Opinion: Don't panic, employment law hasn't changed

7:31 am on 31 March 2020

By Ashleigh Fechney*

Opinion - People are panicking about how to properly apply the Covid-19 wage subsidy but I'm not sure why; employment law hasn't changed.

Wellington employment advocate Ashleigh Fechney.

Wellington employment advocate Ashleigh Fechney. Photo: Supplied

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An employer's obligations and an employee's rights are the same as before the emergence of Covid-19 and national lockdown. So, why is there so much confusion?

The Employment Relations Act 2000 is very clear on the obligation to pay wages. Following the "zero hour" law changes, an employer must provide an employee with an agreed minimum hours of work per week.

If an employer is unable to offer the employee those minimum hours in any week, then the employee must be paid or compensated for those hours.

Compensation for the loss of hours can only be made where there is a relevant provision in the employment agreement. In the absence of any provision, it is expected the employee will be paid their guaranteed hours.

Yes, it really is that simple. The only way to reduce someone's income is by agreement. This hasn't changed; and it is our starting point before considering the obligations under the wage subsidy.

But, be careful, there may be a loophole. Check your employment agreement for a "Force Majeure" clause. This clause may mean an employer is not obliged to pay wages following an "act of god" which prevents the business from operating.

These clauses have not been used often in New Zealand, so I would tread lightly before invoking it.

When applying for the wage subsidy scheme, an employer must try their best to keep paying the employee at least 80 percent of their regular income for the period of the subsidy. And the government has now clarified that at the very least the entire subsidy should be turned over to the employee.

This is an employer's obligation to the government with respect to the subsidy. If an employer has lied in its declaration, or has failed to meet its obligations, it may be required to pay back all, or part, of it.

But it's important to note that an employer's obligations to the government are separate from an employer's obligations under the Employment Relations Act 2000.

So if an employer pays its employees 80 percent of their regular income it will meet the criteria for the wage subsidy. However, it may still not meet its obligations under the Employment Relations Act 2000.

A warning for employers

Employers should not take these obligations lightly. It is my view that the obligation is to pay 100 percent of an employee's wages; as per usual employment law.

An employer must "try its hardest" to pay at least 80 per cent of an employee's wages. This doesn't mean an employer can simply pay the bare minimum. They must try their hardest to pay 100 percent of the wages, then they must try their hardest to pay 99 percent, then they must try their hardest to pay 98 percent, etc.

"Try its hardest" isn't a test established in law, but I can guarantee it's not going to be an easy test to meet.

Have you explored every avenue? Have you talked to your employees? Have you considered a loan? Remember, the law is that an employer must pay 100 per cent of an employees wage. Even if an employer tries its hardest to pay 80 per cent, they still risk breaching employment law standards.

If 100 percent is "not possible", an employer must pay at least the subsidy.

"Not possible" is a high threshold. It is not enough to show that the long-term budget will be impacted, or that the business continuity may be at risk. An employer must show it is not possible to pay 100 percent of wages for the period of the subsidy (ie; 12 weeks). As part of this, they may be required to consult with their financial advisers and banks about the possibility of getting a loan.

This is risky business. It is my view that in years to come, employers may be open to wage claims if they cannot justify their decisions to reduce wages. There's a six year limitation on claims like these.

Employers who try to skirt their obligations will also be breaching their declaration to the government, and may be liable to pay back the subsidy.

Let's get it right, together

The absolute safest method for an employer is to gain an employee's agreement to reduce their wages during this time. This can only be achieved if the employer communicates, in good faith, with its employees about its ability to pay wages.

The feedback that I've received is that employees want transparency. Those in minimum-wage positions want to be confident that those in managerial positions are also impacted. They want to know what options the company has explored before making the decision to reduce wages.

We can get this right; but we have to do it together.

*Ashleigh Fechney is an employment law advocate based in Wellington. Today she will join Quigg Law partner Simon Martin on rnz.co.nz at 11am to discuss the main issues employees and employers are facing and how they should be approached.

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