Salary and Wage obligations during the Pandemic – The current case law position and a reminder of the general principles
With new cases of community transmission in New Zealand, Auckland is returning to Level 3 meaning bars, restaurants and retail stores need to close and those who can work from home should do so. The rest of New Zealand is returning to Level 2.
Again, employers and employees will be considering their legal rights and obligations especially as they relate to wages and salaries. Unlike with New Zealand’s March/April level 3 and 4 lockdown, the difference this time is we have some case law which purports to clarify the position of employers’ obligations to pay salary and wages. It is important to note that these cases are from the Employment Relations Authority (‘ERA’) and as yet there have not been any cases coming out of the Employment Court.
Some of the case law coming out of the recent ERA decisions regarding payment of employees wages during COVID-19 Alert Level 4 was expected but there were some surprises.
On 30 June 2020, the ERA released the first decision regarding whether employees were entitled to be paid during lockdown despite not working and whether the Government Wage Subsidy altered that obligation. The case specifically looked at whether the Employer breached the Wages Protection Act 1983.
There has been an additional case out of the ERA since then looking at implications of the Minimum Wage Act and its relationship to wage issues during lockdown and as a result of decisions made relating to the Government Wage Subsidy.
The facts of the cases
Raggett & Ors v Eastern Bays Hospice Trust (t/a Dove Hospice)
- Dove Hospice (‘Dove’) employed six support staff in retail, human resources and communications roles.
- On 23 March 2020, when the country entered into Level 4 lockdown, Dove applied for the Government Wage Subsidy. Their retail stores were closed the next day.
- On 25 March 2020, Dove sent a memorandum to all staff which, amongst other matters, advised: normal salary and wages would continue until the pay period ending 29 March; from 30 March staff would be paid 80 per cent of salary and wages until 22 April (the then anticipated end of the COVID-19 level 4 lockdown); this arrangement was to be then be reviewed on stated criteria.
- Subsequently and on different dates, the employees received individual letters stating their positions were disestablished effective at date of the letters. The employees received eight weeks’ notice of termination, which was longer than their contractual entitlement. The first four weeks of notice were to be paid at 80 per cent of their salary or wages and the second four weeks at the rate of the Government Wage Subsidy. The letters also included information about their final pay and how this was calculated.
The key factual findings, in this case, were that:
- the employees were not consulted regarding Dove’s proposal to reduce their contractual salary or wages;
- the employees did not agree to a 20 per cent reduction in salary or wages; and
- Dove incorrectly paid the employees’ notice period out at a reduced rate.
Sandhu & Ors v Gate Gourmet New Zealand Ltd
- Gate Gourmet New Zealand Limited (‘Gate’) carries on business at Auckland airport providing inflight catering services to passenger aircraft both domestically and internationally. It was deemed an essential service and remained opened for business throughout the lockdown.
- The applicants were employed under individual employment agreement with Gate, which provided full-time employment for a minimum of 40 hours per week.
- During the lockdown, Gate advised all employees it would need to partially shut down operations due to a reduction in work. On 27 March 2020, Gate emailed all employees with a notice of closedown. In this email, Gate provided employees with three options:
- To take annual leave during the closedown period (until the employee’s annual leave balance runs out);
- Continue being paid at the rate of 80 per cent of their normal pay (conditional on Gate receiving the Government Wage Subsidy); and/or
- Conditional on Gate receiving the Government Wage Subsidy, continue being paid at 80 per cent of their normal pay, and the employee could then use their annual leave entitlement to supplement their income.
- The employees agreed to this proposal at the time. However, on 1 April 2020, the minimum wage increased. Upon this change, Gate emailed all employees advising them only employees who were actually working would be paid at the new minimum wage rate. This resulted in some employees being paid less than minimum wage (based on their agreement to receive 80 per cent of their wages).
The key factual findings in this case were that:
- the decision whether to work or not was not a decision made by the employees – rather they were not working as Gate had directed them not to work;
- because Gate was an essential service, the employees were deemed “ready, willing and able to work”. As a result, Gate had an obligation to pay them at least the minimum wage; and
- the payments made to employees who did not work were considered to be wages due under their employment agreements and therefore subject to the requirements of the Minimum Wage Act.
When reading the cases, there were statements made by the ERA that were expected but there were some surprises in the decisions.
What was expected was that the ERA reinforced:
- Though the country was in lockdown employment law rights were not suspended;
- Employers cannot unilaterally change an employment agreement;
- The obligations of the Government Wage Subsidy did not change the rights and obligations of the parties;
- When an employee is undertaking work they are still entitled to be paid minimum wage irrespective of any agreement regarding reduction in wages; and
- Employers should have in good faith attempted to reach agreement with the employees regarding salary and wages.
The surprises about the decisions were:
- Due to the significance of a determination in cases like these, for other New Zealand employees and employers, some employment lawyers are left wondering why the ERA did not use either their ability to refer the matter to Employment Court for the Court’s opinion under section 177 of the Employment Relations Act or to remove the matter to the Court under section 178 of the Act. It is our view that these types of case (where a number of other cases will likely arise from the decision) should be considered by the Court to provide clear guidance rather than waiting for someone to take an appeal. There is significant public interest in the decision and a clear precedent from the Court rather than something that is considered persuasive but not binding from the ERA would be preferred.
- The decisions mention but barely considers the long-established principle of whether these employees were ‘ready, willing and able’ to work, especially when it relates to employees in non-essential services. Arguably, because of the government’s direction to go into lockdown, employees that were not essential workers or not able to work from home were not ‘able’ to work. It is very surprising that this principle was not canvassed in greater detail and may potentially be a question on appeal.
So, what are my rights and obligations?
Again, we repeat that Employers need to:
- Continue to comply with employment law;
- Consult and reach agreement with their staff as to any reduction in wages or salary
- Ensure they do not make unilateral decisions regarding wages or salary; and
- Continue to pay minimum wage to staff who are undertaking work.
For more information
For tailored advice on your rights and obligations please contact our Wellington employment law experts on 04 472 0020.