Things have been moving incredibly fast in the global fight against Covid-19. And each development has led to a new string of questions that New Zealanders have been desperately trying to answer.
One of the biggest areas of uncertainty at the moment is the Government's wage subsidy for businesses that have taken a substantial revenue hit due to the pandemic.
Almost daily, Herald journalists have received a series of questions from both employers and employees desperate to understand the intricacies of the wage subsidy and how it works.
Employment law specialist Catherine Stewart has taken some of her time to answer the most pressing questions facing workers and their bosses in these uncertain times.
1. What are an employer's obligations if staff can't work during a lockdown? Does the boss need to pay them, for instance?
It's important to remember that normal employment law applies. So nothing's changed in employment law. It's the same and you need to pay according to the contract, unless there's been an agreement to the contrary. You need to continue paying your staff unless you get their agreement to the contrary, and hopefully, in these particular circumstances that we're all facing, staff are going to be amenable to discussions and communications around how they can all assist in the situation. Staff could, for instance, agree to go on unpaid leave or annual leave. Otherwise, the employer needs to continue paying the employee pursuant to normal obligations.
2. How does an employer terminate their staff if they can no longer continue operating owing to Covid-19?
Normal rules apply for terminating staff. They need to follow a restructure process. They need to consult with the employees in good faith. That's potentially a tricky thing to do at the moment when we're all at home, but they can perhaps hold a video conference or they can communicate over email, Skype or the telephone and put the suggested proposal to employees that their positions may need to be disestablished. They must seek feedback and then consider that feedback before making a decision.
3. Does redundancy apply in such a situation?
The same rules for redundancy apply. However, this is a novel situation and there's an argument that the process could possibly be truncated in these circumstances, especially if businesses are going to the wall and can't follow a lengthy consultation process. This is an interesting question, but it's yet to be tested before the employment court or the Employment Relations Authority.
4. What are an employee's rights if they have been made redundant?
For disestablishing a position, you have to follow a process of consulting with the employee affected, explaining what the rationale is for the proposed disestablishment of the position, providing them information to support that rationale. The employer could detail the financial circumstances and provide evidence that the business can no longer continue operating in its current state.
The employee must then be allowed to look at this evidence and then be given an opportunity to provide a response. It's also important to make the employee aware that they can have a support person at the meeting, even when a face-to-face meeting isn't possible. You should organise a Skype or Zoom interview and allow that person to introduce the support person.
It's very much the same obligations that you would find in any kind of redundancy situation that applies in everyday business.
It may seem onerous for employers under the current circumstance, but on the other hand there's the likelihood of the employee losing their job. The right to have consultation remains important.
5. Can workers negotiate possible alternatives with their employer, for instance taking a pay cut?
The most important message to get out there is that employers and employees should talk to each other because this whole process is about trying to keep jobs. It's important to remember that the employer, most often, really regrets that they might not be able to keep jobs and the employee most often wants to keep that job.
Trying to find a win-win situation and perhaps some flexibility on both sides and exploring things like reducing pay, reducing hours, agreeing to take annual leave, for example, can work well for both sides. Negotiation and compromise are key. And you're not actually breaking the rules at all if you get agreement from your staff.
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If you issue a directive then potentially you are breaking the rules because you're making a unilateral variation. But if you're getting agreement from the staff, and they say, "Yes, actually, I will agree to a 15 per cent pay cut", then that's absolutely fine from an employment law perspective.
6. Is there an "easy escape" if a contract contains a "force majeure" clause?
"Force majeure" is French for "act of god". It could potentially be an escape, but it's not an easy escape. If you have a force majeure clause in your contract, you should look at it really carefully and see what it says.
It usually involves a situation where there's some kind of unforeseen act of god such as the earthquake or hurricane or something that just prevents the contract from being performed unexpectedly. Sometimes these clauses do also cover disease or pandemic. So look at the wording of your clause and see if it covers the Covid-19 situation. If it does, then yes, potentially, the employer can invoke that clause, but there's a relatively high threshold involved in that.
