insight | 16 of 34 in series

Employment obligations during lockdown

03 April 2020

The Government’s assistance package to employers has evolved as the level of disruption has increased and as implementation problems have emerged. Chapman Tripp is providing regular – indeed, almost daily – updates to ensure that you have access to the latest information.

This updates our advice of 31 March 2020. We hope you find this guidance useful.

My business is not essential and my employees cannot work from home. Do I have to continue to pay them?

The general concept is that if an employee is not ‘ready, willing and able’ to work then you have no obligation to pay them. Arguably that applies here because each of your employees is subject to a government requirement to self-isolate at home. Those who are unable to work at home are no longer ‘ready and able’ to work. Relying on this, however, is not without risk and we recommend consulting with staff and exploring all other available options (including any discretionary leave, agreed reductions in pay, and accessing the wage subsidy) before resorting to a leave without pay scenario.

Can I require employees who are in lockdown or self-isolating to work from home?

Yes, provided the person is not unwell and is able to work, and has or is supplied with the tools to facilitate working from home. There might need to be some accommodations made, depending on the nature of the person’s duties.

Provide people who are working at home with tip sheets on safe home working environments and take other steps to help maintain a social connection with the team. Employees who can continue performing their usual duties when working at home should continue to be paid in the ordinary way. If employees cannot perform the full extent of their job then you can discuss with them any appropriate changes to hours of work or rates of pay. Any agreement should be recorded in writing as a variation to the underlying employment agreement.

I need to make changes to my employment arrangements. Can I do that?

Although these are unprecedented times, employment law obligations still apply. This means that any changes you are looking to make must either be achieved through agreement with your employees or through a lawful restructure.

There is likely to be some flexibility as to how businesses can meet their obligations in this regard, both in terms of timing and the nature of any consultation process. However, businesses should do all they can to ensure that they are consulting in good faith. Businesses applying for the wage subsidy after 4pm on Friday 27 March should be aware that they may be restricted in making changes through a lawful restructure in return for obtaining that wage subsidy.

But my application for the wage subsidy was approved. Doesn’t that mean I only need to pay my employees 80% of normal wages?

No. In order to access the subsidy, the Government asks you to do your best to keep your employees at a rate of at least 80%. However, getting the subsidy does not entitle you to unilaterally reduce wages for those employees who are otherwise ready and able to work without going through the usual legal processes. And if you have applied for the subsidy after 4pm on Friday 27 March, then you can only make changes to wages, hours of work or leave entitlements by agreement with each employee.

How do I go about trying to make changes or conducting a consultation process?

Before embarking on any discussion with your employees to explore changes you should have already initiated other measures to achieve savings in the business.

As a next step, explore whether you can reach agreement with employees to either reduce pay or reduce hours of work. If staff can only perform a part of their duties during lockdown then discuss a revised payment structure with them for that reduced workload. Any agreements reached should be recorded in writing as a variation to the underlying employment agreement and employees are entitled to obtain independent advice on that change.

If agreement is not possible, then a restructure is the next option to explore. Any changes relating to duties, hours of work or roles require prior consultation with staff. A court would likely allow a degree of flexibility over the timeframes for this consultation and whether it is conducted on a group basis rather than individually, but the correct procedures should be followed to the extent possible. You should allow for as much consultation and engagement with your staff as you can and be aware that you may be asked to justify any short comings in your processes.

I have a force majeure clause in my agreements. Can I rely on it to avoid needing to meet normal employment law requirements?

Not entirely, and the wording of your clause will also be relevant. While the clause will undoubtedly assist, good faith obligations (including requirements as to substantive justification as good process) still apply and you should try to meet them to the maximum extent possible. What you are then entitled to do will also depend on the wording of your force majeure clause. Some clauses simply provide that neither party is obliged to perform their contractual obligations, whereas others provide for the employer to make unilateral changes to employment terms or to terminate employment. We recommend that you proceed carefully and obtain advice before triggering such a provision. Furthermore, if you have applied for the wage subsidy then the undertakings that you gave as part of that application may also limit what you can do in reliance on any force majeure clause.

Can I direct employees to take annual leave during the shutdown?

Yes, including if you have applied for the wage subsidy, but only in accordance with your employment agreement and/or the Holidays Act 2003. This means that you will only be able to direct employees to take annual leave where:

  • the employee has a positive entitled leave balance, and
  • you have first tried, but failed, to agree when those holidays are to be taken, and
  • you give 14 days’ notice of the requirement to take that annual leave.

There is no restriction on asking employees if they would like to use either accrued or entitled leave entitlements should they wish to do so, including as a way of topping up wages.

Easter is coming up – do I have to pay my employees for public holidays?

Yes, if they are still on the pay roll and if this would otherwise be a working day for them or if they work on that day. This means that employees who are not working during lockdown and not receiving any pay will not be paid for any public holidays.

My employees have agreed to a 20% pay cut. Do I pay them at 80% or 100% for the public holidays over Easter?

If you have agreed/implemented a pay cut (whether indefinitely or for the period of the wage subsidy), then their reduced pay will be their relevant daily pay and so this is what they should be paid for the day.

What is the wage subsidy?

Government support may also be available to subsidise employee wages in order to retain jobs. Employers can apply for a wage subsidy if they have suffered, or are projected to suffer, at least a 30% decline in revenue against last year for any month between January 2020 and the end of the scheme in June 2020.

The wage subsidy is $585.80 per week for a full time employee (20 hrs or more) or $350.00 per week for a part time employee (less than 20 hrs). The payment will be made as a lump sum for a period covering 12 weeks. This means employers will receive a payment of $7,029.60 for a full time employee and $4,200 for a part time employee. The subsidy is available to all businesses who meet the criteria and there is no cap.

