Employers have had to act quickly to manage the numerous workforce-related issues that arose as a direct result of the COVID-19 pandemic. If employees were to be retained during the lockdown, employers needed to consider whether any adjustments to the existing employment arrangements were desirable.
The Employment Relations Authority (the Authority) has recently considered two cases relating to actions taken by employers during the early stages of the Level 4 lockdown. The Authority’s determinations in these cases serve as a reminder that despite the challenges facing businesses, it is important not to lose sight of the need to comply with fundamental contractual and statutory employment law obligations.
1. Minimum Wage Act obligations
Suhkjeet Sandhu and others v Gate Gourmet New Zealand Limited and Shaun Joils  NZERA 259
Gate Gourmet New Zealand Limited (Gate) operates a catering service for passenger aircraft and is based at Auckland airport. The applicants were employed by Gate and were members of the Aviation Workers United Incorporated Union (the Union).
Gate was categorised as an essential service and continued to be open for business throughout the Level 4 lockdown. All of the employee applicants were on full-time employment agreements, requiring them to work a minimum of 40 hours per week. They were all paid weekly at the minimum wage rate.
Following lockdown, Gate advised its employees and the Union that because there was very little work to offer them as a result of the COVID-19 pandemic, it would need to partially shut down operations.
On 26 March 2020, Gate sent a proposal to the employees and the Union. It also advised that if an employee had not been rostered on and Gate had not asked them to come to work, Gate had no work for the employee and they should stay at home. On the same day, Gate applied for the Government wage subsidy for 132 employees.
On 27 March 2020, Gate emailed all employees with a notice of closedown advising that Gate was closing part of its business. As part of that notice, a few options for dealing with pay while the employees were away
from the workplace were suggested. One option proposed by Gate was that pay for the employees would be dealt with by way of paying the employees at the rate of at least 80% of their normal pay conditional on Gate receiving the wage subsidy. Employees were also entitled to top up their pay to 100% of normal pay by using annual leave.
On 27 March 2020, the Union on behalf of its members (including the applicants) agreed to dealing with pay in this manner, subject to Gate complying with all applicable legislation. Shortly after this time, the minimum wage increased to NZD18.90 per hour or NZD756 per week.
Failure to pay the applicants a minimum wage
The applicants’ main claim was that in paying them 80% of their normal pay, Gate acted unlawfully in paying them below the minimum wage of NZD 756 per week.
The applicants argued that the only reason employees were not working their contractual minimum hours was because Gate unilaterally imposed a partial lockdown of its business and directed employees to stay at home unless rostered. They also said:
(i) Gate’s decision was made without any final arrangement with employees regarding pay
(ii) the applicants were capable of working and were ready and willing to work as agreed in the employment agreement
(iii) the only reason their work was curtailed was because Gate failed to provide them with work, and this meant that they were entitled to their normal wages
(iv) there can be no contracting out of the minimum wage and even if there was an agreement between Gate and the Union or employees, it could not operate to reduce the wages below the minimum.
Gate said it had understood from all the advice it had received that it was required to increase the rate of those working at the minimum wage to the new minimum wage and it ensured no one was paid less than the minimum wage for work performed. However, it did not believe that, for those employees not working, it had to make this increase until such a time as those employees were working.
(i) it had consulted with employees throughout about the measures it was proposing to take to ensure it survived and preserved jobs
(ii) the measures were agreed to by the applicants and were necessitated by the pandemic “which caused Gate’s work volumes to evaporate almost entirely”
(iii) it reached an agreement with the Union that the applicants would be paid at least 80% of their normal wages throughout
(iv) the only time the applicants received less than the minimum wage rate was when they could not work due to no work being available to them
(v) it paid its employees for every hour they worked and considered that if an employee is not working there is no minimum wage issue and no obligation on it to pay the employee at all.
The Authority’s determination
The Authority acknowledged there was a disagreement about whether or not the Union on behalf of its members had agreed to Gate’s proposed 80% payment. However, Authority member Geoff O’Sullivan concluded:
‘It seems to me I do not have to conclusively reach a view on that because in any event it is not open for either party to contract out of the Minimum Wage Act. It follows therefore that if the applicants were ready, willing and able to carry out their function in an essential industry, Gate was required to pay them at least the minimum wage, notwithstanding any agreement it may have made to the contrary.’
