Consultation, a ‘must’ for Employers when directing employees to take annual leave

The Employment Court’s recent decision in E Tū Incorporated v Carter Holt Harvey LVL Limited (“Carter Holt Harvey”) has confirmed it is essential that employers consult with employees before giving annual leave directions.[1]

Context

In what the Court termed ‘rare and exceptional circumstances’,[2] this case considered the legality of an employer’s decision to force employees to use their annual leave entitlements during the first nationwide Covid-19 lockdown (March – April 2020).[3]

As a non-essential business, Carter Holt Harvey LVL Ltd (“CHH”) was forced to shut down its timber plant and cease all operations for the Level 4 period. As a result, the majority of CHH’s employees could no longer attend work. With the intention of notifying staff how their pay would be structured prior to entering Level 4, the company followed the instructions of the Carter Holt Harvey Group of companies (“the CHH Group”).

The CHH Group adopted the approach of paying employees in full for the first two weeks of lockdown, but with a requirement that employees take eight days’ leave from 9 to 22 April 2020 (the remainder of the period was paid as public holidays). The type of leave to be taken was not initially specified. However, employees were advised leave “can be” taken in the order of annual leave, followed by accrued leave, entitled long service leave, alternative days and unpaid leave.[4]

Unsurprisingly, employees were suspicious as to whether the CHH Group could impose requirements of this kind and some indicated they did not want their leave balances reduced. The three individual plaintiffs lost between four and eight days of their annual leave entitlements.

The case centred on whether the Holidays Act 2003 (“the Act”) enabled CHH to require the plaintiffs to take leave on the third of fourth weeks of the lockdown.

Outcome under Sections 18 and 19 of the Holidays Act 2003

The Court concluded CHH was not entitled to require its employees to take annual leave in the third and fourth weeks of the lockdown.  

The Act required CHH to consult with employees before instructing them to take annual leave, even though there were commercial imperatives for doing so (an impending lockdown). Although these circumstances imposed immense pressure on employers like CHH across New Zealand, this did not supersede or suspend the employee rights and employer obligations.

So, what does consultation look like for employers?

In light of Carter Holt Harvey, it is important employers acknowledge their requirement to consult extends further than in relation to a decision to direct annual leave be taken under ss 18 and 19 of the Act.  Proper consultation with employees is essential because it ensures employers continuously engage with their broader good faith obligation within employment relationships.

• Active inclusion when proposing an arrangement

Employers must ensure employees are actively included in decision-making. When proposing an arrangement, employers should allow adequate time for thorough consideration of employee feedback prior to making any decisions.[5]

• Must be a proper attempt to reach and engage with employees

An employee cannot be ‘simply advised’ of a decision.[6] There must at least be an attempt to engage with employees prior to enforcing certain provisions.  For example, in Carter Holt Harvey CHH made no attempt to engage with its employees before imposing its decision to enforce use of annual leave. The CHH Group assumed its employees would be difficult to contact and engage with and opted to make its decision centrally, even where there was evidence of adequate communication avenues.

• A proper attempt includes engaging with unions

Where an employer is proposing to make a decision that will affect an employee who is a member of a union, a proper attempt to engage will occur where the employer has also attempted to engage with the relevant union. There are multiple examples where CHH failed to properly engage with E Tū, such as failing to respond to emails in a timely way.

• Consultation does not necessarily mean agreement

Employers should remember consultation does not require agreement. However, consultation is necessary even where it is presumed inevitable that agreement may not be reached between the employee and employer.

Ultimately, it is paramount for employers to factor time into their decision-making processes. This ensures employees are properly consulted when arrangements are made which affect them. Not only does the requirement apply to decision making in exceptional circumstances like a nationwide lockdown but more generally within everyday employment decisions too.

If you have any further questions about employee consultation matters, please contact Jaesen, Jordan and Ruth.