Here We Go Again: Lessons In Paying Staff During Lockdown

With Auckland going into lockdown again at Alert Level 3 from 12 August 2020, and the possibility of further periods of lockdown ahead, businesses around the country need to plan how to deal with staff if their operations are restricted. Here are some of the lessons from the first lockdown about your obligations to pay staff.

ARE YOUR STAFF READY, WILLING AND ABLE TO WORK?

The basic legal principle is you must pay staff their usual pay for their contracted hours if they are ready, willing and able to work, even if you cannot give them work.

Understandably, employers may feel it is not their fault they can’t give work to their staff because of lockdown orders.

Two recent cases in the Employment Relations Authority considered the first lockdown in March/April 2020 and posed the question: are staff considered ‘ready, willing and able to work’ even if there is a lockdown?

In short, the Authority said yes.

In one case the business was an essential service but experienced a significant reduction in work. Even though it had suffered a downturn, it couldn’t claim that staff were not entitled to be paid if there was no work for them to do. The employer’s options were to restructure and remove roles from its business that it did not require or otherwise continue to pay its staff even if they were not working. This is perhaps not surprising because the business was able to operate during the lockdown, so staff were free to attend the workplace to do work if it was available.

However, the other case involved non-essential work. The employer in that case reduced the employee’s pay to the level of the wage subsidy, and argued it did not have to pay staff their normal pay because they were unable to work during the lockdown. The Authority disagreed and took the view that the business’s staff were ready, willing and able to work, despite the lockdown, and so they should have been paid as normal if staff had not agreed to reduce their pay.

In other words, the Authority was of the view that if there is a lockdown and staff can’t work because of those restrictions, they must still be paid because they would have attended work if it wasn’t for the lockdown.

Some lawyers are of the view that this decision is wrong. They say employees are not ‘able’ to work if there is a Government-enforced lockdown and their work isn’t an essential service. But for the time being these Authority decisions are the most authoritative view on the question.

WHAT ARE THE TAKEAWAYS?

For now, the default position is you should pay your staff during a lockdown even if you cannot operate your business or give staff work to do from home.

If that poses a problem for you, here are your options:

Agree with staff to reduce their wages/hours of work

The first option is to ask your staff if they will agree to reduce their wages or hours of work. You must not simply reduce their pay or hours without their agreement.

Even if there is an available wage subsidy you cannot simply pay the subsidy and unilaterally reduce staff pay to the level of the subsidy. You still need to consult with your staff and get their agreement to make that change, and you may have an obligation to pay at least 80% of their usual wage, depending on the terms of the subsidy.

Our experience from the lockdown in March/April 2020 was that staff generally understood the pressures their employers faced and were often happy to agree to reduce their pay if they were fairly consulted about that.

Even if staff agree to a wage reduction, you must pay them at least the minimum wage for each hour they are contracted to work. For this reason, it may make best sense to agree with staff that you are not just reducing their wages, but reducing their contracted hours of work (with the result that their overall wages are reduced). You can then ensure that you are paying them the minimum wage for each of those contracted hours, rather than reducing pay over a larger number of hours which could spread the pay too thin and risk going below the rate of the minimum wage.

Options where you can’t reach agreement with staff

If you can’t reach agreement with staff to reduce their pay to at least the minimum wage for each contracted hour of work and your business is suffering, you may have some other options.

Where you have a business interruption clause that entitles you to suspend pay in the case of a pandemic, you could activate that. But you need to be sure that the clause gives you the rights you think it does. It may be best to get a lawyer check this before you take action. If your employment agreements don’t include this type of clause, this is the time to review your agreements in case lockdowns become a regular feature of life going forward.

You could give staff the option to take annual holidays during a lockdown. But they need to agree to take that leave, and have such leave accrued. If you can’t reach an agreement with staff to take accrued leave you can direct them to take annual leave at 14 days’ notice.

In the worst case, you may unfortunately have to consider restructuring your business by removing some positions to reduce costs. In another case relating to the March/April 2020 lockdown the Authority reminded us that employers need to carry out a fair process and only disestablish roles where they have good reason for doing so. See the guide on our website for more about that process.

CONCLUSION

We understand businesses want to do the right thing by their staff while still managing the risks during a further lockdown. For now, the starting point is that you must pay staff even if they cannot work during lockdown. Keeping your staff on with some pay instead of making them redundant is preferable, as it means you’ll likely have a pool of loyal staff when business pick up again. But you need to ensure you get their agreement if you reduce their pay or you could be stung with a higher wage bill than you expect (and penalties for breaching employment agreements and statutory obligations).