In late December 2020, the first COVID related Employment Court decision (Gate Gourmet New Zealand Limited and Ors v Sandhu and Ors [2020] NZEmpC 237) was released. The majority of the full court found that employers did not have to pay employees minimum wage under the Minimum Wage Act (MWA), where the employees did not perform any work during the Level 4 lockdown in 2020.

What happened?

During the Level 4 lockdown in 2020, Gate Gourmet reduced its employees’ pay to 80% of their normal pay when these employees were not rostered to work. The reduction took place after consultation and agreement. No doubt, this was exactly what many other employers did across New Zealand. However, in this case the employees were on minimum wage and therefore, the reduction meant that they were being paid 80% of the minimum wage.

As a result of Gate Gourmet’s actions, a dispute arose regarding whether the employer had breached the MWA. The employees applied to the Employment Relations Authority (the Authority).

The Authority agreed with the employees’ position and found that because the employees were ready, willing and able to work, the employer was required to pay them minimum wage and as such, Gate Gourmet had breached the MWA by paying the employees only 80% of their normal wages.

Gate Gourmet appealed the Authority’s determination.

What did the Employment Court decide?

The majority of the full court found that the purpose of the MWA is to ensure that employees are paid a minimum payment in exchange for work that they actually performed. The Court held that being ready, willing and able to work does not equate to actual work.

Factors considered by the Court included the factors that came out of the “sleep over case” (Idea Services v Dickson):

• Did Gate Gourmet place constraints on its employees?
• Did the employees have any responsibilities towards Gate Gourmet during the no work lockdown period?
• Was there any benefit to Gate Gourmet?

The Court found that the answer to all of above was no. The Court stated that when the employees were not at work during the lockdown, they were not performing work for the purposes of the MWA. Therefore, the MWA was not engaged and the employees did not have any minimum wage entitlements during this period. The Court concluded that “when the defendants stayed home, they were not working for the purposes of the MWA, the MWA was not engaged, and no statutory minimum wage entitlements arose.”

Chief Judge Inglis dissented from the majority and found that Gate Gourmet did breach the MWA. The Chief Judge stated that because the employees were ready, willing and able to work, and not being able to work was not their own fault, the minimum wage was still payable.

What does this mean for you?

If your business has to close down due to COVID-19 lockdown imposed by the government, you can consult and agree with your employees to reduce their pay. If the employees are earning minimum wage, this reduction can be below the minimum wage (within reason).

The case does not mean that you can stop paying your employees altogether. Employers must still continue to pay their employees unless consultation and agreement is reached.

Word of caution

This also does not mean that you can make unilateral changes to your employees’ employment conditions. Normal employment law obligations to consult and make changes by agreement still continue to apply.

Given the Chief Judge’s comments, it will be interesting to see whether the decision is appealed.

If you have any questions regarding this decision and what it means for your business, please feel free to contact our employment experts Kathryn McKinney at kathryn.mckinney@ah.co.nz.