The Authority noted the decision on whether to work or not was not a decision made at the election of the applicants and was not because of the restrictions of COVID-19, but rather was at the direction of Gate. Gate was ordered to reimburse the applicants for the difference between what they have been paid to date and their entitlement to the minimum wage.
2. Wages Protection Act obligations
Raggett and others v Eastern Bays Hospice Trust t/a Dove Hospice  NZERA 266
Eastern Bays Hospice Trust trading as Dove Trust (Dove) provides hospice services in East Auckland. The applicants were employed in a range of services supporting Dove’s work. Four of the applicants managed six retail stores and two applicants worked in the human resources and communications areas respectively.
On 24 March 2020, Dove closed its retail stores due to the Level 4 restrictions. The retail store managers did not perform work for Dove after that date.
On 25 March 2020, Dove sent a memorandum to all staff which advised:
(i) Normal salary and wages would continue until the pay period ending 29 March.
(ii) From 30 March staff would be paid 80% of salary and wages until 22 April (when the Level 4 lockdown was expected to end).
(iii) “To then be reviewed on stated criteria”.
This memorandum did not state the 20% reduction in pay was agreed with staff.
Subsequently, the applicants received letters proposing restructuring of their positions and were invited to give feedback on the proposal, which they gave.
Between 7 April and 1 May 2020, the applicants received letters which included this information:
(i) Their positions were disestablished effective at the date of the letter.
(ii) Eight weeks’ notice of termination of employment.
(iii) The first four weeks of notice to be paid at 80% of their salary or wages.
(iv) The second four weeks of notice to be paid at the government wage subsidy rate of $585.80 (gross).
(v) They were not required to undertake any work for Dove during the notice period.
All but one of the applicants were contractually entitled to four weeks’ notice of termination, and one applicant was entitled to eight weeks’ notice.
There were salary deduction clauses in the agreements, but they did not cover the circumstances faced by Dove during the COVID-19 restrictions.
The applicants challenged both the justifiability of their dismissals and the short pays. The Authority determination relates to the short pays issue, which was dealt with on an urgent basis.
In terms of the unlawful deductions claim, Dove argued there was not a breach of the Wages Protection Act (WP Act) or the relevant employment agreements because:
(i) due to the COVID-19 restrictions, the workers were not ready, willing and able to work and therefore there can be no question of any breach of the WP Act or the relevant employment agreements, and
(ii) the extended notice period was offered on specific terms which the workers accepted.
The Authority’s determination
The Authority referred to s4 and 5 of the WP Act, which respectively state that where wages become payable the entire amount must be paid to the worker without deduction, and that deductions may be made from wages payable to a worker for a lawful purpose with written consent (or written request).
The Authority found the workers did not agree to be paid 80% of their wages or salary, and the extended notice period was never offered but instead was unilaterally varied.
In terms of the argument that the workers had not performed service or work under their employment agreements so no wages were payable and that what the applicants have been paid was not wages, the Authority found:
‘On the unchallenged evidence the workers were at all times ready and willing to work. But for the intervening event of the COVID-19 restrictions and/or Dove’s decision to not require them to attend work during the notice period, on the evidence, they were able to fulfil their obligations under the employment agreements.’
Dove was therefore found to have breached its obligations to pay the workers contractual wages and salary during their employment without deduction.
In both cases, the Authority rejected the employer’s argument that when no work was available to be performed, no wages were payable. The cases turn on their own facts, but they serve as a reminder of the importance of ensuring that any arrangements employers reach with their employees do not breach the minimum code. The Employment Court is likely to deal with appeals which will involve scrutinising the relevant legislation as well as the law around obligations stemming from workers being “ready willing and able to work” but no work being available or permitted because of government regulation. We await the outcome of any such appeals with interest.
This article was first published as part of Wolters Kluwer’s New Zealand Employers Handbook.