The key thing to remember during the COVID-19 pandemic is that normal employment law continues to apply. Employers and employees simply cannot throw the rule book out the window during this rapidly evolving situation.
It is important to keep up to date with the updates to the guidance issued by the Government, in particular information in relation to the administration of the Wage Subsidy, the obligations on employers who have applied for the Wage Subsidy and changes applying to workers in essential businesses who are unable to go to work.
As at 7 April 2020, you should be familiar with the following updates:
New Essential Workers Leave Support
The COVID-19 Essential Workers Leave Support is available for essential businesses to pay employees who:
· cannot come into work because Ministry of Health guidelines recommend they stay at home; and
· the employee cannot work from home.
Employers can apply for both for the Wage Subsidy and the Essential Workers Leave Support but you cannot receive both payments for the same employee at the same time. You should apply for the payment that is most appropriate to your employee’s situation. Essential businesses will not be able to apply for the Wage Subsidy if they cannot show actual or predicted 30% decline in revenue due to COVID-19. The Essential Workers Leave Support is paid for 4 weeks.
Key takeaway: Only essential business can apply for the Essential Workers Leave Support
New Wage Subsidy obligations
From 27 March 2020, all employers who apply for the Wage Subsidy must agree to comply with a number of new obligations. The key changes are as follows:
The 80% Top Up Requirement
Employers must use their “best endeavours” to pay at least 80% of each named employee’s ordinary wages. This requires employers to exhaust all possible means before electing NOT to top up their employees wages from the Wage Subsidy amount to 80%.
What does “best endeavours” mean? Although this has yet to be tested, the Government has said that where a business is unable to pay any more that the Wage Subsidy, having exhausted all possible other ways to top up, the employer will be justified in simply passing on the Wage Subsidy to employees without topping it up.
Key takeaway: If employers can top up the Wage Subsidy, they should. Even if they can’t top it up to 80%, they should top it up as much as financially possible. Simply passing on the Wage Subsidy is the last resort, rather than the default option.
Retaining employees
All employers applying for the subsidy after 27 March 2020 must undertake to retain all employees for who the application is made for the 12 week period of the subsidy. Applications made prior to 27 March 2020 only required employees to use “best efforts” to retain the employees named in the application.
Key takeaway: It is possible for an employer to commence a restructuring process during the Wage Subsidy period, however the employee cannot be made redundant until the expiration of the Wage Subsidy period. If the employer applied for the Wage Subsidy before 27 March 2020, they are not obliged to retain all employees named in the application however, they must continue to use best efforts to retain all named employees. We recommend retaining all employees until the expiration of the Wage Subsidy to avoid potential personal grievance claims for unjustified disadvantage.
A copy of the full declaration can be found here: https://www.workandincome.govt.nz/online-services/covid-19/declaration-wage-subsidy.html
Part-time or casual employees who normally earn less than the Wage Subsidy
Currently, the part time Wage Subsidy (less than 20 hours per week) is $350 per week. Employers must pass the Wage Subsidy on to the employee. However, some employees might only work a small number of hours on a weekly basis and not have earned $350 gross per week before the lockdown.
If you have any part-time employees in this situation, you must:
1) Pay the part-time employee his/her normal wage earned pre-lockdown; and
2) Apply any surplus Wage Subsidy to top up the wages of other staff to get them as close to 80% of their normal wage.
Key takeaway: It is important to ensure that all wage subsidies, whether for full time or part-time employees are paid to employees only and not used for any other business expenses.
Employees who do not have set hours of work
If your employees do not have set hours of work, the employer must calculate the average number of hours worked over the last 12 month period (or for the period of time the employee has been employed) to determine which Wage Subsidy (full time or part time) to apply for.
If the average number of hours is more than 20, you must pay the employer the full-time Wage Subsidy. If the average number of hours is less than 20, you must apply for the part-time rate for that employee. If the average number of hours is less than 20 and results in the employee receiving less than the part-time Wage Subsidy, you will need to apply the same principles as set above, under the heading ‘Part-time or casual employees who normally earn less than the Wage Subsidy’.
