ILANZ, In-House Lawyers Association of New Zealand


What employers should bear in mind when navigating COVID-19 (Coronavirus) in New Zealand

What employers should bear in mind when navigating COVID-19 (Coronavirus) in New Zealand

By James Warren, Partner, and Charlotte Evans, Associate, Employment and Labour team at Dentons Kensington Swan| March 30, 2020 at 11:07 PM

Given these unprecedented and constantly changing times, many employers have questions regarding obligations to employees, especially where businesses are unable to operate, and employees are unable to work over this period.  There are a number of differing opinions out there regarding what this means for employment relationships and the obligations under them.  While we are aware of these differing opinions, we set out our view of what we consider to be the correct or preferable approach below. 

What is the Government wage subsidy?

The Government wage subsidy will be highly relevant to employment relationships and any decisions made by employers at this time.  Employers must consider their ability to apply for, and the financial viability for their business, of the new government wage subsidy (in addition to other forms of government relief and support which may be available for businesses).  The wage subsidy has been made available to support employers and their staff to maintain an employment connection and ensure an income is available for impacted employees.  

The wage subsidy is able to be obtained for both employees who are not able to work, as well as those who employees who are working from home or are working in essential businesses.

The COVID-19 wage subsidy will be paid at a flat rate of:

  • $585.50 for people working 20 hours or more per week; and
  • $350.00 for people working less than 20 hours per week.

To be eligible for the wage subsidy, businesses need to provide undertakings that broadly reflect that:

  • the business has experienced a minimum 30% decline in actual or predicted revenue over a period of a month, when compared to the same month last year, and that decline is related to COVID-19;
  • the business has taken active steps to mitigate the impact of COVID-19; and
  • the business must retain employees in employment for the period of the subsidy.

Employers must use their best endeavours to pay employees 80% of their normal income.  However, the Government has made it clear that, where it is not possible to pay an employee 80% of their normal income – in particular where a business has no activity whatsoever due to the shutdown and workers are not working any hours - an employer can and should pass on at least the whole value of the wage subsidy to each employee covered by the subsidy.  Where an employee’s regular pay is less than the subsidy, the employee should receive their normal pay. 

Employers receive the subsidy as a lump sump to pass on to employees and it covers 12 weeks per employee.  The subsidy is received as a flat rate, and we consider that where an employee would typically be paid less the employer can use the saved funds to help bring other employees up to 80% of their normal income.

The existence of the wage subsidy does not change any employment law obligations.  This means that employees must still be paid in accordance with their employment agreements where they are able to work during the lockdown. 

What are an employer’s obligations if work is unable to be performed?  Are employees entitled to be paid?

In circumstances where employers decide, or are forced, to shut the workplace, the usual starting point is that an employer remains obliged to pay their employees who remain able and willing to work. 

However, we are not now in a normal situation.  There are two very distinct arguments around the payment of employees when they are unable to work due to the lockdown.  One is that the government restrictions create a situation where employers can’t operate but nonetheless employees remain ready to work.  The other is that the employees are unable to work and therefore that the analysis is different. 

Our view is that where employees are not able to attend to work, the obligation to pay an employee does not arise.  The restrictions which are in place as a result of New Zealand being at Alert Level 4 apply to both parties in every affected employment agreement, and where working from home is not an option, neither side is in a position to perform the fundamental requirements of the agreement.  The argument, therefore, is that the payment obligations under employment agreements will not arise. 

This position may be reinforced, or changed, by the terms of individual employment agreements or employer policies, so these should be considered carefully.

In considering the position and the legal position which they may follow, employers should bear in mind the following points:

  1. Policy – from a policy perspective, there are strong arguments that the preferable legal position is one which preserves the employment relationship, so that this can be resumed when the lockdown ends. 

The alternative unattractive position would require many or even most employers to consider redundancies, especially if the lockdown continues.

  1. Balance of convenience – the strictly cautious approach from a legal perspective may be to pay employees even where they are unable to work.  However, from a business perspective the cautious approach may be to reserve funds and protect the business during the lockdown when it has no income. 

If employers do pay staff when they are not obliged to do so that money is unlikely to easily or quickly recovered, and it may risk the survival of the business.  Where employers do not pay but it is subsequently determined that they should have done so, they may be faced with wage arrears claims and potentially penalties.  But then payment of those wages will have been deferred during the difficult lockdown period, when there may have been no income, and any and all such costs including those which are additional may be more manageable when the business is up and running. 

