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no free passes for employers

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Originally published in Savour March 2021

by Alison Maelzer
Partner, Hesketh Henry

The community cases in February provided a strong wake up call, reminding us that we are still in a pandemic and need to be prepared. While Covid-19 continues to cause huge challenges for employers, it is not a free pass to forget about employment law, good faith, or any of the usual contractual and statutory obligations that we normally apply.

We are now starting to see some of the Employment Relations Authority Determinations and Employment Court judgments come through. It is clear that a number of employers that took hasty or harsh action during the first wave of New Zealand cases and restrictions are now paying the price.

So, what are some of the key things that employers need to remember as we move forward?

The test for justification still applies

Every action that the employer takes may (potentially) be judged against the justification test in s103A of the Employment Relations Act 2000 (the ER Act). Employees can still raise grievances if they feel that they have been unjustifiably dismissed or have been disadvantaged in their employment by an unjustified action of the employer.

The test for justification looks at whether the employer’s actions (what the employer did) and how the employer acted (the process followed) were what a fair and reasonable employer could have done in all the circumstances. Covid-19 has resulted in unusual circumstances, to say the least, and this will be factored into any assessment, but there is still an expectation that employers will act fairly and reasonably. Varying employment agreements, suspending or standing down employees, disciplinary action, and of course termination (whether pursuant to a force majeure/business interruption clause or for ‘normal’ redundancy), still need to be substantively justified and employers must follow a fair process. This will require consultation – investigating the circumstances, putting a proposal and supporting information to the employee, receiving and genuinely considering the employee’s feedback – and only then, making a decision.

Unilateral variation of an employee’s terms is not OK

In the employment agreement, employers and employees have agreed on a set of terms. Changing these terms will require the agreement of both parties. There may be some flexibility ‘built in’ to the agreement (e.g., around hours, duties or things like discretionary payments) but any other changes will require agreement. Unilaterally changing someone’s employment agreement is very unlikely to meet the requirements of s103A of the ER Act, even in a pandemic situation.

Holidays Act 2003 also still applies

A few things about leave:

•     If a person is taking annual leave, they cannot be working at the same time. This means that annual leave cannot be used to top up the pay of an employee who is actually working (even by agreement).

•     Annual leave can only be ‘cashed up’ in the normal way – i.e., only entitled leave, only one week per year, and only at the employee’s request.

•     Annual leave should be taken by agreement – i.e., the employer and employee need to agree on when annual leave will be taken. Only failing agreement can the employer direct the employee to take annual leave, the employer must still give 14 days’ notice and the direction must be in good faith, fair and reasonable.

•     Remember that while employer and employee can agree to the employee taking annual leave in advance of entitlement, the employer cannot direct it.

Sick leave can only be taken when the employee is sick or injured, their spouse is sick or injured, or someone who depends on the employee for care is sick or injured. There is a real risk in employers/employees ‘agreeing’ to use sick leave in other circumstances, as this does not meet the requirements of the Holidays Act 2003 and may mean that sick leave ‘taken’ during the pandemic is actually still available for the employee at a later date. Be very careful about allowing employees to take sick leave when they need to take a Covid-19 test or self-isolate awaiting results. The Covid-19 Leave Support Scheme and the Covid-19 Short-Term Absence Payment could be an appropriate alternative.

What about a trial period?

Yes, trial periods still apply, and employers may use a valid trial period to terminate employment. The key word is ‘valid’. Remember that the clause must contain all the statutory requirements, the employee must have signed the agreement containing the trial period before starting work, the employer cannot have had 20 or more employees at the time the trial period was signed, the termination must take place within the 90 days, and notice must be given. Trial periods are tricky beasts, and we strongly recommend you seek advice before using a trial period to terminate employment.

Redundancy should be a last resort

As the long-term impacts of the pandemic start to bite, redundancies are, sadly, an option on the table for many employers. However, redundancy should not be the only, or even the first option. Remember also that a general economic downturn is not automatically sufficient justification for a redundancy termination; the employer needs to justify why that particular role may no longer be required. Similarly, if the employer is reducing overall headcount, it is important to consider selection criteria, rather than ‘targeting’ specific employees. Employers should explore all other options before formulating a redundancy proposal.

Good faith: now more than ever

Good faith requires the parties to an employment relationship to be active and constructive in establishing and maintaining a productive employment relationship in which the parties are, among other things, responsive and communicative. In a nutshell, this means talking to each other. Employers and employees both have an obligation to work together to try and maintain, so far as possible, a ‘normal’ employment relationship, in what continue to be abnormal times.

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