There are also a few other clauses to keep an eye out for. You might have, for example, a business interruption clause which enables the employer to stand down their staff if there's a business interruption and unforeseen circumstances. You might also have a lawful suspension clause that applies in such circumstances.
There's also the doctrine of frustration, which applies in circumstances where the contract is frustrated. In other words, it can't be performed because of the circumstances that you find yourself in. Again, it's a very high threshold to invoke that type of argument, but it's not impossible.
It's really important for employers and employees to have a careful look at their contracts and see what clauses there are that might help in the present circumstances.
The contract prevails above all else.
7. What types of businesses can get access to wage subsidies?
New Zealand-registered businesses and employers can qualify. They need to satisfy certain criteria, which is set out by the ministry. In summary, those criteria are that they have experienced a 30 per cent decline or projected decline in revenue over a month from January to June compared to last year, which is attributable to Covid-19. They should also make active efforts to mitigate those losses before they apply.
Employers should retain their staff during the period of the wage subsidies and should make efforts to pay their staff 80 per cent of their wages during the period of the subsidy.
8. What are my obligations as a boss if I have been granted a wage subsidy?
You must pass that subsidy on to your staff and it must be used for wages. Those are your obligations when it comes to the wage subsidy. Beyond that your normal employment obligations apply.
9. Can an employer who applies for wage subsidies reduce their staff's wages to the amount of the wage subsidy?
With the employees' agreement they can. It's not as straightforward as simply paying the wage subsidy and getting away with it. I come back to that point that I made at the beginning, nothing in employment law has actually changed. You still have to pay the full salary unless you get agreement.
The wage subsidy can be a really useful tool to keep the employee's job and avoid redundancy. If the rationale for the redundancy by the employer is financial on account of not being able to afford the wages, then the wage subsidy could be used to help secure the job. This is especially the case if the employee agrees for that wage subsidy to be the only payment that they receive for a period. If they agree not to receive anything over and above that, then the employer actually has no reason to proceed with the redundancy because they're not paying any wage costs for that person.
This all depends, however, on what the employer and employee agrees to.
10. What about the requirement that an employer must pay 80 per cent of the full salary?
The 80 per cent figure comes from the ministry's requirements that if they receive a wage subsidy, they should make the best efforts to pay them. That's not an obligatory requirement. It's a "best efforts" requirement. So you've got to prove you've made your best efforts to pay them 80 per cent.
I'm sure there are many businesses right now that have no revenue, and it would therefore seem the best option for them is to receive that wage subsidy and, with the employees' agreement, reduce payment to that level. That way, you can avoid redundancies and keep going through this process.
We obviously don't have a crystal ball, but this is a tool employers can use in the meantime to keep those jobs open.
11. Can wage subsidies be used to pay annual holidays? Can they be used to pay notice periods?
When wage subsidies are for wages and your holidays are wages, I don't see any reason why they couldn't be applied to new leave because annual leave is wages.
Notice periods do fall under wages, but it's important to bear in mind that the obligation is to retain staff during the period of the subsidy. If you're going to pay the notice period, then you'll have to tie that to the end of the wage subsidy period.
The one thing that couldn't be applied would be redundancy compensation because redundancy compensation is not wages. So the wage subsidy, in my view, couldn't be used to pay redundancy compensation. Whether redundancy compensation is paid at all will depend on the wording of the contract and whether there is an obligation to make redundancy payment or not.
12. Are casual staff covered by the wages subsidies?
Casual staff by their nature are staff who work on an as-required basis. If they would have otherwise been expected to have worked during the period of the wage subsidy, then the employer can apply for the wage subsidy on their behalf.
So it will depend on the nature of the casual work. Sometimes this can be very off and on. They might work sporadically here and there a few hours a week. But if it can be proven that they would have been expected to work over that period, then yes, they can apply for the wage subsidy for the casual employees.
They need to work out what hours the casual employee would be entitled to receive, because the hours are variable by their very nature for casual work. You can do this by working out how many hours the worker previously worked over a comparable period in a prior year.