Rehiring employees
If an employer made employees redundant because of COVID-19, the employer can now rehire those employees and apply for the Wage Subsidy provided the following criteria are met:
1) The employee was employed by you as at 17 March 2020;
2) You made the employee redundant because of COVID-19; and
3) You have not previously applied for the Wage Subsidy.
Key takeaway: Good faith obligations continue to apply. You cannot rehire your employee on less favourable terms. Re-employment must be on a fixed term basis which is subject to the 12 week period for the Wage Subsidy.
Leave Payment
As of 3.00pm on 27 March 2020, the Leave Payment is no longer available. If you submitted your Leave Payment application before this deadline, your payment will be processed as normal.
When you need to repay the Wage Subsidy
Employers will need to repay some or all the COVID-19 Wage Subsidy if:
they no longer meet the criteria for the subsidy;
they are not meeting their obligation to use the subsidy to retain and pay their employees;
they are covered by insurance (e.g. business continuity insurance) for any costs otherwise covered by the subsidy; or
they provided false or misleading information in their application.
General Advice
What not to do
· Do not make employees redundant within the 12 week Wage Subsidy period if your application was submitted on or after 27 March 2020. Even if your application was submitted prior to 27 March 2020, we urge you to seek legal advice beforehand if you are considering making employees redundant.
· Employers cannot impose reduced hours or wages on employees – they need to communicate, consult and seek their employees’ agreement. But if you need to reduce wage costs in order to keep the business going, you can advise (but not threaten!) your employees that if costs aren’t reduced, it may be necessary to consider a restructuring of the business and ultimately, redundancies may be unavoidable.
· Do not use any surplus Wage Subsidy funds for any other business expenses other than wages.
What to do
· Act in good faith
· Communicate with employees
· Top up the Wage Subsidy if you can. If you can’t, tell your employees why.
· Rehire any employees made redundant due to COVID-19 on a fixed term contract and apply for the Wage Subsidy to avoid claims for personal grievance.
· If you are considering commencing a restructuring process, you must follow a particular process and it is easy to get it wrong. We recommend you get in touch with the Tavendale and Partners Employment Law team for advice on the process.
· Correct your mistakes. It can be difficult to know for sure if you are making the right decisions. If you have got it wrong, make it right as soon as possible.
Frequently asked questions
Can I reduce employee’s hours and/or wages?
The golden rule is that an employer cannot and should not reduce hours of work or pay without the employee’s consent. Consultation is key. Employers who fail to obtain employee consent run the risk of claims for significant arrears in wages once the lockdown period finishes.
Can I dismiss my employee relying on a ‘Force Majeure’ or ‘Business Interruption’ clause in their employment agreement?
These provisions can potentially be invoked where circumstances outside the employer’s control result in the employer’s being unable to provide work to its employees. However, the threshold is very high and careful scrutiny of the clause would be required to consider where a pandemic situation like COVID-19 would apply.
Can I rely on the Doctrine of Frustration to terminate the employment relationship?
If you wish to rely on frustration, you must be able to prove that it is impossible to perform the contract. As the current lockdown period in New Zealand is temporary only, it may be very difficult for employers to show an inability to maintain the employee’s employment during the lockdown period. The employer would be required, at the very least, to show that it had exhausted all other options including applying for the Wage Subsidy, negotiating a reduction in pay or the option for employees to take leave. A contract is either impossible to perform or it is not.
Still confused? Have a question?
We are here to help and answer your questions. We are aware that everyone’s situation is unique and we are here to guide you through your unique situation. There is no doubt that this is a difficult time for both employees and employers. Please get in contact with the Tavendale and Partners Employment Law team if you require any assistance.
CONTACTS:
Julian Springer | Legal Advisor, UK Qualified
T +64 3 374 9999
or
Sara Jamieson | Senior Associate
T +64 3 374 9999