Covid-19 impacted businesses across the country. This resulted in widespread pay reductions and then a wave of redundancies, although, thankfully, not as large as predicted.
We are starting to see the first cases on the decisions that employers made to reduce pay and implement redundancies. As the Court noted in Gate Gourmet, the limited number of cases coming through the Authority and then to the Court is surprising. This may reflect either the pragmatism of Kiwi businesses and employees, or more cynically, a lack of confidence in the Court processes.
These cases are also a reminder of the difficult position facing the Court when tasked with the interplay between the Wages Protection Act, the Minimum Wages Act, and the Employment Relations Act, none of which were designed to deal with a pandemic.
- The employer operated several retail stores that were required to close due to the level 4 restrictions. It applied for the wage subsidy and issued a memorandum to all employees advising that from 30 March 2020 staff would be paid 80% of salary and wages. Then, it terminated employment of a number of staff and progressively paid them less with the last few weeks of pay being more than the government subsidy. No agreement was sought from employees to reduce their pay.
- The affected employees sought a declaration that unlawful deductions had been made from their pay in breach of the Wages Protection Act 1983 and/or their employment agreements.
- Unsurprisingly, the Authority found the employer had breached obligations to pay contractual wages and salary during the employment without an agreed deduction.
- The employer subsequently appealed this decision - the appeal was heard in December 2020, with Business NZ and the Council of Trade Unions appearing as interested parties. The decision is not yet available as but should provide important guidance on the interplay between the Wages Protection Aact and the Minimum Wage Act.
- The employer was an ‘essential’ service and able to operate during the lockdown but had a significant reduction in work due to lack of air traffic. It shut down most if its operations and decided that only those needed at work would be paid in full, while those not required to work would be paid at 80% of their usual wages (which were the lawful minimum wage), with the option to ‘top-up’ with annual leave. This was challenged on two grounds:
- that reducing wages required employee consent; and
- regardless, such an arrangement is unlawful as it meant the employees were paid less than the minimum wage.
- The Authority found in favour of the employees. The Authority said they were ready, willing and able to carry out their duties so should have received their normal pay.
- The employer appealed. Again, Business NZ and the CTU were involved in the appeal.
- The Employment Court, while acknowledging the importance of preserving minimum employment rights, found that when the employees stayed at home, they were not working and therefore weren’t entitled to minimum wage entitlements. In doing so, they concluded that it was not enough for them to be ready, willing and able to carry out their role – there had to be reciprocity between the wages paid and actual work provided. The Act was not intended to be read as providing a minimum guaranteed income without actual work being undertaken.
- The Chief Judge dissented with the majority view, saying that the view of the majority ignored the widely accepted common law rule that, where there are agreed hours of work cancelled by the employer, wages remain payable provided that the employee is ready, willing and able to perform those hours.
- Because the Minimum Wage Act had not been breached – there was no need to resolve the question of whether the 80% payment had been unlawful, but Gate Gourmet was criticised by the Court for attempting to seek back the amount it had paid to employees.
- The dissenting judgment leaves open the possibility of a further appeal and an adverse outcome for employees not paid their full entitlement during lockdown due to a closedown or reduction in operations.
De Wys v Solly’s Freight (1987) Limited
- Duringlockdown, Solly’s applied for both the WINZ wage subsidy and for registration as an essential service (some of their usual services were deemed essential, some were not).
- In response to the restrictions, it undertook a restructuring that led to the dismissal of a number of permanent employees by way of redundancy. It initially premised the redundancies on the fact it had not yet received the wage subsidy. The Authority found there had been virtually no consultation with the employees regarding the proposed restructure and once it was decided who was being made redundant, those employees names were removed from the wage subsidy application.
- The two former employees received a combined pay-out of nearly $60,000 for lost wages and compensation.
It remains to be seen as to whether the Authority will accept arguments that shortcutting the usual restructuring process was “fair and reasonable” in the circumstances, or where, as many employers did, applying for round 1 or 2 of the wage subsidy only on the basis of the employee consenting to a pay reduction was in fact true consent under the Wages Protection Act.
Future claims are likely to concern the scope of the obligations on an employer in a redundancy situation, including whether they should have applied for wage subsidies to prevent loss of jobs. We may also see novel claims arising from health and safety related aspects of lock-down, particularly as we may continue to move in and out of different alert levels. Employment Practice Liability cover can be used effectively where the dispute relates to more than a breach of minimum or statutory entitlements. This would possibly exclude claims similar to Gate Gourmet and Dove Hospice. However, an EPL policy will generally respond where there is a claim for “hurt and humiliation” compensation. For insured parties, the cases are a good reminder to comply with any policy conditions such as the taking of prior legal advice, and to notify potential claims as early as possible.