COVID-19 and its devastating effects continue to raise many difficult questions in relation to employers’ obligations towards employees. The latest version of the COVID-19 Public Health Response (Alert Level Requirements) Order (No 9) 2021 states at clause 15 that “all persons in the alert level 4 area must remain at their current home or place of residence, except for essential personal movement permitted…”.
As in our article last year about employers’ obligations to pay employees during lockdown, we noted that the Civil Defence Emergency Management Act 2002 does not automatically affect private employment relationships and that an employer’s contractual obligations outlined in an employee’s employment agreement continue to apply despite emergency declarations.
Of course, the difficulty is that a state of national emergency and Alert Level 4 restrictions affect an employee’s ability to work. The question which remains ever so relevant is, what obligations does an employer have towards employees who cannot work during lockdown? This directly tests the concept of an employee being “ready, willing and able” to work.
Paying employees during lockdown and the right to minimum entitlements
Since the Alert Level 4 lockdown last year, several cases have since made their way through the courts regarding the legality of an employer’s actions to reduce employees’ pay during Alert Level 4. Unfortunately, case law is not settled in this area.
A significant case is Sandhu and Others v Gate Gourmet New Zealand and Anor. Here, the employer was in the business of providing in-flight catering services to domestic and international passenger aircraft.
Despite being an essential service, business dropped sharply following the imposition of the Alert Level 4 lockdown in March 2020. As a result, the employer advised its employees that it would need to partially shut down operations and that if an employee had not been rostered on, it meant there was no work for them, and they should remain at home. Employees who worked were paid their full 40 hours per week, whereas those not required to work were paid 80% of their normal pay pursuant to the wage subsidy.
The Authority found that paying the employees only 80% of their normal pay was a breach of the Minimum Wage Act 1983. The Authority found that if employees were ready, willing and able to carry out their functions in an essential industry, then the employer was required to pay them at least minimum wage for their contracted hours, regardless of whether they worked.
This is consistent with the Authority’s determination in Raggett v Eastern Bays Hospice Trust t/a Dove Hospice very shortly after, where the employees were found to have been ready and willing to work and would have been able to fulfil their employment agreements but for Alert Level 4 restrictions, and accordingly, the employer’s unilateral reduction of their pay to 80% was in breach of the Wages Protection Act. Interestingly, the Authority did not consider the implications of whether an employee was able to work. This case has since been appealed to the Employment Court and we await its decision.
However, Sandhu was subsequently reversed by Employment Court, wherein the majority held that when the employees stayed at home, they were not working for the purposes of section 6 of the Minimum Wage Act. This meant the Minimum Wage Act was not engaged and there were no statutory minimum wage entitlements that arose. The employees were entitled to payment via the wage subsidy, which was required to have been at least 80% of their ordinary pay, but the employer was not under an obligation to meet the minimum wage requirements when the employees were not technically working.
In her dissenting judgment, Chief Judge Inglis concluded that there was no dispute that the employees were engaged to carry out work. However, the reason they could not work their guaranteed hours was by not by their default, illness or accident, so no reductions from their minimum wage should have been made. Further, she went on to comment that the majority’s judgment had the effect of taking away from the most vulnerable group of employees – the minimum wage workers – in circumstances where Parliament has evidently intended to provide them with a safety net.
Perhaps we see this intention manifested in the, just published, Declaration – COVID-19 Wage Subsidy August 2021. Clause 2 explicitly states that in applying for the wage subsidy, the employer must “acknowledge that the granting of [their] application and receipt of the subsidy does not override [their] existing obligations under employment law, including (but not limited to) the Employment Relations Act 2000, the Minimum Wage Act 1983, Holidays Act 2003 and the Health and Safety at Work Act 2015”. The March 2020 Declaration did not explicitly mention the minimum statutory entitlements.
While Parliament appears to be sending a strong signal that employees’ minimum rights are to be protected, “best endeavours” is still “best endeavours”. And with full-time employees like those in Sandhu, where 80% of their ordinary wages brings them at less than minimum wage, the answer is unclear.
In the end, the key question is whether an employee unable to work because of a government-mandated public health measure can be considered “ready, willing and able” to work. Since Sandhu was granted leave to appeal, it remains to be seen whether the Court of Appeal will confirm the majority interpretation in the Employment Court or confirm the view of the Authority and Chief Judge Inglis. While we wait for the Court of Appeal’s decision, employers would be wise to seek employees’ consent before reducing wages, even where employees are not able to carry out their work duties.
Force Majeure clauses and redundancy
When push comes to shove, employers may be faced with some difficult choices. Some employment agreements may have included force majeure or business interruption clauses, which may excuse employers from their obligation to pay and provide work to employees in circumstances beyond the control of both parties, such as a pandemic. However, this depends closely on the wording of the clause, and, even then, the Authority has been strict in its interpretation of such provisions. In De Sousa v Bayside Fine Food Ltd, the Authority noted that the test for frustration is high, holding that being in Alert Level 2 was not enough to justify ending the employment of the café employees who were still able to work. While an Alert Level 4 lockdown may meet the test, an employer still must comply with the obligations contained within the clause.
Another option employers may consider is redundancy. However, other alternatives ought to be considered first, such as asking employees to take annual leave or agreeing that the employee goes on unpaid leave. In any event, employers have an obligation of good faith under the Employment Relations Act 2000 and should maintain active and honest communication with their employees about their employment.
We understand that there are a number of complex issues that employers currently face. Please contact us for specific advice in relation to your individual circumstances. We are more than happy to assist you in navigating your obligations during these uncertain times.
