Legal Updates

First Employment Relations Authority Determination on Government Wage Subsidy Pay Reductions and Dismissals

With the Government Wage Subsidy Extension continuing to be available until 20 October 2020, the Employment Relations Authority (“ERA”) on 30 June 2020 issued a timely determination on whether or not an employer is released from the obligation to pay wages or salary under an employee’s employment agreement and/or the Wages Protection Act 1983 by accepting the Government Wage Subsidy (“GWS”).

Ragget v Eastern Bays Hospice Trust t/a Dove Hospice [2020] NZERA 266

Key facts leading to the employment relationship problem

Eastern Bays Hospice Trust t/a Dove Hospice (“Dove”) provides hospice services in East Auckland.

Six of its employees, who subsequently brought a claim before the ERA, were employed in ancillary services supporting the core work of Dove, namely six retail stores.

On 23 March 2020, Covid-19 level 4 restrictions were implemented. Dove applied for and received the GWS the same day.

On 24 March 2020, Dove closed its retail stores as a result of the Covid-19 level 4 restrictions. The employees did not perform work for Dove from that day.

The following day, Dove issued a memorandum to all staff advising that from 30 March, staff would be paid 80 per cent of salary and wages.  

On 30, 31 March and 17 April, the employees received letters, setting out a proposed restructure of their positions.

Once the employees gave feedback, they received subsequent letters, advising that:

  • their positions were disestablished effective from the date of the letters; and

  • they would receive 8 weeks’ notice of termination of employment (although the employment agreements only stipulated 4 weeks’ notice), with the first 4 weeks paid at 80 per cent of their salary or wages, and the second 4 weeks paid at the GWS rate of $5,858.80.

The Employment Relationship Problem

The employees lodged an employment relationship problem with the ERA, challenging the justifiability of their dismissals and reduced pays on the basis that they did not agree to be paid less than 100 per cent of their ordinary wages and salary.

The ERA Determination

The ERA determined that the main issue was whether in accepting the GWS, Dove is released from the obligation to pay wages or salary under the parties’ employment agreements and/or the Wages Protection Act 1983.

As a starting point, the ERA noted that the terms of employment cannot be unilaterally varied.

The employees’ individual employment agreements did not contain a provision under which Dove could make deductions from pay due to Covid-19 restrictions.

Accordingly, any deductions from pay are only possible if both the employer and the employee agree.

The employees in this case did not agree to be paid 80 per cent of their wages or salary.

In respect of the 8 weeks’ notice for termination, the ERA held that the rate of the contractual notice period is set by the employment agreement. Although Dove in good faith extended the notice period from 4 weeks to 8 weeks, it could not unilaterally set a different remuneration rate other than that agreed in the employment agreement for the additional 4 weeks.

Dove argued that it was released from its obligations under the Wages Protection Act 1983 and the relevant employment agreements to pay normal salary and wages as the employees have not performed services or work since the Covid-19 level 4 restrictions were implemented.

However, the ERA rejected this argument and held that the employees were at all times ready and willing to work but for the intervening event of the Covid-19 restrictions. Accordingly, the ordinary obligations to pay employees still applied.  

Takeaways

  •  Irrespective of Covid-19 restrictions and whether or not you have accessed the GWS, ordinary employment obligations and rights continue to apply.

    These obligations and rights cannot unilaterally be varied. This means that although when applying for the GWS, employers agree to a declaration which states they must use their best endeavors to pay employees at least 80 per cent of wages or salary, this cannot unilaterally imposed. Your employees’ agreement must first be sought.
  • If an employee’s employment is terminated, the notice period must be paid at the rate set out in the employment agreement, unless the employee agrees to vary this rate.
  • If due to Covid-19 imposed restrictions, your business has had to close or has
    been operating at limited capacity, employees must be paid as usual so long as they have been ready and willing to work and would have been able to fulfill their obligations under their employment agreements but for the Covid-19 restrictions.

If you have any questions about your obligations and/or rights in relation to the GWS or general employment law, please get in touch with either Jaesen or Nina.