COVID-19: Return to Levels 2 and 3 – Payment During Lockdown

With the Government’s decision on 14 August 2020 to keep Auckland at Alert Level 3, and the rest of the country at Alert Level 2, for at least 12 days, many employers will be wondering how to pay staff during this period, and how to prepare for any further escalation of COVID-19 restrictions.

Recent Determinations

There have been some recent determinations by the Employment Relations Authority (“Authority”) regarding the payment of wages during COVID-19 restrictions.  If you are more interested in what options are open to your business during this period, rather than the reasons why, skip down to the “Payment During Lockdown” section below.  We briefly summarise two of these determinations below.

Sandhu v Gate Gourmet New Zealand Limited & Anor [2020] NZERA

The applicants were employees who were employed to work 40 hours per week at minimum wage.   Gate Gourmet New Zealand Limited (“Gate Gourmet”) was classified as an essential service during Alert Levels 3 and 4.  Gate Gourmet also applied for and received the wage subsidy.

Due to a significant drop in business, Gate Gourmet notified its employees that it was closing down part of its operations.  Workers who were rostered on would get paid their ordinary wages, however those not rostered were only paid 80% of their ordinary wages (minimum wage).  From 1 April 2020, when minimum wage increased from $17.70 per hour to $18.90 per hour, Gate Gourmet continued to pay these employees 80% of $17.70 per hour on the basis of “no work no pay”. 

The Authority determined that all 130 staff were “ready, willing and able” to work during the COVID-19 restrictions as:

  • Gate Gourmet had been designated as an essential service;
  • Gate Gourmet’s operations were partially operating and it was Gate Gourmet’s decision to partially close its operations (unlike other industries that were not classified as essential businesses);
  • Gate Gourmet had received the wage subsidy, and had decided not to undertake a restructure;
  • As such, it had confirmed to continue to employ its staff over this time; and
  • Although there was not sufficient work for all staff to have full time work, the decision not to require staff to work came from Gate Gourmet, due to reduced demand, rather than from the COVID-19 restriction itself. 

Raggett & Ors v Easter Bays Hospice Trust t/a Dove Hospice [2020] NZERA

When the Alert Level 4 restrictions were implemented, Dove Hospice had to close its business for the duration of the lockdown, as it was not deemed an essential service.  Dove Hospice applied for and received the wage subsidy for its staff.

During the first week of Alert Level 4, Dove Hospice sent a memo to staff advising that they would be paid their full wages until the end of the week, after which they would be paid 80% of their wages until the end of Level 4 lockdown.  Subsequent to this, Dove Hospice proposed to restructure the business. 

Following a consultation process, staff were advised that their roles were to be disestablished, and that they would receive eight weeks’ notice of redundancy (which was twice their contractual entitlement).  However, staff were also advised that their notice period would be paid on the following basis:

  • the first four weeks would be paid at 80% of their usual rate; and
  • the second four weeks would be paid at the relevant wage subsidy rate (i.e. without top up).

The Authority determined that the workers did not agree to be paid 80 per cent of their wages or salary and in the absence of consultation and agreement to vary the terms of the notice period, Dove Hospice did not have a legal basis to reduce normal wages or salary due under the employment agreement during the extended notice period. 

The Authority also determined that:

  • the staff were at all times “ready and willing” to work; and
  • 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.  

The Authority found that Dove Hospice had breached its obligations under the Wage Protection Act 1983 and the relevant employment agreements by not paying staff at their full rate during their employment.  

We understand that this determination is being challenged.  

Impact of determinations

Based on the specific facts of the cases above, the Authority held that the employees were entitled to be paid their wages at the contracted rate.

Whilst these determinations appear to place a higher standard on employers, it is important to note that they are not binding and may only be persuasive to other Authority Members considering cases before them in the Authority.  

Payment during Lockdown

The Government has confirmed that Auckland will remain at Alert Level 3, and the rest of the country at Alert Level 2, until 11.59pm on 26 August 2020.  This will be reviewed on 21 August 2020. The Government has also confirmed that the wage subsidy scheme will be extended nationwide, to cover the period of the current lockdown. Further detail on this is to follow in a separate newsletter.  

We have set out a table of advice regarding various scenarios that may arise over the coming weeks.

However, regardless of the situation, employers must consult with employees on any proposed changes to their terms and conditions of employment in good faith.  Changes cannot be implemented unilaterally.  Good faith requires employers to consult with employees on any proposal that may affect their employment (whether that be taking paid leave or unpaid leave, reduced hours of work, disestablishing their role, changing their hours of work, office location and so on) and seek and consider their feedback before reaching a decision.

Employees working from home or continuing to work from the work premises (subject to complying with Government restrictions) during Alert Levels 3 and 4The employee should receive their full pay.  
If there is a business need to reduce wages or hours of work, the employee should be consulted with in good faith. 
Employees unable to work from home or from the work premises (no subsidy extension) as a result of the Alert Levels 3 and 4 restrictions In the first instance, the employee will be entitled to take annual leave.  This can be by agreement or on 14 days’ notice (subject to consultation in good faith).  
When the employee’s paid leave entitlements have been, or are going to be exhausted, the employer should consult with the employee in good faith on what steps it is proposing to take (i.e. unpaid leave or disestablishing roles).
Employees unable to work from home or the work premises (subsidy extension) during Alert Levels 3 and 4The full subsidy must be passed onto the employee, or if ordinary wages/salary is less than the subsidy, the employee should be paid their ordinary wages or salary. Any difference should be used to top up other named employees.  
The employer must also retain named employees during the subsidy extension period.  Therefore, if the employer would like to propose to disestablish any named employees’ roles, the decision cannot be implemented until the conclusion of the subsidy extension period.  
Employers must use their ‘best endeavours’ to top up the subsidy to 80% of the employee’s “ordinary wages/salary”.  However, if it is not commercially viable to do so, the employer must consult with the employee about any proposed reduction to their wages/salary.  The subsidy can be topped up with annual leave, by agreement or 14 days’ notice subject to consultation in good faith. 
Employees not required to work during Level 3 or 4, but the employer is operating or partially operating In the first instance, the employee will be entitled to take annual leave.  This can be by agreement or on 14 days’ notice (subject to consultation in good faith).  
When the employee’s paid leave entitlements have been, or are going to be exhausted, the employer should consult with the employee in good faith on what steps it is proposing to take (i.e. unpaid leave, reduced hours of work or remuneration, or disestablishing roles).    
Can an employer undertake a restructure if it has received the Wage Subsidy Extension and it is still during the subsidy period?  If so, what would the employer do with any excess wage subsidy amount?Yes, you can restructure the business, provided you follow a procedurally fair consultation process.  However, the employer must retain employees for the 8-week subsidy period.  
Notice of redundancy, however, can be given within the subsidy period, with the end of the employee’s notice coinciding with the end of the subsidy period.  This may require extending the employee’s contractual notice period to align with the duration of the wage subsidy period, which requires consultation with the employee  
If an employer must make an employee redundant within the subsidy extension period, then they must advise MSD and repay the balance of the subsidy.  The subsidy can be used to pay the employee any notice period arising from redundancy.  However, the subsidy cannot be used to make any redundancy compensation payment to the employee.

If you have any employment-related questions regarding the impact of COVID-19 on the workplace, you can see further information at our website or contact our offices on:

Auckland: (09) 953 9757

Hamilton: (07 )981 3140

Tauranga: (07) 987 0914

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