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Employers obligations with COVID-19

In the midst of the lockdown currently being enforced by the Government as NZ responds to the COVID-19 virus, it is important that employers understand their obligations pursuant to the Employment Relations Act 2000, Holidays Act 2003 and Health and Safety at Work Act 2015 (“HSWA”). As the situation continues to rapidly evolve, employers should closely monitor information about coronavirus from credible sources (which are being updated as necessary) including:

As is now well known, from midnight Wednesday 25 March 2020, the nation’s alert level was raised to level 4 and New Zealand entered into a lockdown of at least 4 weeks. People are to stay in their homes (except to access essential services) and non-essential businesses are closed.  As a result, the Government has introduced a COVID-19 Wage Subsidy to assist in what will be a challenging and unprecedented time for employers and employees. To receive the wage subsidy, employers who qualify (generally showing or predicting a 30% or more reduction in turnover) and applied for the subsidy after 27 March 2020 must make a declaration that they will retain the employees named in their application and make best efforts to pay those employees a minimum of 80% of their normal income for the subsidised period – which initially is 12 weeks. Failure to adhere to this declaration will be a breach of the employer’s obligations and may result in a requirement that the subsidy (or a portion thereof) is to be repaid to the Ministry and/or criminal proceedings.  

Many employers have already applied for and received the subsidy and many have reduced their employees’ pay.  However, it is important to note that COVID-19 and/or the wage subsidy does not alter the parties’ obligations under their employment agreements.  This means that an employer cannot unilaterally reduce an employee’s pay to 80% of their normal income without agreement. Any reduction in pay or work hours must be done in consultation between the employer and employee and the agreement reached should ideally be recorded in writing. If agreement cannot be reached between the parties, we recommend legal advice is sought. An outcome of lack of agreement may well be redundancy although this prospect must not unreasonably be held over employee’s heads as a lever to compel their agreement – particularly if there are other options available to the employer.  

Although it is possible to make employees redundant prior to the end of the 12-week subsidised period, if an employer applied for the wage subsidy after 27 March 2020, it will be in a breach of its obligations under the wage subsidy and must notify the Ministry of Social Development of this change in circumstances.  Either way, if an employer is looking to make employees redundant, they must follow a fair and proper process and act in good faith. Furthermore, if an employer has received the wage subsidy, a number of factors will need to be taken into account before initiating a redundancy process including reduced hours and/or reducing the employee’s pay to the full subsidy amount only. Consideration will also need to be given to the terms of the individual employment agreement. 

There is no “one size fits all” answer but our employment team can provide guidance on an employer’s rights and obligations as required. 

Please do not hesitate to contact one of our employment lawyers if your business has been significantly affected by the economic impact of coronavirus and you need to consider changes to your workforce or reducing employees’ pay and/or hours of work.

The above article was written by Mikayla Hughes, Mary Crimp and Graeme Riach.

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