Requiring employees to take annual holidays under the Holidays Act
E Tū Inc and others v Carter Holt Harvey LVL Limited  NZEmpC 141
The Holidays Act provides that annual holidays are to be taken at times that are agreed between the employer and employee. However, an employer may require an employee to take annual holidays if they are not able to reach agreement as to when the employee will take their annual holidays. In E Tū Inc and others v Carter Holt Harvey LVL Limited, the Employment Court considered an employer’s rights to require its employees to take annual holidays under the Holidays Act, in the context of the initial lockdown in March and April 2020.
Carter Holt Harvey LVL Ltd (“CHHL”) operated a manufacturing plant that transforms logs into finished products. On 23 March 2020, the CEO of the CHH Group advised the employees of CHHL that they needed to take eight days of leave from 9 to 22 April 2020. The main legal issue was whether this requirement complied with the Holidays Act. There was also an issue as to whether E Tū (a union) has standing to be a party to the proceedings.
On 23 March 2020, it was announced that NZ would go into a nationwide lockdown. This was a turbulent and uncertain time, as businesses had to arrange their affairs for the imminent lockdown. CHHL was under pressure to get its plant into a safe state to close down. Decisions also had to be made about the workforce during the lockdown. These decisions were made centrally at the CHH Group level for CHHL. CHHL was not designated an ‘essential business’ for the purposes of the lockdown, and it was not able to operate. As such, it had to incur significant costs of staffing and leasing property and equipment, while it was not able to operate its business or generate revenue.
At the time, the CHH Group wanted to ensure its employees had clarity about their pay prior to the lockdown. It considered that the most appropriate approach was to pay employees and require them to use some of their paid leave entitlements. As such, from 26 March 2020 employees would be paid in accordance with their employment agreement up to 8 April 2020. From 9 to 22 April 2020, employees were required to take 8 days of leave, which would be taken as annual holidays in the first instance, followed by other types of leave available to the employee(s). Further, the public holidays during the period were paid in accordance with the Holidays Act.
This approach was communicated to CHHL employees on 23 March 2020, and it was forwarded by a union delegate to an E Tū organiser. On 24 March 2020, the E Tū organiser tried to contact CHHL and persuade it to change its approach. In short, E Tū considered that employees should be paid in full without the need to use existing leave entitlements, and that CHHL may seek the benefit of government assistance. At the time CHHL did not respond to E Tū.
In April 2020, CHHL applied for and was granted the wage subsidy, which was equivalent to $585.80 per week for each full-time employee and $350 per week for each part-time employee. At the time, the Alert Level 4 lockdown was extended by 5 days, and their work resumed from 28 April 2020. CHHL employees were paid their usual wages during the 5-day extension, without any deduction from their leave entitlements. About a month after the CHHL plant reopened, it made about 70% of its workforce redundant.
Under section 18(3) of the Holidays Act, when “annual holidays are to be taken by the employee is to be agreed between the employer and employee”. Section 19(1)(a) provides that an “employer may require an employee to take annual holidays if” “the employer and employee are unable to reach agreement under section 18(3) as to when the employee will take his or her annual holidays”. Further, under section 19(2), “an employer must give the employee not less than 14 days’ notice of the requirement to take the annual holidays.”
The parties’ positions
The plaintiff employees submitted that the Holidays Act did not enable CHHL to require them to take annual holidays, unless they have communicated and attempted to reach agreement with the employees in good faith. In this case, the decision was made at the CHH Group level without any discussion with any employee, before they had been required to take annual holidays.
CHHL said that the Holidays Act does not impose any specific process obligation on an employer before it reaches an assessment that it was unable to reach agreement on when annual holidays are to be taken. CHHL submitted that an employer may require an employee to take annual holidays in circumstances where it was unable to reach agreement with the employee(s) on when annual holidays are to be taken. While the employer’s assessment must be reached in good faith, CHHL submitted that this may be based on what is practically open to the employer in the time that was available before it considers that the holidays should commence.
Based on this interpretation, CHHL submitted that it had made a reasonable assessment that the parties would be unable to reach agreement on when annual holidays are to be taken, taking into account the significant practical constraints at the time, including the difficulty and limited time available for engagement, and the need to provide clarity to staff at a time of uncertainty.
The Court noted that the Holidays Act contemplates an employee applying for leave and the parties attempting to reach agreement. Further, the Holidays Act requires both parties to deal with each other in good faith, and this included being responsive and communicative with each other. While the Court acknowledged that CHHL faced considerable pressure at the time, the employee rights and employer obligations under the Holidays Act had not been suspended. While CHHL had other priorities in considering its workforce arrangements, it still had to comply with the Holidays Act.
At the time, CHHL made no attempt to engage with its employees before making its decision about having to take annual holidays. The Court noted that the circumstances may have called for a more truncated process for attempting to reach agreement. However, the Court did not accept that CHHL may say it was unable to reach agreement when it had made no attempt to do so. The Court concluded that CHHL was not entitled to require the plaintiff employees to take annual holidays from 9 to 22 April 2020 pursuant to section 19(1)(a) of the Holidays Act.
In addition to the issue of non-compliance, the Court was also confronted with the issue of deciding on remedy. In this respect CHHL submitted that despite any non-compliance, the employees in question had taken their annual holidays between 9 and 22 April 2020, and the Court could not reinstate the annual holidays that have been taken. The Court did not confront this issue directly, noting that the plaintiffs did not seek any financial remedy from the Court.
The Court also considered whether E Tū (a union) had standing to be a party to the proceedings. The Court held that while E Tū was party to a collective agreement with CHHL, the rights which the plaintiff employees sought to enforce were owed to them personally. As such, the Court decided that E Tū Inc did not have standing to be a separate party in the proceedings.
The Court accepted that extraordinary circumstances may have called for a shorter process in trying to reach agreement with the affected employees to take annual holidays. However, this did not mean that an employer may require an employee to take annual holidays without attempting to engage with them before a decision is made on when they take annual holidays.