As we navigate through our second Alert Level 4 lockdown, employers once again have been faced with the question of what changes, if any, they can make to employees’ pay, while they are faced with an inability to open their businesses in Levels 4 and 3, and employees are obliged by the government to stay at home.
This issue created much debate during the 2020 lockdowns, but unfortunately, 18 months down the track, there is no definitive answer from the Courts. We hope that this article will provide clarity for you.
Our view has remained the same since the beginning of the pandemic, and it is based on the fundamental principle of contract law that an employee must be ready, willing and able to perform work in order to be entitled to wages. In Level 3 and Level 4, an employee may be ready and willing, but is only “able” to work if they are either an essential worker, and therefore exempt from the obligation to stay at home, or a worker who is able to perform their work from their home.
Although it is not the fault of the employee, that employee is not “able” to work, and has no entitlement to pay. This “ready willing and able” principle has been supported by the Courts on numerous occasions in the past, including in circumstances such as where there has been a strike, or where employees have been unable to access their workplace due to a picket line. It is also implicitly supported by the Wage Subsidy scheme which is based on the presumption that an employee may not be entitled to pay, but requires the employer to use “best endeavours” to pay at least 80% of the employee’s pay.
Having said that, care should be taken to ensure that there are not provisions in the relevant employment agreement that might override this fundamental principle. Such a provision would be rare, but may nonetheless exist.
It is also always open to an employer who is in a position to do so to use its discretion to pay an employee’s full pay rate – but that is a discretion exercised by the employer, not an entitlement of the employee.
So, what are the pay entitlements?
Where the employee cannot work from home, or is not an essential worker in Alert Levels 4 and 3
- In Level 4 and Level 3, everybody is required to stay at home and not go to work, except those who are designated as essential workers. If they are not able to go to work, or to do their job from their home, they are not entitled to their salary or wages. The payment provisions in their employment agreements do not apply while they are not able to work, regardless of how that inability occurred.
- Some employers may choose to maintain an employee’s wages or salary during the lockdown – any such payment is at the employer’s discretion.
- The Wage Subsidy is provided to employers to pass on to their employees, on condition (among other things) that the employer uses its best endeavours to pay at least 80% of the employee’s normal wages or salary.
Where the employee can work from home in Alert Levels 4 and 3, or is an essential worker
- Employees in this category are “able” to work, and so are entitled to be paid in accordance with their employment agreements.
- If there is a business need (such as where the business is not fully operational) to pay employees in this category less than their normal wages or salary, or for the employee to work fewer than their normal hours, that can only happen with agreement of the employee. Any such agreement will be a variation to the employment agreement, and should be recorded in writing.
Alert Level 2
- Under Alert Level 2, businesses may open and employees are “able” to work. They are therefore entitled to be paid in accordance with their employment agreements
- Where the business does not require the usual number of employees, or needs to have the employees working less than their normal hours, those adjustments must be made by agreement with the employees concerned. Any variations to the employment agreement along these lines should be recorded in writing.
We strongly recommend that employers continue to consult with their workers about these issues and if possible obtain agreement (regardless of whether it is legally required) as this will avoid any arguments down the track.
We realise that a few commentators (including unions) have made public statements to the effect that all employees should be paid 100% of their wages at all times, regardless of the lockdown level and whether they are working. We do not agree with that, for reasons set out above.
We recommend that you seek advice if you are unsure, and of course every business has its own circumstances, but in summary our overarching advice is:
(a). If the employee is not able to come to work, or to work from home, then there is no entitlement to pay. No agreement is needed to not pay the employee when they are not able to work (although it is desirable to consult and get agreement, given the lack of case law in this area).
(b) If the employee is able to do some or all of their work from home, they are entitled to pay, and any changes to their pay or working hours must be achieved by a written variation to their employment agreement.
(c) If it is the employer’s proposal that an employee not work, or that there be a reduction in an employee’s hours, those changes can only be achieved by means of a written variation to the employment agreement.
(d) If the employer is receiving the wage subsidy, it must be applied to the employee in respect of whom it has been claimed. Receipt of the wage subsidy does not affect the principles above – the amount an employee will receive will depend on whether they are able to work – but keep in mind that a condition of the wage subsidy is that the employer must use best endeavours to pay at least 80% of the employee’s usual wages or salary.
Lockdowns and alert level changes tend to bring with them unique situations that are difficult to interpret. We will be happy to provide assistance to you regarding your circumstances, should you need any help navigating the employment law complexities of an employer’s obligations during these unsettling times.