Paying Staff During Lockdown

With New Zealand back at Alert Level 4, we again face the issue of “what should businesses pay employees when they are unable to work?”  Unfortunately, we still do not have certainty from the courts regarding this issue, and there is a real difference of opinion regarding what employees are entitled to be paid when they are unable to work due to Government restrictions.  In this article, we discuss the current leading case on this issue, as well as providing payment options for employers to consider.

Gate Gourmet New Zealand Limited v Sandhu [2020] NZEmpC 133

On 21 December 2020, the Employment Court released its first judgment in response to an employer’s actions during the Government enforced COVID-19 lockdown in New Zealand.

The full bench of the Employment Court was tasked with considering whether the Employment Relations Authority correctly determined that the defendant employees were entitled to minimum wage under the Minimum Wage Act 1983 (“MWA”) during the Alert Level 4 COVID-19 lockdown.

In summary, the defendant employees were employed by Gate Gourmet New Zealand Limited (“Gate Gourmet”) to work 40 hours a week at the minimum hourly rate.  Gate Gourmet was an essential service during the lockdown and therefore entitled to operate its essential activities, subject to restrictions.

Gate Gourmet implemented a proposal to pay the employees (who were not working during the lockdown) 80 per cent of their normal pay, unless they were carrying out duties for Gate Gourmet, in which case they were paid their contracted rate of minimum wage.  However, the employees’ hours of work were not reduced to 80 per cent in accordance with the reduced pay.  The defendant employees argued that Gate Gourmet’s conduct meant that they were being paid less than minimum wage (although not working) during the lockdown, which amounted to a breach of the MWA.

The majority of the Employment Court held that the defendant employees were not entitled to be paid minimum wage when they were at home and not working.  In reaching this decision, the majority of the Employment Court applied the factors in Idea Services Limited v Dickson [2011] ERNZ 192 (CA), concluding that the employees were not working at the relevant time and therefore not entitled to minimum wage because:

  1. there were no constraints placed on the employees’ activities by Gate Gourmet;
  2. the employees had no responsibilities to Gate Gourmet; and
  3. there was no benefit to Gate Gourmet.

This case perhaps provides an argument that where no work is performed by an employee, they are not entitled to payment during this time.  However, this judgment is currently being challenged to the Court of Appeal.  Unfortunately, this means that we do not yet have certainty of law regarding this issue, and there is the possibility that the Court of Appeal could reverse this decision and/or restrict this decision to simply being a MWA issue.

Possible options for paying staff during lockdown

With the above in mind, there are a number of options open to employers in respect of paying staff who are unable to work during Alert Level 4 (and some at Alert Level 3) (“Lockdown”), with varying degrees of risk.  We have summarised options below.

1. Safest approach: continue to pay employees as normal for the duration of the Lockdown, until they can return to the workplace.  Although this is a very safe option, this approach would likely take a significant financial toll on businesses (particularly if they are not trading), as we do not know how long the current restrictions/Lockdown may remain in place.

2. High-risk approach: alternatively, employers could undertake a consultation process with employees, proposing that:

    • staff take unpaid leave on the basis that they are not ready, willing and able to work due to the Lockdown restrictions, until they are able to return to work (i.e. when they are ready, willing and able to work); and
    • if the business is eligible for and receives the wage subsidy, this will be passed on to employees when received.

As set out above, without certainty of law in respect of the issue of an employee’s entitlement to be paid during Lockdown, a business does run the risk that should the Gate Gourmet decision be overturned, the employer could be liable for wage arrears claims from employees (for failing to pay employees their wages) as well as penalties for breaching employment agreement/minimum employment standards.

3. Our preferred approach: undertake a consultation process with staff in accordance with the obligations of good faith, whereby the employer would propose to reduce staff members’ hours of work (and pay commensurate with the reduction of hours) to accord with the level of the wage subsidy (or 80% of the employees’ hours/wages if this is practicable), on a temporary basis until employees are able to return to work (thereby distinguishing this approach from the issues that Gate Gourmet had, above).  Ideally, this consultation process would be completed before a business applies for the wage subsidy.  If this process is commenced after applying for the subsidy, employers will need the employee’s written agreement to the changes, adding a layer of complexity to the consultation process.

As part of this process, employers have the option to also consult with staff about their willingness/agreement to utilise any annual leave entitlement while employees are unable to work.  Failing agreement, having consulted in good faith, employers have the option to direct employees to take annual leave, giving 14 days’ notice.

If you have any questions about this advice or wish to consult with employees regarding these changes, please feel free to contact us on 0800 339 002.

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