Lessons from Christchurch: To lockout or not to lockout?

The earthquake damaged Christchurch Cathedral in March 2012. File photo / Geoff Sloan

Over the past few years, Christchurch's business environment has challenged many assumptions and contracts. In this six-part series, lawyers from Christchurch legal firm Malley & Co look at some of the lessons all businesses can learn. In this first article, partner John Shingleton asks the question: when a workplace is no longer safe, what should the employer do?

When much of Christchurch came tumbling down on February 22, 2011, and even more of it was severely damaged, Christchurch employers had to work out what to do with employees prevented from accessing significantly damaged workplaces.

It is a principle of employment law that an employer must provide work to and pay any employee who is ready, willing and able to work.

So, imagine employees were working in a restaurant in Cathedral Square and on February 23 they were ready, willing and able to work but could not because the restaurant building had collapsed.

According to the general principle, the employer would have to pay the employees for their usual rostered hours until the workplace was up and running.

It will be no surprise to you that this scenario played out in many Christchurch workplaces. It may be a surprise to know that it did not trigger many employment disputes.

I believe this was due to the wage subsidy the Government provided, all-round goodwill within Christchurch and exceptions to that general principle.

One exception arises from sections 84 and 96 of the Employment Relations Act 2000. Section 84 says a lockout is lawful if the employer has reasonable grounds for believing it is justified on safety or health grounds. The courts have made clear in past decisions that as well as providing this reasonable belief, employers must prove on the balance of probability that a health hazard actually exists.

Section 96 of the Employment Relations Act 2000 provides that where employees are locked out by their employer, they are not entitled to any remuneration for the period of the lockout, unless the employer's participation in it is unlawful.

Several Christchurch employers relied on these two sections and issued their employees lockout notices. None of those notices appear to have been challenged in the Employment Relations Authority or Employment Court.

There are several scenarios where New Zealand employers might invoke sections 84 and 96.

For instance, if a building is declared to be below the new minimum earthquake standards, then a health hazard may well exist. This could then mean that a business owner who leases premises in that building might be entitled to lock out his or her employees on safety or health grounds. The employer would have to prove on the balance of probability not only that it reasonably believes it is justified on safety or health grounds but that there is an actual health or safety hazard.

It would not have been difficult for Christchurch employers to establish the health and safety threshold when their premises were damaged or destroyed. However, a building being below the required earthquake standards does not necessarily equate to a health and safety reason under the Employment Relations Act 2000. The Employment Relations Act threshold for health and safety is arguably higher than that under the Building Act and regulations.

So what should employers do? They could consider having a clause in employment agreements stipulating that if an event such as an earthquake, fire, volcano, riot, civil unrest or a government cordon prevents access to the workplace, then the employer's contractual obligations are suspended. As long as they act in good faith at all times, employers could then trigger the contractual clause rather than rely on sections 84 and 96.

John Shingleton is general manager of Malley & Co and the partner responsible for employment law.