News & Thinking

Can employees be made redundant if their employer is receiving Government support?

Contributed by:

Kathryn McKinney
Partner

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Kathryn McKinney


The Covid-19 pandemic is causing widespread economic damage across a variety of industries but the Government have made it clear: the law still applies.

Is restructuring your organisation the best option?

At Alert Level 4, various Government officials have urged employers to “avoid redundancies at all costs” and have provided two schemes to support this directive: the wage subsidy and the essential worker leave support.

Employers who receive one of these two schemes should be mindful of the undertakings when applying for the payments under the schemes. Under the leave support scheme, this means that so far as is possible, an employee should be retained for four weeks. If an employer applied for the wage subsidy scheme after 4pm, 27 March 2020, then they were required to give an undertaking which included the commitment to retain employees for the period of the wage subsidy, and to use their best endeavours to pay the employees at least 80% of their usual salary over 12 weeks.

Therefore, if an employer that is receiving the wage subsidy for an employee makes that employee redundant, then there is risk of breaching the declaration.

If that isn’t possible – following consultation with affected employees – the employer can simply pass on the subsidy amount and maintain the employment relationship.

The economic impact of Covid-19, however, may make the retention of employees almost impossible – forcing employers to consider restructuring and laying off employees. Therefore, if you must carry out a redundancy process after you have applied for the wage subsidy, then principles of good faith will perform a key function. So long as employers acted in good faith when applying for the subsidy, the enforcement risk may remain low. Additionally, if an employer is receiving the wage subsidy on an employee’s behalf, and that employee is subsequently made redundant, the organisation will have five working days to notify the Ministry of Social Development (MSD) that they are no longer eligible for the scheme. In most cases, the employer will then have to repay the portion of the wage subsidy that was allocated for that employee.

I need to make my employees redundant – how do I do this?

Organisations are still required to comply with ordinary employment law obligations. This means that employers must act in good faith and consult their employees about any potential changes to their employment.

Employers who are considering redundancy should be aware that they will not be acting in good faith if they have reached a decision to make an employee redundant before consulting with that employee, even in these extraordinary times.

My organisation is receiving the Essential Worker Leave Support Scheme, and the employee is expected to return to work.

The same rules that apply to the wage subsidy scheme, apply here. If your organisation is receiving the essential worker leave support, the employer is still able to lawfully conduct a restructure of the organisation which may result in that employee being made redundant.

The organisation will then have five working days to inform MSD that the employment relationship has been terminated, and it will most likely be required to repay the remaining financial support back to MSD.

Further considerations

Minister of Finance, Grant Robertson, acknowledged that sometimes the only option for employers is to disestablish roles within an organisation and ride out the storm. Whether you are receiving the wage subsidy scheme, the essential workers leave support scheme, or your employees have agreed to a variation in conditions of employment, you may still need to consider whether redundancy has become necessary.

  • It is likely that some degree of flexibility will be available to employers around the time frame that the consultation process can take. However, this process still needs to be completed in good faith and we would remind employers to record their process in writing.
  • Employees are not entitled to the financial support under the two schemes as part of ‘redundancy compensation’. An employee will only be entitled for redundancy compensation if there is a clause providing for that in the specific employee’s employment agreement.

If you, or your organisation, have concerns or questions regarding redundancy, please contact one of our team of employment experts.

Disclaimer: The material contained in this document is provided only as an information source, and is correct at the time of writing. The material is a generalised summary of the key issues and is not intended as a substitute for specific professional advice and should not be relied on for such a purpose. Independent professional advice should be obtained before relying on any aspect of this material and we would be happy to assist in this regard.

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