.  Remember also, that “best efforts” might meet obligations under the Wage Subsidy, but still fall short of the justification required under s103A ER Act.

If an employer applied for a Wage Subsidy post 4pm 27 March 2020, the employer must undertake to retain employees for the period of the subsidy – i.e. they cannot terminate the employee’s employment.  If the employer terminates for redundancy in this period, not only would this be a breach of the terms of the Wage Subsidy (and require the employer to pay it back) but the employer will need to justify the redundancy under the normal test.

Finally, if an employer has not applied for a Wage Subsidy, and wants to terminate an employee’s employment for redundancy, it will need to explain, as part of its proposal for consultation, why it did not apply for the available Government assistance.  On that note, remember that redundancy is about the position, not the person.  The employer needs to justify why that particular role may no longer be required, rather than ‘targeting’ specific employees, particularly if there is more than one person doing the same job.

Good faith; now more than ever 

Good faith requires the parties to an employment relationship to be active and constructive in establishing and maintaining a productive employment relationship in which the parties are, among other things, responsive and communicative.  In a nutshell, this means talking to each other.  Employers and employees both have an obligation to work together to try and maintain, so far as possible, a ‘normal’ employment relationship, in very abnormal times.

Now is not the time to forget the good faith obligations that underpin our whole employment law system.

The situation is constantly changing, so employers need to keep a watch on the Government’s Covid-19 page to consider the appropriate action required in relation to their own business.

If you need any help with wage subsidies, leave entitlements, redundancies, business interruption clauses or anything else arising out of Covid-19, please contact our employment team to discuss.

Noho ora mai: stay well.  


Disclaimer:  The information contained in this article is current at the date of publishing and is of a general nature.  It should be used as a guide only and not as a substitute for obtaining legal advice.  Specific legal advice should be sought where required.



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Contact the expert team at Hesketh Henry.
Media contact - Kerry Browne
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