Written by Bruce Gilmour

The Government enforced lockdown of businesses as a result of the Coronavirus pandemic has thrown up a number of employment issues and challenges for both employers and employees.

The obvious effect of the lockdown is that all non essential businesses are forced to cease operating as they have. While all employment relationships are, to a great degree, specific to the business and the employee a number of common issues and themes are emerging.

Good Faith

First, nothing in the present situation we find ourselves in affects the fundamental relationship of good faith upon which employment relationships are based. While many employers are unable to operate their business they cannot simply cease to pay employees. Any change in the employment terms agreed must be done with the normal consultation and, if appropriate, agreement. Any employer purporting to rely on a frustration of contract argument or a force majure clause in the employment agreement to unilaterally alter the terms of employment will likely face a personal grievance claim and significant difficulty in justifying its position, especially given the government wage subsidy referred to later.

Faced with the (hopefully temporary) closure of a number of businesses employers have had to make calls as to whether the business can continue to exist, what income can be generated and what expenses can be sustained. This of course forces a consideration of staff numbers and cost. If a business cannot afford to continue to pay employees at their normal pay then they can propose a reduction in hours worked (and consequent reduction in pay), the use of holiday entitlements or leave without pay but all of these options would need the employee’s agreement and cannot simply be imposed.

Government Wage Subsidy

Recognising the financial stress businesses will be under the government has provided a wage subsidy scheme for employers to access financial assistance to retain staff. The wage subsidy allows employers the certainty of a source of funds to maintain employees. However, the wage subsidy comes with a number of caveats. First, the employer must demonstrate (or more accurately declare) a minimum of a 30% reduction in actual or predicted revenue directly relating to Covid 19. Second, the employer must have taken steps to mitigate those effects (such as cancelling unnecessary expenditure and, if appropriate, negotiating rent reductions with the landlord). Finally, the employer must, for applications made after 27 March 2020, retain employees for whom they obtained a subsidy and pay them a minimum of 80% of their normal income.

If an employer is successful in obtaining a wage subsidy it cannot, for example, seek a subsidy for 10 employees and make five redundant and use the wage subsidy received to pay the other five. Also, it cannot use the wage subsidy to pay other business expenses such as rent.


Accordingly, various businesses have had to decide whether, even with a wage subsidy payment, the business can sustain the retention of some, or all, employees. In the event a decision is made that an employee or employees cannot be retained then the issue becomes one of redundancy and the process needs to be handled in the same way it was prior to the lockdown, by open and frank communication and consultation without pre determination.

Working From Home

Some businesses have been able to relocate staff and set up working from home situations. While an employee is working from home the same good faith obligations exist. In other words an employee is obligated to work, if there is work to be done, rather than simply treat the lockdown as an extended (home) holiday. An employer can ask for proof of what an employee is doing and, in the event and employee doesn’t engage with working from home by participating in Zoom meetings or teleconferences etc, then normal disciplinary procedures are available to the employer.

Likewise, there are the same obligations on employers as they relate to, for example, harassment or bullying. An employer will be expected to deal with such issues, if they arise, in the same manner as prior to the lockdown.

Government Leave Payment

This payment is available to essential workers for a period of up to four weeks in certain circumstances. The employee must be an essential worker and fit in one or more of the following categories. First, at risk of being infected and the Ministry of Health guidelines recommend they stay at home. Second, have come into contact with an infected person. Third, they are infected and lastly they have members of their household who are at higher risk of infection and the Ministry of Health guidelines recommend the worker stays home.

The employee concerned can’t simply use the existence of the leave payment to refuse to work. If the workplace is safe and work practices meet the Ministry of Health guidelines then a refusal to work can be met by a refusal to pay. Conversely, an employer who requires an employee to stay home to protect other employees against risk then that employee is entitled to be paid.

However, as is being highlighted in media reports, the more problematic situations are those where there is a difference of opinion between the employer and employee as to whether the workplace is safe for the employee to work. So far, those that have been reported have been resolved by compromise, but in the absence of compromise the matter would go to the Employment Relations Authority for resolution and each party would need pretty compelling evidence to justify its position.

In the present circumstances, a party erring on the side of caution with reasonable information to support that position could hardly be criticised.

As always, if you have any questions or circumstances you want to discuss please contact us.

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