Covid-19 ‘myth busting’ – employers’ lockdown obligations

April 15, 2020 Jessie Lapthorne

The Covid-19 pandemic and the Government’s Alert Level 4 lockdown has created a uniquely challenging landscape for employers to navigate. Not only does it present an extremely trying set of commercial circumstances, it has also given rise to novel employment law issues which even experts have struggled to come to grips with. Unsurprisingly, this has led to a wide range of legal myths circulating about employer obligations during the lockdown which we have taken the time to bust. 

 

1. Myth one: All employees are entitled to be paid in full during the lockdown 
Truth: This depends on an employee’s ability to work during this time 

 

If an employee is not part of an essential service and cannot perform their role from home, they are not necessarily “ready, willing and able to work”. While there is some argument around what exactly this means, our view is that these employees are not entitled to be paid their normal pay during the lockdown. However, employers do still need to act in good faith and should still give careful consideration to options to fill the remuneration void, including applying for and paying employees the Government’s wage subsidy, discretionary special leave or agreeing that an employee will use leave entitlements to help bridge any shortfall in wages.  

 

It is also important to stress that this is different from a situation where an employee can perform their role from home, but the business is unable or unwilling to provide sufficient work during the lockdown. In these circumstances, the starting point is that the employee is entitled to full pay unless they agree to a reduction in remuneration or some other alternative arrangement.  

 

2. Myth two: Employers are obligated to apply for the wage subsidy 

Truth: Applying for the wage subsidy is a commercial decision for the employer to make  

 

While an employer who receives the wage subsidy must pass the full value of the subsidy on to employees, the decision to actually apply for the subsidy firmly rests with the employer. 

 

To apply for the wage subsidy, an employer must have suffered a 30% decline in revenue. The employer must also be prepared to declare (amongst other things) that:  

 

• It will use best endeavours to top up the wage subsidy so that staff receive 80% of their normal pay; and 
• If the application was made before 4pm on 27 March 2020, the employer will use best endeavours to pay staff 80% or more of their normal pay for 12 weeks; or 
• If the application was made after 4pm on 27 March, that no employees who receive the subsidy will be terminated for 12 weeks.  

These represent significant commitments that some employers will understandably feel they cannot be sure of meeting. Examples of where this may be the case include where employees are paid well in excess of the wage subsidy or where it may not be economic to re-open once the lockdown has lifted. In these circumstances, an employer may legitimately decide that it is not in a position to apply for the wage subsidy and that it needs to retain the flexibility that is otherwise sacrificed by making a subsidy application.  

 

However, a word of caution – if an employer elects not to apply for the wage subsidy and then proposes to make staff redundant, it should still be prepared to explain why the wage subsidy would not have averted the need for redundancies. It remains the case that an employer is obligated to consider alternatives to making an employee redundant before confirming such a decision. Carefully assessing whether the wage subsidy can save jobs will no doubt be an important part of meeting this obligation. 

 

3. Myth three: Essential workers cannot receive the wage subsidy and so do not have access to Government support 

Truth: All businesses, essential and non-essential, who have suffered a 30% reduction in revenue are entitled to apply for the wage subsidy. Further support is also available for essential workers who cannot work through the Essential Workers Leave Scheme.  

 

There is nothing in the wage subsidy scheme which prevents essential businesses from applying for the wage subsidy for employees who can still work during the lockdown. While establishing that the business has suffered a 30% reduction in revenue will naturally be easier for those businesses that are required to be closed, many essential businesses will still meet this threshold. 

 

Where the wage subsidy is not available, the Essential Workers Leave Scheme provides an alternative way of supporting employees who are not able to attend work because they, or another person they live with, are sick with Covid-19, are required to self-isolate or are at higher risk of contracting Covid-19. Like the wage subsidy, employers are still expected to use their best endeavours to top up Essential Workers Leave so that they receive 80% of normal pay.  

 

If you and your business require further assistance with your employment obligations and responding to the challenges presented by Covid-19, please contact Jessie Lapthorne on 09 374 7156 or Jessie.lapthorne@duncancotterill.com at Duncan Cotterill for specific advice.  

 

Jessie Lapthorne has extensive experience as an employment law specialist, both in New Zealand and the United Kingdom. She is a partner in Duncan Cotterill’s growing employment, health and safety team and is based in Auckland.