News & Thinking

FAQs regarding COVID-19 related restructures

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Anthony Harper

Can an employer change the terms of an employee’s agreement unilaterally because of COVID-19?

An employer cannot unilaterally change the terms of an employee’s employment without having consulted with the employee first. Employers must consult with the employees regarding the change; present the proposed change to the employees along with reasons for the proposed change, consult with the employee, and obtain the employee’s consent before any changes are made.

Normal employment law principles and rules still apply during and post COVID-19. Both employers and employees must continue to act in good faith.

What is good faith?

Good faith is a requirement under the Employment Relations Act 2000. It means:

  • that both parties must act openly and honestly
  • both parties must raise issues in a fair and timely manner
  • parties must work together in a constructive and positive manner
  • before making a decision, employers must give sufficient information for employees to understand potential changes and give feedback.

Can an employer dismiss an employee without process who was hired pre-lockdown and was meant to start employment but never started work because of lockdown?

If the employee signed an employment agreement they then became an employee of the company. Therefore, if the company then decides that position is surplus due to the impact of COVID-19, they will need to go through the full redundancy process to end this particular employee’s employment.

To end an employee’s employment there must always be a justifiable reason and the employer must follow proper process, regardless of COVID-19 and its implications.

Can an employer make employees redundant even if they applied for the subsidy?

This depends on when the employer applied for the subsidy and if they have applied for the extension or not.

The declaration that the employer made (if they applied for the subsidy after 4pm, 27 March 2020) states that they must retain their employees for the duration of the subsidy period (12 weeks). The same obligations apply if the employer applies for the extension to the subsidy. Therefore, employers cannot make employees redundant while they are receiving the subsidy. However, they can start the process and potentially give notice during the subsidy period, so long as the notice does not end before the 12 weeks of the subsidy or the additional 8 weeks of the extension.

Can an employer make employees redundant without following a proper process because of COVID-19?

No. An employer must still follow proper and fair process to go through the redundancy. The Government has made it very clear that employment law rules and principles must be followed, even during COVID-19 and as a result of it.

 Can an employer use the wage subsidy to pay for the notice period?

Yes. Employers can use the wage subsidy to pay for the notice period but cannot use it to pay for any contractual redundancy compensation.

When can an employer apply for the extension of the wage subsidy? When do applications close for the original wage subsidy?

Employers can apply for the original wage subsidy until 9 June 2020 and they can apply for the extension at any time between 10 June 2020 and 1 September 2020. However, the application for the extension must be after the 12 week period of the original wage subsidy. Employers cannot receive both at the same time.

What will happen when an employer applies for the extension because they have experienced a 40% decline in revenue but then the revenue improves? Does the employer have to return the subsidy?

So long as the business had a revenue loss of at least 40% for a continuous 30 day period (within the 40 days before applying) when the application was made, they do not have to return the subsidy even if the revenue improves.

Does the employer have to pass on the full amount of the subsidy to the employees?

Yes the full amount must be passed minus the usual deductions (PAYE, KiwiSaver etc) except where a person’s income is normally less than the subsidy amount (ie. $250 a week), in which case they can be paid their normal salary. Any difference should be used for the wages of other affected staff – the wage subsidy is designed to keep your employees connected to their employers.

If an employee is on a reduced pay rate (example 80%), how does their leave accrue?

The entitlements accrue at the pay rate that the employee is on that point in time. So if the employee is down to 80% pay, then the entitlements will accrue at the 80%.

What happens if an employee received the income relief payment after being made redundant and subsequently gets a part time job?

The income relief payments to that employee stop.

Please note these FQAs are general in nature and should not be relied upon as specific advice.

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