However, we do note that in circumstances in which employees are not receiving pay, we consider that an employer may be in breach of its duty of good faith if it does not consider applying for the Government’s wage subsidy to ensure that employees receive at least some pay over the period the subsidy covers.

What are an employer’s obligations where employees can work from home?

Where employees can work from home, this can (and should) proceed in the usual way.  This includes providing employees with appropriate guidance and ensuring that they have suitable facilities at home from a health and safety perspective.  It is important to be aware that for the period of the lockdown, employees are unable to travel to work to obtain equipment or documents from the office, assuming they are not involved in essential services.

Where employees are able to work, but there is not the work available due to COVID-19, our view is that this is not the same as employees being unable to perform work.  Here, employees are still able to fulfil their side of the employment relationship and therefore, the starting point is that they are entitled to be paid in accordance with their employment agreement.

In these circumstances, even where the employer is receiving the Government Wage Subsidy, the employee is entitled to be paid in accordance with their employment agreement.  Any amendment to the position under the employment agreement would need to occur in the usual manner for a variation, with agreement of the employee. 

What are an employer’s options where employees cannot work?

As mentioned, employers will need to consider their ability to apply for, and the financial viability for their business, of the Government wage subsidy.  The Government has made it expressly clear that this is for, and intended to be used where, employees are unable to work. 

Where an employee cannot work, the employer needs to consider why they cannot work – is it due to the employee being unable to work (i.e. due to self-isolation/shutdown and being unable to attend work) or is the employee ready and able to work, but there is not the work available for them (i.e. where an employee could perform their role from home, but there is not the work available due to the impact of COVID-19).

This will guide an employer on their obligations to the employee, in line with the considerations described we have described.

In addition to the Government wage subsidy, the Government encourages employers to consider flexible use of paid leave for affected staff.  In general, we do not see an issue with an arrangement where employees agree to use some of their holiday entitlement over the lockdown period.  However, we do not consider that an employer could force an employee to take such leave.  If an employer did take this approach, it needs to:

  1. try to seek agreement with the employee; and then
  2. provide a minimum of 14 days’ notice of the date of any leave.

There is a risk that an employee might at this point, or later, claim that any requirement to take leave is unlawful and potentially bring a claim seeking reinstatement of their original holiday balance.  This is due to the purpose of annual leave being intended for rest and recreation, as opposed to an enforced absence from the workplace due to COVID-19.

Additionally, we recommend that employers avoid any arrangement to use paid sick leave where they are not sick.  There is a risk in that situation that employees might later assert that it was an improper use of a protected ‘minimum entitlement’, and still claim paid sick leave if and when they do become ill.  For the avoidance of doubt, those who are genuinely ill, whether with Covid-19 or otherwise, will generally be entitled to sick leave.  There might be a basis upon which this could be resisted during the lockdown, but we expect few employers would wish to explore such options unless they are concerned about fraudulent claims.

What about essential services?

Businesses performing functions which are within the definition of essential services released by the Government will be able to (and expected) to continue to operate those functions.  However, there will still be a range of important considerations for them to address, as they will be operating in a highly restricted and unusual environment, and potentially facing exceptional health and safety hazards.  We cannot address all the relevant issues in this brief advice, but note that businesses should:

  • minimise, or eliminate if possible, physical interactions among staff and with and between customers;
  • ensure appropriate health and safety measures are in place; and
  • restrict activity to that which is essential during the Alert Level 4 period.

Can employers still restructure?

We do not consider that the lockdown or the Government wage subsidy prevents employers from carrying out necessary restructuring.  However, these circumstances and the potential availability of the wage subsidy will be highly relevant considerations when dealing with a redundancy proposal.

The fact that employees do not need to be paid for a period, and the potential availability of government funding for at least a portion of their remuneration, may affect the timing and/or reasonableness of any planned restructuring.  Additionally, an employer will need to be alert to the significant practical implications of managing meaningful consultation from home, especially with employees who may not be set up with the ability to receive or review documents at home, or to participate in teleconferences.

Other considerations

Employers need to avoid knee-jerk or panic responses to the COVID-19 situation.  The duty of good faith remains in place and is relevant over this period.  Although some employees may not be able to work, and others will be working from home for a significant period, the importance of good and clear communication is heightened in these circumstances.  Any proposals to change working arrangements or otherwise to do anything which might affect an employee’s position should be the subject of consultation.  In practice the ability to hold extended discussions will be very limited, but steps should be taken to demonstrate that employers are attempting as best possible to observe their obligations.  And generally, as a matter of employee relations, and the maintenance of morale during a difficult time, active and positive communication will be key. 



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