COVID-19 and salary reductions

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A common issue that has arisen as a result of the impact of Covid-19 is in what circumstances an employee’s rate of pay or hours of work can be reduced.  The impact of Covid-19 forced many organisations to take immediate steps to save costs and often these cost saving measures included reducing an employee’s hours of work or level of salary.

The recent Employment Relations Authority (“Authority”) determination in Raggett & Ors v Eastern Bays Hospice Trust t/a Dove Trust [2020] NZERA Auckland 266 confirms the well established principle that any changes to an employee’s terms of employment must be agreed.

In March 2020, just prior to New Zealand entering Alert Level 4 and nationwide lockdown, Eastern Bays Hospice Trust t/a Dove Trust (“Dove”) issued a statement to all employees advising that from 30 March 2020 staff would be paid at 80% of salary and wages, for an initial period of three and a half weeks (the then anticipated end of the Covid-19 level 4 lockdown).  Dove did not seek agreement from its staff to the salary reduction.

Subsequently Dove went through a restructure process, resulting in a number of redundancies.  Dove advised a number of staff whose positions had been disestablished that an extended notice period (being a further four weeks on top of the contractual four week notice period) would be provided. The first four weeks of notice would be paid at 80% of employees’ salaries or wages, while the second four weeks of notice would be paid at the Government Wage Subsidy rate of $585.80 per week.

Six Dove employees brought a claim in the Authority in relation to Dove’s failure to pay their salary at the contractual rate.  The Authority found that Dove had unilaterally varied the employees’ terms of employment and as a result had made unlawful deductions from regular salary payments.

The determination confirmed that while an employer can make a proposal to reduce contractual wages or salary and seek agreement from employees to vary the terms of employment, agreement is still required. Engaging in a consultation process does not remove the requirement to obtain consent.  Without an employee’s agreement to vary the terms of employment, there is no legal basis to reduce normal wages or salary.

The determination also confirms that workplace closures as a result of Covid-19, do not alone allow an employer to withhold wages on the basis that employees are not ready, willing an able to work. The Authority found that Dove’s employees were at all times ready and willing to work, and but for the intervening event of Covid-19 and the restrictions in place, they were able to fulfil their obligations under their employment agreements.

If you are dealing with employment issues arising from the COVID-19 crisis, either as an employer or as an employee, get in touch with our employment team at Gaze Burt.

 

Beth Smith
Beth Smith
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