Employment Law in the time of COVID-19

With the restrictions that were put in place due to Covid-19, and the introduction of the Wage Subsidy scheme, all aspects of employment law were tested and touched upon, as employers and employees alike attempted to navigate a new, and potentially uncertain market.

Now, even though the restrictions have been lifted, a lot of uncertainty remains, and this article touches on a few key areas that both employers and employees alike need to be considering in the current climate.

Restructuring and Redundancy Processes

When times get tough, employers often need to make difficult decisions regarding whether their business has the right amount of staff, and whether roles and reporting lines are structured as efficiently as they could be. The honest truth is that most employers do not want to let staff go, however when there is a downturn in the market, this is often the only option employers feel they have to ensure the viability of the business.

Employers have the right to make changes to the business as and when required. This allows the employer a level of flexibility to ensure the structure going forward is the most effective means of delivering its goods or services to the market it supplies. As with all aspects of employment law however, process is key, and going through a restructuring process needs to be carefully managed.

The first step in the restructuring process is therefore determining whether there is a genuine business reason which justifies making the proposed changes. An employer should ensure that this reason can be supported by evidence where appropriate – for example, if the stated reason for a restructure is to reduce employment costs to sustainable levels, then this justification should be supported by cost figures and other relevant financial information.

An employer must also ensure that it has considered all viable options to achieve the stated goal, especially where redundancies are being proposed. There are many ways to reduce costs within a business, and the onus is on the employer to establish why only their proposal can achieve the required cost reductions, rather than other possible changes. Because of the complexity involved in establishing this, it can sometimes be preferable to frame the conversation in terms of gaining efficiencies rather than reducing cost. 

There are many other types of genuine business reasons which could justify a restructure, including advances in technology, changes in products, loss of suppliers or markets, or downturns in customer and market demands. If faced with such situations, an employer might consider adding new roles, merging existing ones, changing a position’s focus, combining two or more, or removing one or more altogether.  However, changing the structure of a workplace cannot legitimately be used as a way to avoid dealing with performance issues, and cannot be an alternative means to remove a difficult or unpopular employee.   

The next key step for an employer is to ensure that employees are consulted throughout the process in a fair and reasonable way. It is important to ensure that the changes are proposed to employees, and that it is made clear that no decision about whether to implement the proposed changes has been made – or will be made, until employees have provided feedback and you have considered it. Also, minimum standards cannot be forgotten, and Covid-19 has not created an exception to that. The good faith principle is one such example of a minimum standard that needs to be met, and this includes providing an affected employee with sufficient information to enable them to provide meaningful feedback on the restructure, and giving the employee a reasonable opportunity to respond.  The timeframes required will depend on all of the circumstances, including the seriousness of the business’ financial position and therefore the urgency of implementing the proposed changes.  For example, in the context of a Alert Levels 4 or 3 Covid-19 lockdown which resulted in revenues being reduced to zero, it would possibly be reasonable for a business to have run consultation processes with shorter timeframes than usual.    

Issues can arise if an employer does not undertake a fair and reasonable consultation process. Before any decisions are made, an employer should therefore, at least:

  • circulate any proposed business change to the employees likely to be affected;
  • give those employees reasonable opportunity to respond, provide comments, or suggest alternatives to the proposal; and
  • take into account what the employee has to say before making a decision as to the outcome.

Remember, keeping to the procedural aspects of employment law (and the processes set out in the relevant employment agreement(s), to the extent these contain process requirements over and above statutory requirements) may seem like an inconvenient barrier to an important and necessary decision, however it can also provide a means for the employer to become aware of important information it did not previously know about, or had not taken into account – as well as avoiding the possibility of your employees successfully raising issues after the process has been concluded. 

If the ultimate decision is that changes do need to be made, then the final step regarding any redundancy process is to consider whether the affected employee can be redeployed elsewhere within the business. If you have a vacant role, and an employee has the skills/qualifications/experience required to fill it, then you are obligated to offer them this role prior to terminating their employment for redundancy.  Please note that this obligation will not be satisfied by merely inviting the employee to apply for the role and compete against other candidates – if they can perform the role, then the employee has first right of refusal over it.  If the restructure involves reducing the number of a certain type of role (e.g. 5 sales roles being reduced to 2 sales roles), then you will need to ensure that there is a transparent selection process to determine which employees will fill the remaining roles. You are also obligated to consult with employees regarding any proposed selection criteria, and take into account any feedback provided before it is finalised.  It is therefore good practice to include draft selection criteria in the same document outlining the substantive restructure proposal. The selection criteria should be reasonable and relevant to the requirements of the role – and the more objective the criteria, the better.  Rather than being solely based on your judgement of each employees’ ability to perform the role, it can be useful to include elements such as qualifications, length of experience, length of service or historical ability to meet KPIs.       

Under New Zealand law, there is no requirement to provide redundancy compensation to an employee, however, if the employee’s employment agreement provides for this, then there is no way around paying them what they are contractually entitled to (unless the employee agrees otherwise).  Any outstanding holiday pay, and any notice period, will need to be paid in addition to any contractual redundancy compensation. 

