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To address the financial hardships caused by Covid-19, employers are having to make some difficult decisions to ensure that their businesses remain viable

Restructuring and redundancies post Covid-19 – By Kathryn McKinney and Joy Kaur

Covid-19 has caused – and continues to cause – some significant financial hardships for employers and employees across New Zealand. As a result, a plethora of employment and restructuring questions have arisen following lockdown.

To address the hardships, employers are having to make some difficult decisions to ensure that their businesses remain viable. These decisions include making changes to their employees’ terms of employment, using the Government’s wage subsidy scheme, and going through restructures. In this article, we outline some frequently asked questions with regards to these strategies.

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

A: No they can’t. Employers must consult with the employee regarding the change, and present the proposed change to the employee along with reasons for the proposed change. They must also 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.

Q: What is good faith?

A: Good faith is a requirement under the Employment Relations Act 2000. It means that both parties must act openly and honestly, and raise issues in a fair and timely manner. The parties must work together in a constructive and positive manner, and before making a decision, employers must give sufficient information for employees to understand potential changes and give feedback.

Q: Can an employer dismiss an employee who was hired pre-lockdown and was meant to start employment, but never started work because of lockdown?

A: If the employee signed an employment agreement, then they 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.

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

A: This depends on when the employer applied for the subsidy and if they have applied for the extension or not. The declaration the employer made if they applied for the subsidy after 4pm, 27 March 2020, states that the employer 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 eight weeks of the extension.

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

A: No. An employer must still follow a 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.

Q: If an employee was made redundant and then business improved, does the employer have an obligation to offer the role to the redundant employee before it looks to recruit externally?

A: If your business needs to reinstate a position shortly after the redundancy, but does not re-hire the redundant employee, then the redundancy process could be undermined. Therefore, to demonstrate the genuine nature of the redundancy process, it may be best to first seek to reinstate the previous employee, if the position becomes available again within a reasonable timeframe.

Also, note that if your business dismisses an employee and then reinstates them within one month, the employment must be treated as continuous for entitlements under the Holidays Act.

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

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

Q: When can an employer apply for the extension of the wage subsidy? When did applications close for the original wage subsidy?

A: Applications for the original wage subsidy closed on 9 June 2020 and employers 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.

Q: 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?

A: 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 their revenue improves.

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

A: Yes, the full amount must be passed on, minus the usual deductions (such as PAYE and KiwiSaver) except where a person’s income is normally less than the subsidy amount (i.e. $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 employees connected to their employers.

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

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

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

A: The income relief payments to that employee stop.

Partner Kathryn McKinney heads Anthony Harper’s national employment team and Joy Kaur is a solicitor within that team; the team provides expertise on all aspects of employment, health and safety, and immigration law  anthonyharper.co.nz

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