Duty to consult, behave in good faith with employees
Article written by Dunedin lawyer Jessica Higgins, published in the business section of the Otago Daily Times on Monday 23 August.
Last Tuesday brought the announcement we were all dreading: New Zealand is moving to Alert Level 4.
But we have been here before, we got through it, and we learnt from it. For business owners, it is timely to reflect on those lessons, particularly in the context of employment law.
Although there have only been a handful of Covid-19 related employment cases, the decisions that we do have identify a number of points which employers should be mindful of as they navigate this latest lockdown.
Here are some of the key lessons from the Covid-19 cases.
Lesson 1: Force majeure clauses are not a silver bullet
Some employment agreements contain a “force majeure” clause, also known as a business interruption clause, which either pre-date Covid-19, or have been implemented as a result.
Generally, these clauses state that the employer may reduce wages, or not pay wages at all, where they cannot operate their business for reasons outside of their control. Some clauses may also allow an employer to terminate employment in similar circumstances.
A cafe at Snells Beach, just north of Auckland, relied on such a clause to terminate seven cafe workers on March 19, 2020, a few days before the first lockdown.
The clause read: “If the employer’s business is interrupted by unforeseen events beyond its control (for example … pandemic), the employer may be unable to provide work for you to perform”.
The Employment Relations Authority held this was a type of “frustration” clause, and that the legal test for frustration is high. The authority concluded circumstances did not exist at the time to justify using the clause — the cafe could still operate as gatherings of 100 people were still permitted.
The cafe had also failed to consult the workers on the termination of their employment. Each employee simply got a letter stating that their employment was at an end. The terminations were held to be unjustified.
The outcome would have been different had the cafe owners invoked the clause during the lockdown and properly consulted before deciding to dismiss. Their failure to do so meant they had to pay the seven staff a total of $136,000 in lost wages and compensation.
Lesson 2: Employment law is not suspended during lockdown
Employers are unwise to assume they will be forgiven for not complying with employment law simply because of a lockdown, or the broader impacts of Covid-19 on their business.
The Employment Court has been very clear that the pandemic has not acted to suspend employee rights or employer obligations. In particular, there are ongoing and fundamental requirements to act in good faith and as a fair and reasonable employer.
Sollys Freight, a trucking and contracting business in Christchurch, failed to meet both of these obligations when it made two employees redundant during last year’s lockdown. Sollys did not consult about the redundancies and made the decision while waiting to hear whether they would receive the Government Wage Subsidy.
Sollys tried to argue: “the standard expected of a fair and reasonable employer was significantly altered by the context of the global pandemic and economic turmoil”.
That didn’t fly with the Authority, who found it was unjustified to terminate employment while waiting to hear about the subsidy, especially given that in applying for it Sollys had declared that it would use best endeavours to keep all staff on.
The authority also held the failure to consult meant the terminations were procedurally unjustified. As a result, Sollys was ordered to pay its two former employees a total of $58,000.
Lesson 3: Be cautious with changes to pay
There is no clear legal answer as to whether the “no work, no pay” principle applies during a lockdown. In particular, there are divided opinions on whether an employee is entitled to pay in circumstances where they cannot work, but, at the same time, an employer cannot provide work, such as in a lockdown situation.
The conservative approach is employers should seek agreement before reducing or withholding pay (unless a force majeure clause is in place, but even then, to take care).
This was the position adopted by the authority in a case involving a hospice shop in the Bay of Plenty.
In that decision, the authority concluded the employer acted illegally when it reduced employees’ pay to 80% without first seeking agreement.
Because the employees were ready and willing to work and, but for the lockdown, were able to fulfil their contractual requirements, the authority held pay could not be reduced without their agreement.
Employment law can be tricky to get right at the best of times, let alone in a lockdown. Key points to remember are:
- Employees must be consulted on decisions that affect their continuing employment.
- All contractual and legislative entitlements continue to apply in lockdown.
- Do not expect leniency from the authority or court if you fail to follow the law during lockdown.
- Get legal advice.
Want to know more?
If you have any questions about this article, please contact our specialist Employment Team.
Read the article on the ODT website here.