Earlier today, the Government declared a state of national emergency, pursuant to its powers under the Civil Defence Emergency Management Act 2002. This is in addition to the Government ordering the close down for all non-essential businesses and services for a period of 4 weeks commencing on 11.59pm Wednesday, 25 March 2020. With these developments in mind, employers will naturally be wondering what their obligations are with respect to paying employees. While some employees are able to work from home, there will be others that cannot. This article outlines the obligations of employers to pay employees during the shutdown.
Declaration of nationwide emergency – what this means for employers
Declaring a state of national emergency unlocks a whole suite of additional powers for civil defence controllers and the Police (to be used on the advice of public health officials). They can shut down roads and public places. They can requisition property and direct people to stop doing anything that is contributing to the emergency.
The Civil Defence Emergency Management Act 2002 does not automatically affect any private employment relationships, with one notable exception. Any person who is required to be absent “on civil defence emergency management duties during a state of emergency” cannot be dismissed “merely because of his or her absence on civil defence emergency management duties“.
The Employment Relations Act and the Wages Protection Act are not suspended during a declared national emergency. This means, an employer’s contractual obligations outlined in an employee’s employment agreement continue to apply, regardless of the emergency declaration.
The state of national emergency and Level 4 restrictions may affect an employee’s ability to be ready, willing and able to attend work. Similarly, it may affect the non-essential employer’s ability to provide the employee with work. In any event, the employee’s employment agreement should be the first port of call. We set out our guidance below to assessing whether an individual is entitled to be paid during these times.
Paying employees during a lockdown
The starting point for assessing whether the employee is entitled to be paid is generally the terms and conditions of the parties’ employment agreement.
Some employment agreements have specific provisions which are applicable during pandemics and public health measures. For example, some contractual provisions will provide for unpaid suspension of employment in certain situations, and other clauses will relieve an employer from their obligations to pay in certain events. We will briefly discuss Force Majeure or Business Interruption clauses below.
Where an employment agreement does not specifically provide for such a situation, the default position is that generally, employees who are ready, willing and able to work will be entitled to be paid in accordance with their employment agreement. Therefore, if a business is shut down due to the Government’s public health measures, the employer will generally have to continue to pay its employees during the shutdown, provided the employee is ready, willing and able to work.
Employers should first consider whether an employee can perform their work remotely. Where an employee can perform work remotely, the starting point ought to be making arrangements for the employees to work from home for all or part of the shutdown period. In this case, the employees who are ready and able to perform work remotely must be paid for the agreed period during which they have worked remotely.
However, where an employee is not able to perform their work remotely, employers may wish to discuss alternative options (if any) with employees (such as redeployment to another role or another part of the business), where it is not able to provide work to employees who are ready, willing and able to work.
At the time of writing this article, Business NZ is in consultation with the Government to obtain guidance in relation to the issue of payment of employees in non-essential services at Alert Level 4.
Employers may consider the need for redundancies. However, employers should engage with employees to explore other possible options in lieu of redundancy. This may involve exploring options, such as employees taking annual leave (if any) while the workplace is temporarily closed. An employer has the power to direct an employee to take annual leave, by giving at least 14 days’ notice before the leave is to be taken, in the event that the employee and employer cannot agree as to when the employee will take it. Alternatively, employers may agree with their employees to go on unpaid leave (for a finite period or an ongoing/undefined period), in which case they could remain employed, but will not be paid.
As we have discussed in our previous article, employers may be eligible to apply for a wage subsidy from Work and Income. However, a business must endeavour to use their best efforts to retain employees and must pay them at least 80% of their normal income during any subsidised period. Further, the Government has expanded the financial support available to businesses – the previous cap of $150,000 for a single business has been removed. For more information about the wage subsidy, see our previous article here.
As the wage subsidy is capped at $585.80 per week for each full-time employee and $350.00 per week for each part time employee, this will assist employers, but it will not cover the full cost of employment. As such, despite having considered other options, some employers may need to consider restructuring and implementing redundancies. We have previously prepared information on this topic here.
In any event, employers ought to remember their good faith obligations under the Employment Relations Act 2000. This will require all employers to be active and communicative with their employees. As such, employers ought to maintain communications with their employees (whether by email, social media, group chat, teleconference or by phone) and keep them informed during the shutdown period.
Force majeure or business interruption clauses
Some employers may have included a Force Majeure or Business Interruption clause in their employment agreement. These provisions will apply according to their particular terms and conditions.
Some Force Majeure clauses may excuse an employer from their obligation to pay and provide work to employees in certain circumstances which are beyond the control of both parties. Such clauses may be triggered by a pandemic, the subsequent effects of a pandemic, and/or by public health measures aimed to control the spread of an infectious disease/virus.
A Business Interruption clause is similar, and it may allow an employer to suspend all or parts of the employment agreement in certain circumstances. Some provisions may provide that the employer will not be required to pay the employee for a certain period where the employee is unable to carry out their work due to the “Interrupting Event”. Again, the actual rights and obligations will depend on the particular terms and conditions of the agreement.