Contractual Variations

Employers cannot unilaterally alter a key term of an employment agreement without the consent of the employee. Such terms could include the employee’s pay / annual salary, the hours they have been employed to work, or any other benefits they may have under their employment agreement. Do not be lured into relying on a clause that allows an employer to make changes at its own discretion, as if the changes relate to key terms, and no consent is obtained, the clause is unlikely to be enforceable, and the decision unlawful.

Just because a business is suffering financially, it therefore does not authorise the employer to assert a change to a key term. Employees have their own obligations and liabilities too, and may have a number of reasons as to why they cannot reasonably consent to a reduction in their income or their hours.

If a variation is necessary, then the employer and the employee should engage in a fair and reasonable manner so that all options and view points can be considered. With any change that is offered or proposed by the employer, it should be put in writing to the employee and the employee must be advised of their right to seek legal advice before agreeing to it. In doing so, the employee must actually be given a reasonable opportunity to get that advice. In other words, it would not be reasonable to advise an employee of their right to obtain legal advice on a Friday afternoon, and expect a decision from them on Monday morning. If this aspect is not adhered to, the risk remains that decision to vary the agreement will be found to have been unlawful, and a wage arrears claim may arise (which can be raised any time within six years of each wage underpayment).

It is therefore important not to forget that unlawfully changing a key term of an employment agreement may not only expose the employer to a personal grievance being raised, but also a complaint being made to a labour inspector, who has the authority to issue/apply for penalties against the employer.

Wage Subsidy Extension

A significant portion of New Zealand businesses applied for and received assistance via the Wage Subsidy Scheme during the Covid-19 lockdown period. For a lot of businesses, that financial assistance has now run out or has possibly needed to be returned.

For some businesses however, the Wage Subsidy will continue to be offered, albeit on a slightly different criteria.

From 10 June 2020, the extended Wage Subsidy Scheme will mean eligible employers can receive an 8-week, lump-sum payment for each named employee of the business. To be eligible however, the business must have experienced a minimum 40 per cent decline in actual or predicted revenue, over a 30-day period, within the 40 days prior to applying for the extended subsidy, and this decline must be compared to the nearest comparable period from the last year.

If applying for the extended Wage Subsidy (which must be applied for with the consent of each employee), be aware that there are important factors to consider both before and after receiving the funds. For example, you will need to be taking active steps to manage the implications of Covid-19, and you need to be prepared to return the Wage Subsidy funds if you do not experience the downturn predicted. Likewise, the same rules apply under the previous Wage Subsidy period, where you will need to agree to passing the subsidy on to the employees, retaining the employees for the duration of the subsidy, and making best endeavours to pay the employees at least 80% of their normal pay (with reductions only being made by consent, and “top ups” through annual leave by agreement or on 14 days notice if you have not been able to agree).

You also need to be prepared for employees leaving during the time you have the Wage Subsidy, and how you might use the funds if this happens. You will not be required to return the money if you can re-allocate the subsidy towards paying other employee wages, but you cannot lawfully use it to cover other business costs. Similarly, just because the Wage Subsidy is being received, it does not mean you must avoid going through timely and appropriate restructuring processes as and when needed, although there can be no redundancies for the employees that the employer is receiving the subsidy for (note that if a notice of redundancy is given before the application is made, you cannot obtain the Wage Subsidy for those employees unless the redundancy notice is withdrawn).

Conclusion

Despite the impact of Covid-19, both parties to an employment relationship still need to act in good faith toward each other, communicate openly, be responsive and act fairly and reasonably.

In other words, it is important to understand that Covid-19 has not changed the fundamental principles of employment law, and striking a balance between both the long-term and short-term benefits of a decision can be crucial. Employers therefore need to be extremely careful not to expose their business to an untimely risk of a personal grievance being raised by not following the law properly, and employees need to similarly be aware of what their rights are and make sure they are not being taken advantage of.

Remember, a fence at the top of the cliff is better than an ambulance at the bottom, so it is always beneficial to pre-empt and act on any potential issues before any decisions are made.

Our employment team regularly advises and assists employers and employees alike to achieve positive results, and we can tailor our advice to cater for the specific needs of your business, or the circumstances of your grievance. We are able to offer advice on:

  • employment disputes, disciplinary investigations and personal grievances;
  • variations to pay and work hours;
  • Wage Subsidy payments and obligations;
  • business restructurings and redundancies;
  • health and safety requirements; and
  • a full range of other employment issues.

If you think you need advice on the above, or if you have another query regarding an employment situation, give our employment specialists a call today 07-578 5033

Thomas Refoy-Butler, Associate | DDI. 07 579 0741Ethomas@mackenzie-elvin.com

Duncan Wilsher, Solicitor | DDI. 07 928 9963Eduncan@mackenzie-elvin.com

Stephen Shaw, Solicitor | DDI. 07 927 2431E. stephen@mackenzie-elvin.com