Authority decisions show how not to act in lockdown labour cuts

26 Aug 20

Column written by Dunedin Partner John Farrow, published in the business section of the Otago Daily Times on Wednesday 26 August.

The recent COVID cluster in Auckland has prompted the Government to implement the resurgence wage subsidy scheme and simplified leave support scheme. This will cover the period that Auckland is in COVID-19 Alert Level 3. The revenue test for the COVID-19 leave support scheme has been removed. Finance Minister Grant Robertson stated “the Government is again moving quickly to cushion the blow for businesses and workers”. Despite these schemes, the impact of Auckland being in Alert Level 3 will inevitably require some businesses to respond promptly to prevent further losses in revenue.

We were in unchartered territory during Level 4 lockdown and the Employment Relations Authority has recently released some decisions which will inform businesses how they should not act when trying to reduce the cost of labour. There is a significant backlog of hearings before the authority. This means there are bound to be decisions yet to come which will further highlight the perils of acting in haste.

Sandu v Gate Gourmet involved an in-flight catering service. It was an essential service and could operate during lockdown but had a significant reduction in work. Gate Gourmet partly shut down its operations and told its workers they didn’t need to come to work unless rostered. Gate Gourmet agreed with Aviation Workers United that workers would be paid 80% of their ordinary salary or wages and that employees could top these up by using their annual holiday entitlement. During lockdown there was an increase to the minimum wage. Gate Gourmet argued it did not need to pay the minimum wage to workers who were not working. It argued that it met its obligation under the Minimum Wage Act and under the wage subsidy arrangements because it paid its employees for each and every hour they worked. It argued that for employees who were not working, there was no obligation to pay at all. The authority disagreed, finding that the employees were ready, willing and able to work and were therefore entitled to minimum wage.

Ragget v Eastern Bays Hospice Trust (T/A Dove Hospice) involved a hospice operating several retail shops. These were required to close because of Level 4 restrictions. Dove Hospice applied for the wage subsidy and paid its workers 80% of their normal pay. Dove Hospice did not seek agreement from its employees to reduce their normal pay. Dove Hospice argued that during Level 4 restrictions the workers were not ready, willing and able to work. The authority disagreed. It found that the employment agreement did not allow for the suspension of wages or salary for non-performance in the circumstances and, therefore, Dove Hospice was not released from its obligation to pay wages or salary. The decision calls into question whether, in fact, where there is an intervening event, such as a pandemic, preventing the employer from providing work, it can truly be said that the employee is able to work. This decision has been appealed to the Employment Court.

de Wys and Jenney v Solleys Freight Ltd (SFL) involved a redundancy situation. SFL provided essential services but its operations also included non-essential services. SFL sought to reduce the size of its workforce because of COVID-19 restrictions. This was achieved by not offering work to some casual workers, not further engaging the services of some independent contractors and dismissing some permanent employees. SFL applied for the wage subsidy for its employees. Timothy George de Wys and Jesse Monro Jenney were originally included in the application for the subsidy but later SFL asked that their names be excluded. On the morning they were made redundant, SFL knew or ought to have realised it would soon receive the Government wage subsidy. SFL failed to consult Mr de Wys and Mr Jenney before notifying them they had been selected as redundant. SFL provided no information about why it needed to move to redundancies rather than wait for the wage subsidy payment which it had been notified it would receive. The authority emphasised that employees were entitled to a reasonable opportunity to respond to a redundancy proposal and the employee needed to genuinely consider any response before making the final decision. Considered objectively, no fair and reasonable employer could have decided that Mr de Wys and Mr Jenney were surplus to the company’s requirements when SFL knew that it was about to receive the wage subsidy. Mr de Wys was ordered compensation of $10,000 and reimbursement of $18,907. Mr Jenney was ordered compensation of $15,000 and reimbursement of $14,132. While the consequences of COVID-19 are significant for employers, so are the consequences if an employer acts contrary to well-established employment law principles.

If you have any questions about the employment law matters raised above, please contact our specialist Employment Team.

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John Farrow