Reducing Pay During Level 4 Lockdown: ERA Decisions

Two personal grievances raised in relation to reducing pay during Level 4 lockdown have been heard and decided on by the Employment Relations Authority.

The wage subsidy declaration gave many employers the impression that as long as they had used their ‘best endeavours’ to pay their staff at 80% of their normal wages then there wasn’t an actual obligation to pay them anything more than the wage subsidy itself.

In the case against Gate Gourmet NZ Limited (GGL), a group of employees on minimum wage challenged an agreement between the employer and employees to pay 80% of their wages. Although an essential service, GGL was significantly impacted by the lockdown and told their employees they would have to implement a partial closedown of the business, asking them to agree to be paid at 80%. They had the option of using their annual leave to top up their wage to 100%. The employees agreed at the time but later challenged this, claiming that as a result they were paid below the minimum wage.

GGL’s view was that as the employees were not working their full hours, they had received the minimum wage for the hours they had worked. The employees argued they were ready, willing and able to work, and the only reason they weren’t was because the company had unilaterally imposed a partial closedown of the operation and told them to stay at home unless rostered.

The Authority agreed with the employees. GGL was not legally able to pay their employees less than the statutory minimum wage for their full usual working week. It expressly rejected the argument that if employees were not working then there was no requirement to pay them anything. As such the employer is required to back pay all the employees the difference between what they were actually paid and what the minimum wage entitlement would have been.

The other case was against Eastern Bays Hospice Trust. The wage subsidy was applied for on the first day of the Level 4 lockdown, 23 March. Two days later staff were sent a memo telling them that their pay would be reduced to 80%, then a week later staff were given letters proposing to make them redundant.

Staff were subsequently given redundancy notices and advised that the Trust would pay employees 80 per cent of their usual pay for the first four weeks of the notice period, and just the amount of the wage subsidy for the second four weeks. Only four weeks’ notice was contractually required.

Unsurprisingly the authority found that the employer was not entitled to unilaterally reduce employees’ pay and ordered it to pay employees their full wages and salary for the entire eight week notice period.

It is evident the extraordinary circumstances of COVID-19 and the Level 4 lockdown are not extenuating circumstances which made any difference to an employer’s obligations to pay their employees at their full pay irrespective of whether they worked, unless there was written consent, and that consent did not breach statutory obligations.