Paying employees during a lockdown: Raggett v Eastern Bays Hospice Trust t/a Dove Hospice [2020] NZERA 266

Tuesday, September 8, 2020

A big question most employers have had to grapple with during the COVID-19 lockdowns has been whether employees were ‘ready, willing and able’ to work and what this means for their pay entitlements?

Since the original lockdown, we have seen a number of cases which deal with this question work their way through the Employment Relations Authority, with Raggett v Eastern Bays Hospice Trust t/a Dove Hospice [2020] NZERA 266 being perhaps the most significant of these.

The case was brought by six claimants who were all employees of Dove Hospice (Dove); one had been employed as a human resource manager, one as a communications manager, and four who were managers of its retail shops.

The lockdown

On 23 March 2020, New Zealand was put into the alert level 4 lockdown, which led to Dove closing all of its retail stores (which were not essential services).

Around the same time, Dove applied for the Government Wage Subsidy (GWS). It also sent a memo to all of its employees which stated that:

  • Staff would be paid their normal salary until 29 March;
  • Staff would be paid 80 per cent of normal salary or wages from 30 March until 22 April (the anticipated end of level 4 lockdown); and
  • Arrangements beyond this date would be reviewed against certain criteria.

The restructuring

Dove subsequently undertook a restructuring which resulted in all of the six claimants being given eight weeks’ notice of termination. With one exception, this exceeded the four weeks’ notice period provided for in the relevant employment agreements.

Each claimant was also advised that they would not be required to work during their notice periods, that they would be paid 80% of normal wages and salary for the first four weeks, and that they would receive the GWS rate ($585.80) gross for the remaining four weeks.

The arguments

The claimants challenged these pay arrangements in the Employment Relations Authority (the Authority). Specifically, they argued that they had not agreed to be paid anything short of their normal wages and salary during the lockdown and their notice periods. They also argued that Dove had made unlawful deductions in breach of the Wages Protection Act 1983 (WPA) and/or their employment agreements.

Dove sought to defend its actions by claiming that due to the COVID-19 restrictions, the employees were not ‘ready, willing and able’ to work, and that any payments made to the employees were not wages as defined in the WPA because the employees had not performed service or work under their employment agreements.

The decision

The Authority came down on the side of the employees. It took the view that by reducing the employee’s pay during the lockdown, and during their extended notice periods, Dove had made unlawful deductions in breach of the WPA.

In particular, it held that:

  1. The employees had not agreed to be paid 80 per cent of their wages or salary, or at the GWS rate during the second four weeks of their notice periods;
  1. Dove was not released from its obligation under the WPA as:
  1. The employees’ employment agreement did not provide for suspension of wages or salary in circumstances such as the lockdown (this type of clause is commonly described as a business interruption clause);
  1. The requirement to pay wages sits within the framework of a contract for service (employment agreement); and
  1. There was unchallenged evidence that the employees were at all times ready and willing to work. Although the Authority did not provide any explanation of the extent to which the employees were able to work during the lockdown, it did comment:

“But for the intervening event of the COVID-19 restrictions and/or Dove’s decision to not require them to attend work during the notice period, on the evidence, they were able to fulfil their obligations under the employment agreements.”

What does it mean?

Although the Authority’s finding that the employees were entitled to full pay during their notice periods was unsurprising, there has been a lot of debate amongst employment law practitioners around what the conclusion that the employees were entitled to full pay during the lockdown means.

Some commentators have suggested that this decision is authority that all employees were entitled to full pay during the lockdown unless they specifically agreed to an alternative arrangement, or their employment agreement included an applicable contractual exception (e.g. a business interruption clause).

However, our view is that the case doesn’t go that far given the lack of explanation around why exactly the Authority considered the claimant employees were ‘ready and willing’ to work. In this regard, it would seem that each of the claimant employees were employed in managerial roles that could be performed from home to varying degrees. This leaves open the possibility that the outcome may have been different if the claimants were in roles which genuinely could not be performed during a lockdown, which differs from a situation where the employer has specifically directed employees not to work or does not have sufficient work to provide.

Interestingly, Dove has challenged the Authority’s decision to the Employment Court so it remains to be seen where this case will ultimately land. No doubt, there will be more to be said on the issue when the Court issues its judgment in the coming months.  

Our employment team are following developments closely and will publish updates as they arise. For more information, or for specialist advice on any COVID-19 employment issues, please contact a member of our employment team.

 

Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.

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