18.08.2020

COVID-19: Who Takes the Pay Hit When There is Little or No Work During Lockdown?

The COVID-19 situation is a rapidly changing beast. 

As the science develops, WHO’s advice and the Government’s response is changing.  So too, we are seeing developments in employment law in relation to the Government mandated Alert levels, and how each level impacts on employees’ and employers’ rights.

We recently wrote about the Employment Relations Authority’s (Authority) treatment of a COVID-19-related redundancy.   We also wrote about how 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.

There have been further Authority determinations that could impact on New Zealand’s employment landscape.  The Authority has recently considered an employer’s obligation to pay when there is little or no work in two separate determinations.

Sandhu v Gate Gourmet New Zealand Limited

Gate Gourmet provides catering for passenger aircraft.  It was an “essential service” under the level 4 lockdown that commenced on 26 March 2020.  It was able to remain open for business, but had very little work.  It proposed a partial shutdown of its operations and three options for pay:

  1. Annual leave, and then moving to option 2;
  2. 80% of normal pay conditional on the wage subsidy application being approved;
  3. Using annual leave to top up the 80% by using one day per week.

The employees concerned were on the minimum wage, and Gate Gourmet paid them 80% of the minimum wage. The Authority recorded that Gate Gourmet “defends its position in reliance on the slogans ‘no work, no pay’ and ‘partial performance, partial remuneration’”.  At the investigation meeting, Gate Gourmet claimed that the employees were not “ready, willing and able to work”.

Employees were able to work

While this case raises issues about the minimum wage, our focus is on the part of the decision that dealt with whether the employees were able to work or not.  The Authority found that the employees were able to work, but that it was Gate Gourmet’s decision not to provide work.  The Authority recognised that Gate Gourmet may not have been able to offer full time work, but that it had taken no steps to restructure its business; alternatives were never explored.  The applicants were not working because of the restrictions of COVID-19, but rather at the direction of Gate Gourmet.

On that basis, Gate Gourmet’s obligations to continue paying the employees in accordance with their employment agreements continued.  Here, the obligation was to pay the minimum wage as that was the rate employees were on.

Other noteworthy points

This determination confirms that a commitment to pay 80%, and even the agreement of the union (note: the union’s agreement was across all employees; it did not agree to a payment less than the minimum wage.), does not allow an employer to pay less than the minimum wage.

The Authority also recognised Gate Gourmet’s commitments when it applied for the wage subsidy, and the purpose of the wage subsidy, to continue to pay employees “even if they are unable to work”.

Raggett & Ors. v Eastern Bays Hospice Trust trading as Dove Hospice 

Dove Hospice operates a hospice services in East Auckland, and ancillary services, including retail stores.  In the level 4 lockdown in March, the Dove Hospice closed its stores and applied for the wage subsidy.

It informed its employees that they would be paid at 80% of their salary until the end of the lockdown.  Unfortunately, it failed to agree (or even consult about) this pay reduction with its employees.  Shortly afterwards, Dove Hospice proposed to disestablish their positions, and following consultation, decided to terminate their employment for redundancy. 

Dove Hospice gave these employees 8 weeks’ notice (despite their employment agreements only requiring 4 weeks).  However, there was a catch: the first 4 weeks of notice was paid at 80% of their salary or wages and the second 4 weeks of notice was paid at the wage subsidy rate only. 

No release from obligations to pay

There were issues around the redundancies, but this determination considered the reduction in the employees’ pay: the initial reduction to 80% and then the reduction to the wage subsidy rate for the second week of notice.  The Authority had to consider whether, in accepting the wage subsidy, Dove Hospice was released from its obligation to pay wages or salary under the parties’ employment agreements and/or the Wages Protection Act 1983.

The Authority confirmed that employers could not unilaterally vary employees’ employment agreements (even during a pandemic).  Dove Hospice argued that it was not required to pay any wages/salary under the Wages Protection Act 1983 because the employees had not been working (due to the Government’s restrictions).  The Authority was not attracted to this argument, and found that:

… on the unchallenged evidence the workers were at all times ready and willing to work. But for the intervening event of the COVID-19 restrictions and/or Dove’s decision to not require them to attend work during the notice period, on the evidence, they were able to fulfil their obligations under the employment agreements.

Dove Hospice was found to have breached its obligations under the relevant employment agreements and the Wages Protection Act to pay contractual wages and salary without deduction during the employees’ employment.

So where does this leave us?

The determinations have different facts and their reasoning is blurry.  In Gate Gourmet the business was an essential service, and Authority found that it was the employer’s choice not to provide work, and that the employer had committed, under the wage subsidy, to keep paying employees.  In Dove Hospice why the business was closed (i.e. whether it was a Government requirement for them to close, or whether the employer made the decision to close) was vague.  It seems that there were periods that the business could not operate at all, and others where it may have been able to trade.  However, the Authority seems to have taken the position that employees who cannot work during a lockdown, must be paid their ordinary wages or salary, unless they agree otherwise. 

This is less controversial if it is the employer that has made the decision not to require the employee to work – that is the business could open, but has elected not to, or is operating at reduced capacity.  In those circumstances, it makes sense that the employee should be paid (unless they agree to take leave, reduce hours, or reduce pay).  It also makes sense that if an employer has some work, as in Gate Gourmet, that it explores options regarding how that work could be done with its employees, and the union.

However, if a business cannot open due to Government restrictions, then the position is more difficult.  The employee is not able to work, and the employer is not able to provide work.  Both parties are unable to fulfil their obligations under the employment agreement.  However, on the basis of the Dove Hospice and Gate Gourmet determinations, it seems likely that the Authority will consider employees are entitled to be paid in accordance with their employment agreements.  Both cases were influenced by the wage subsidy, which of course committed employers to continue to employ and pay employees.  Both cases seem to consider that the employment agreement obligations continued as if they were working.  As a consequence, the employers required agreed variations or in the case of Gate Gourmet, could not pay below the minimum wage in any case.

These cases do not deal with circumstances where the lockdown prevented work, the employer had no option to provide work, and there was no wage subsidy.

Conservative approach

We understand that Dove Hospice is under appeal.  However, at the present time, the most conservative course of action is to pay employees who are unable to work.  Of course, employers and employees should discuss the situation in good faith, and there should be flexibility on both sides – there will hopefully be room for a mix of measures (perhaps including annual holidays, agreement to reduce hours or pay, and agreed leave without pay) to be agreed between employer and employee. 

Wage subsidy update

On 17 August 2020, the Government announced the wage subsidy scheme will be extended nationwide for the period that Auckland is at Alert level 3.  The criteria for the latest extension are:

  • a business must have had, or is predicting to have, a revenue drop due to COVID-19 of at least 40%, and
  • the revenue drop applies for any consecutive period of at least 14 days within 12 August 2020 and 10 September 2020 compared to last year.

The existing extension to the original wage subsidy scheme remains open for applications until 1 September 2020.

The COVID-19 Leave Support Scheme is also available to employers, including sole traders, who meet the relevant criteria.  This Scheme provides employers with assistance for paying employees who cannot work because they are at higher risk if they get COVID-19; or who must self-isolate for 14 days; or have tested positive for COVID-19 and are required to remain off work until cleared; or have household members who are at higher risk if they get COVID-19.

Other information about COVID-19

Hesketh Henry has written extensively on issues related to COVID-19, and how this may impact businesses and individuals.  Our Business Advice, Insurance, Construction, and Private Wealth teams have all written on various legal aspects of New Zealand’s COVID-19 response.  To see further information, click here.

 

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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