What do I need to know about the conditions of the wage subsidy?

For all applications that are made after 27 March 2020, you must give an undertaking that:

  • you have taken active steps to mitigate the impact of COVID-19 (e.g. engaged with your bank/financial advisor, drawing on cash reserves, making an insurance claim)
  • you acknowledge the subsidy does not override your employment law obligations
  • you will not make any changes to your obligations under any employment agreement, including to rates of pay, hours of work and leave entitlements, without the written agreement of the employees you name in your application
  • you will retain the employees named in your application for the period you receive the subsidy in respect of those employees
  • you will not unlawfully compel or require any of the employees named in your application to use their leave entitlements for the period you receive the subsidy in respect of those employees
  • you will only use the subsidy for the purposes of meeting your named employees ordinary wages and salary and your obligations in relation to this subsidy
  • you will use your best endeavours to pay at least 80% of each named employee’s ordinary wages or salary
  • pay at least the full amount of the subsidy to the employee (except that nothing requires you to pay an employee more than their lawfully agreed wages), and
  • where the ordinary wages or salary of an employee named in your application was lawfully below the amount of the subsidy before the impact of COVID-19, pay the employee that amount.

Can I include casual employees in my wage subsidy application?

Yes, if you would have expected those casuals to work for you during the period of the lockdown. Determine their “normal” hours by taking an average of their weekly hours over the past year, or the duration of their engagement if they have not been employed for a year. If you have already terminated your engagement with your casual employees you should not name them in your wage subsidy application.

Privacy and the wage subsidy

Employers must provide the names, IRD numbers and contact details for all employees covered by their application for the wage subsidy. They must obtain the employee’s consent to share personal information with the Ministry of Social Development for the purposes of processing the wage subsidy. This requirement continues to be included in the latest updates (as at 28 March 2020) despite the Privacy Commissioner’s advice as at 26 March 2020 that consent was unnecessary. We recommend that employers take a practical approach to this requirement and do what they can to advise employees of the application and of the information that will be shared for the purposes of that application.

Can I make employees redundant if I’ve started receiving the wage subsidy?

No, if you have applied for the wage subsidy after 4pm on 27 March 2020. If you had already applied for the subsidy prior to that date then you can make redundancies provided that you have used your best endeavours to avoid the redundancies, including using the wage subsidy appropriately.

I heard that there was a leave subsidy for employees who are sick with COVID-19. What has happened to that?

The Government has developed a replacement scheme for essential workers which will be paid through the employer at the same rates as the wage subsidy scheme: $585.80 per week for fulltime employees (working more than 20 hours per week) and $350 for part-time employees (working less than 20 hours per week).

Employers will need to pay employees either their usual weekly income, if it is less than the applicable rate, or:

  • make their best endeavours to pay at least 80% of the employee’s usual income, or
  • at minimum, pay the full leave subsidy rate if a higher payment is not possible.

The scheme will apply to essential workers:

  • who are self-isolating in accordance with public health guidance because they (or a dependent they need to care for) have contracted the virus or have come into contact with someone who has contracted the virus
  • are deemed at higher risk (or have household members who are deemed at higher risk) if they contract COVID-19 and, as such, should self-isolate for the duration of the lockdown (and potentially longer).

If employers are able to pay employees using leave entitlements or special leave without the use of the subsidy, they should continue to do so. 

Payments will be made four-weekly. Businesses can re-apply at the end of each four-week period and make new applications for employees at any time.

The scheme will open at midday on Monday 6 April 2020, at which time further guidance is expected on how to apply and what it means to be “at higher risk” of contracting COVID-19.

I operate an essential business and my employees are getting questioned by police on the way to/from work? Should we issue passes?

It is prudent to issue essential workers with a letter on letterhead confirming that the named individual is employed by your company and is necessary to perform an essential service.

I operate an essential business – should I be sending any vulnerable workers home and do I have to pay them?

Vulnerable workers should have been at home since Alert Level 3. Essential businesses with vulnerable workers should be directing those individuals to remain at home. Because those employees are prevented from working due to government-imposed restrictions they are not ‘ready and able’ to work and are therefore not entitled to pay. However, you should consider all other options and consult the employee before placing them on unpaid leave.

I operate an essential business and one of my employees is unable to work because they are required to stay home to care for their children during the full lockdown. Do I have to pay their usual salary?

No, in this case the employee is not ready, willing and able to perform their usual duties because of their child-care commitments. However, employers should explore all options with the affected employee to see what portion of their tasks might be able to be performed. Options could include reduced duties, amended working hours and/or job share arrangements.

I operate an essential business. Do I have to continue paying someone’s salary when we have asked them to self-isolate because we are concerned that they may pose a risk at the office?

Yes, if you operate an essential business, and have chosen to stand that individual down where the individual would have otherwise attended work. All options for working at home should be explored.

I operate an essential business. What if someone is worried about the virus (but is not otherwise sick, required to be in self-isolation or caring for a dependent)?

Talk with that person about what measures could be taken outside the workplace that might help to put them at ease. Offer Employee Assistance Programme (EAP) or other support. Consider offering the ability to work from home if the person is highly stressed and their job can be performed remotely. Otherwise, talk to them about using any paid leave entitlements they may have.

You have the option of allowing discretionary leave if you wish to do so. If the person insists on remaining away from the office and otherwise has no paid leave entitlements (and you are not willing to offer discretionary leave) then you should allow them unpaid leave.

Do I have to pay for my employees’ home internet if I am requiring them to work from home?

No, but you should consider reimbursing any additional expense that the employee might incur as a result of working from home – e.g., any increase in the employee’s home internet bill.

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