No Work, No Pay? Not likely – The status of employees unable to work during lockdown

We continue to take learnings from the first and subsequent lockdowns, but many businesses still seem to be unsure about their fundamental obligations to employees during Alert Levels 3 and 4. A burning financial question is whether employees who are unable to work under lockdown conditions can expect to be paid as per usual.

Another topical issue remains whether an employer can always rely on a business interruption clause to reduce or not pay an employee’s wages, or even terminate an employee.

The ERA has provided direction on these issues and its relevant decisions should guide the actions of businesses going forward. We explore some of these below.

Raggett & Ors v Eastern Bays Hospice Trust t/a Dove Hospice[1]

In Raggett & Ors the Employer (Dove) had to close all of its retail stores as a result of the March 2020 lockdown. Dove successfully obtained the government wage subsidy and advised its staff that they would receive 80% of their remuneration until the end of lockdown. There was no consultation with staff about this and nothing in the employment contracts which allowed Dove to make such adjustments.

The ERA found this unilateral variation to be unlawful and in breach of the Employment Relations Act 2000 (the Act). Staff were ‘ready, willing and able’ to work and would have done so if the government had not imposed a lockdown. Dove was therefore liable for these unlawful deductions.

A distinguishing feature in this case was that staff who brought the claim to the ERA occupied managerial positions, so arguably could have completed work remotely. If the staff could not have performed their roles from home, then the ERA may have come to a different conclusion.

The approach in Raggett & Ors was cited and followed by the ERA in Bates v Major Motors[2], where a car salesman (Mr Bates) was only paid the wage subsidy during lockdown, which was a unilateral deduction of his pay. The ERA found that the salesman was entitled to reimbursement for the shortfall in his wages over the lockdown period, but held that Mr Bates was not entitled to commission payments as he did not (and could not) sell any cars during Alert Level 4.

Gate Gourmet New Zealand Limited v Sandhu [3]

In Gate Gourmet the Employment Court had to decide whether the Employer (Gate Gourmet) had an obligation to pay its employees minimum wage in circumstances where those employees were unable to work (ready, willing but unable to work) under lockdown restrictions. In this instance the Employer had consulted with the Employees about an arrangement to pay them less than minimum wage over lockdown.

The obligation to pay an employee at least minimum wage arises from s 6 of the Minimum Wage Act 1983 (MWA).

In a majority decision, the Employment Court found that the MWA does not prescribe a guaranteed minimum income or “floor”, but rather, that the MWA provides a base wage in relation to work which has actually been performed. As a result, employees who had not performed work for Gate Gourmet did not trigger minimum wage entitlements.

Although this may seem a contradictory judgement to those cases decided in the ERA above, the Employment Court was still clear that its ruling did not displace the requirement on employers to consult and reach agreement on any changes or conditions of employment.

Chief Judge Christina Inglis delivered a dissenting judgement in which she indicated that she would have held that Gate Gourmet had breached its obligation under the MWA by paying its employees less than minimum wage. This was because the reason for the employees not being able to work was not due to a default, illness or accident on the part of the employees.

The Gate Gourmet decision has been appealed to the Court of Appeal.

De Sousa v Bayside Fine Foods Limited [4]

Many employment agreements contain clauses which allow an employer to reduce an employee’s hours of work and remuneration under certain circumstances such as a pandemic or natural disaster. These types of clauses may also allow for the employment to be terminated if the employer has to temporarily or permanently cease its operations. Such clauses are known as business interruption or force majeure clauses.

The ERA case of Bayside Fine Foods Limited is a timely reminder that employers cannot always rely on a business interruption clause to terminate the employment of workers if COVID-19 restrictions are imposed. In this instance the Employer (Bayside) relied on a business interruption clause to terminate the employment of seven café workers immediately prior to the first lockdown.

The relevant clause stated that if Bayside’s business was interrupted by unforeseen events (including pandemic), then Bayside may be unable to offer work to the employee. Further, Bayside could then consult with the employee about whether the employment relationship could reasonably continue.

The ERA found that this provision was a ‘frustration’ clause and a high threshold had to be met before the clause could be invoked. In this instance, Bayside could still operate and host up to 100 people at its premises. The ERA also noted the failure of Bayside to let the employees provide feedback on the decision to terminate the employees. As a result, the ERA found that Bayside had failed to meet the minimum requirements of a fair and reasonable employer and the dismissals were held to be unjustified.

While business interruption clauses are very much in vogue in the wake of the pandemic, they are not the panacea for situations where an employer wants to cease payment of wages or terminate an employee at short notice where external circumstances have stifled business operations. Such clauses should be expertly drafted and only exercised in appropriate circumstances.

Where to from here?

While the ERA has provided some insight on whether non-working employees should be remunerated during lockdown, the reality is that we will have greater clarity when this issue has been fully explored in the Employment Court and the higher courts.

For now, we would remind employers that they must:

• pay employees in accordance with the relevant provisions of their employment agreement;
• consult employees before varying agreements; and
• ensure appropriate circumstances exist before relying on business interruption clauses.

We strongly recommend obtaining legal advice if you are considering moving employees to a lower level of remuneration, varying employees’ hours or are thinking about exercising a business interruption clause. Our team is ready to listen and respond to any employment-related COVID-19 queries you may have.

[1]  [2020] NZERA 266.

[2] [2021] NZERA 324.

[3] [2020] NZEmpC 237.

[4] [2021] NZERA 27.

This article is current as at the date of publication and is only intended to provide general comments about the law. Harkness Henry accepts no responsibility for reliance by any person or organisation on the content of the article. Please contact the author of the article if you require specific advice about how the law applies to you.