COVID-19: Government rescue package may not be enough for some employers

The Government rescue package announced on 17 March 2020 will provide substantial relief for some businesses, however, for others this package will fall short of what is required to maintain current employee levels.

Below is some initial advice for businesses that are in this position to consider. This is general advice and we recommend that you reach out to a member of the Lane Neave Employment Team to provide your business with specific advice in line with your situation, employment agreements and company policies.

1. Restructuring

Due to current events, your business may be in a position where it is considering a restructure process, with the disestablishment of certain roles as the end result.

For an employer to justify a redundancy as a result of a restructuring process, they must show two things:

  • They have a genuine business reason for making the change (which may be fairly easy to show in this environment, but still needs to be established); and
  • They followed a good faith process with the employee, which is fair and reasonable.

Ultimately, the employer’s actions in making redundancies must be what a fair and reasonable employer could do in these circumstances.

What does a good faith process mean in practice? It means that you must:

  • Outline to your employees your proposal and the business reasons for it
  • Provide your employees with all relevant supporting information
  • Give the employees an opportunity to provide feedback on the proposal and genuinely consider feedback
  • Communicate your decision to affected employees.

If you are looking to reduce headcount of a particular role you may be required to undertake a selection process with employees. This will involve consulting employees on the selection criteria and applying it in a transparent manner.

2. Force majeure

A “force majeure” clause excuses a party from their contractual obligations and liabilities, if they are prevented from acting in accordance with a contract because of a specified event, such as an ‘’act of God’’. Some employment agreements specifically account for a pandemic.

Although this clause is an option for employers to consider in these circumstances, it is usually difficult to reach the threshold to establish force majeure, and we recommend you seek specific advice about your situation and the wording of your clause.

3. Frustration

The doctrine of frustration may apply to some employment relationships impacted by COVID-19. Frustration of an employment agreement may occur when there is such a change of circumstances that the performance of the agreement is either impossible, or radically different from what was originally anticipated. Usually there will be a timeframe before executing this option. Again, specific advice is required to execute this option.

4. Beyond the wage subsidy 

You may also be considering what happens to your wage subsidy, if you make an application for certain employees and then you make those employees redundant.

The wage subsidy consists of a maximum payment of $150,000 per business, to be used exclusively to subsidise employees’ wages (as an alternative to restructuring). Therefore to make employees (for who you receive a wage subsidy) redundant during the 12 weeks period would be problematic and in breach of the purpose of this rescue measure.

To be eligible for this payment, an employer must declare that, on best endeavours, the employer will continue to employ the affected employees at 80% of their income for the duration of the subsidy period (12 weeks). It will be the responsibility for employers to only apply for the wage subsidy if they foresee keeping employees employed for at least 12 weeks.

5. Other alternatives

Our team has already advised on the following alternatives that are available to employers during these unprecedented times. This includes redeployment, secondment, reduced days/hours, leave options and temporary variations to employment agreements. These options can be instigated following a consultation process with the employee or with the employees consent.

 

Workplace Law Team

Employment: Andrew Shaw, Fiona McMillan, Gwen DrewittMaria Green,  Hannah Martin, Joseph HarropHolly StruckmanAlex Beal, Giuliana PetronelliAna Fruean, Elise Wilson, Abby Shieh
Immigration: Mark Williams, Rachael Mason, Daniel Kruger, Nicky Robertson, Hetish Lochan, Julia Strickett, Rita WornerKen Huang, Mary Zhou, Mahafrin VariavaJosh TempletonSally Stone, Shi Sheng Cai (Shoosh)Sarah Kirkwood, Janeske Schutte, Sati RavichandirenLingbo Yu, Mengying Wang
ACC: Andrew Shaw
Health and Safety: Andrew ShawFiona McMillan

Contact

Andrew Shaw
Partner, Lane Neave

t +64 3 353 8014
m +64 29 244 9001
e andrew.shaw@laneneave.co.nz

Fiona McMillan
Partner, Lane Neave

t +64 9 300 6264
m +64 27 351 2000
e fiona.mcmillan@laneneave.co.nz

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