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COVID no excuse to ignore employment law

05 Aug 2020

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By Lucy Conway, Solicitor, Aspiring Law

If your business had to close, or has been operating at reduced capacity, due to COVID-19 restrictions, the law requires that wages still be paid to employees who are ready and willing to work and who would have been able to work, but for the COVID-19 restrictions.

Take the case of an Auckland employer, Eastern Bays Hospice Trust t/a Dove Trust (Dove), which provides hospice services in East Auckland. Dove applied for the government wage subsidy on March 23 for six employees. In making the application, Dove signed a declaration that included the following statement:

‘You agree you will, using best endeavours, retain the employees named in the application in the employment on at least 80 percent of their income for the period of the subsidy’.

On March 24, Dove closed its retail stores due to lockdown restrictions. The next day, Dove sent a memorandum to all staff stating that normal salary and wages would continue until the end of the week but, after that, all staff would be paid 80% of their salary or wages until the end of lockdown. The memo did not state whether employees had agreed to have their pay reduced (as required under the Employment Relations Act 2000).

A few weeks into lockdown, Dove started consulting with employees on a proposed restructure. After lockdown ended, employees were told their positions were disestablished immediately and they would be paid eight weeks’ notice (double what they were contractually entitled to) on the following terms:

  • The first four weeks of notice to be paid at 80 percent of their salary or wages; and
  • The second four weeks of notice to be paid at $585.80, the full-time government wage subsidy amount.

The employees took a case to the Employment Relations Authority to challenge the fairness of their dismissals and decreased pay rate. The employees successfully argued that the decreased pay rate was unlawful. The unfair dismissal case will be dealt with at a later date.

Communication is key

The Employment Relations Act 2000 provides that terms of employment cannot be unilaterally varied. The Authority held that the employees had not agreed to the reduction in their wages or salaries and the employer should have consulted with employees prior to sending out the memo varying the terms of their employment.

It also held that just because Dove extended the contractual notice period (which was generous and done out of acknowledgement of the impact of redundancies), it could not set a remuneration rate different to that agreed in their employment agreement.

An employment contract cannot be unilaterally varied. Dove should have consulted with employees about extending the notice period and paying them at a different rate to what they were contractually entitled. Without consultation and agreement from employees, Dove did not have a legal basis to reduce contractual wages or salaries or extend the notice period, albeit to the benefit of the affected workers.

Willing to work

The Wages Protection Act 1983 provides that wages are to be paid to a worker for ‘performance of service or work’ and ‘deductions may be made from wages payable to a worker for a lawful purpose with written consent’.

Dove stated that due to the COVID-19 restrictions, workers were not performing the services or work under their employment agreements and were, therefore, discharged from their obligations under the Act.

The Authority held that the COVID-19 restrictions could not be argued as a ‘lawful purpose’ to make reductions to wages or salaries. It stated that, in fact, the employees were at all times ready, willing and able to work but for the COVID-19 restrictions, and wages, therefore, were still payable.

What employers need to know

  • Restrictions and impacts from COVID-19 does not mean employment law can be thrown out the window.
  • Employment obligations and rights cannot be unilaterally varied – consultation and consent are needed first, even if you are varying the contract to the benefit of the employee.
  • If your business is struggling, it might be time to start considering what long-term effects COVID-19 may have on your business.

If you are considering a restructure and potential redundancy process, Aspiring Law is more than happy to help. This process is crucial to get right and so easy to get wrong.