Coronavirus / COVID-19 and the Workplace – Reducing costs and redundancies

New Zealanders are understandably extremely concerned by the impact of Coronavirus / COVID-19, both for society and from a health perspective, but also the economic reality. For some businesses, the package announced by the Government on 17 March 2020 will provide relief. However, for others, this will not address the financial realities of what is required to maintain current employee levels. Already, there is a long list of impacted sectors including tourism, export, education, hospitality, and events.

In the circumstances, businesses are faced with unenviable, difficult decisions.

Before considering any such decision, we urge employers to: seek advice from the specialist employment law team at DTI Lawyers; read and be informed about the Government wage subsidy package; consider the employment agreements and policies governing your staff; and most importantly; to act in good faith. It is an uncertain time. Good faith requires that businesses are open, and transparent with employees, not doing anything that is misleading or deceiving, or likely to be. Do not make promises that you cannot keep.

Reducing costs

Similar to those methods employed during the Global Financial Crisis, there are options available to businesses that may reduce costs, and are helpful to consider as alternatives to redundancies. These include:

• Actively managing leave, to minimise leave liability/balances;
• Consulting with employees about temporary reductions in days and/or hours of work;
• Redeployment to other aspects/roles of the business (for example in hospitality where front of house staff have taken on delivery work);
• Secondment to other businesses for a temporary period.

Employers should not undertake these options without first consulting with employees. Employers need also be careful to ensure that any changes do not impact on the minimum wage paid to an employee for work performed.

Restructuring and redundancies

For a business to justify a restructure that results in the disestablishment of any role (i.e. redundancy), it must demonstrate:

1. That there are genuine business/commercial reasons for the proposed changes; and
2. That it followed a process with the employee that was fair, reasonable, and consistent with its good faith obligations.

While an employer may be able to demonstrate a genuine business reason to reduce salaries as a whole in the current climate, this must extend to information about the roles themselves, i.e. which roles they propose to retain/be modified/disestablish, and why.

When proposing a restructure, employers must:

1. Provide potentially affected employees with the proposal and business reasons for it;
2. Provide all relevant supporting information about the proposed changes and reasons, including alternatives considered (such as those noted above), and the rationale for the favoured new structure. If the proposal involves a reduction in the number of roles and therefore the changes affect some but not all employees in a similar role, the employer must also consult on the proposed selection criteria;
3. Consult with employees, i.e. provide time to consider the information about its proposals, and to provide feedback, including any potential alternatives;
4. Genuinely consider an employee’s responses, with an open mind before making its decisions regarding how to proceed. This will include applying any selection criteria in a transparent manner.
5. Communicate the decision to affected employees.

Employers actions in restructuring are required to be what a fair and reasonable employer could do in all the circumstances. In the current unique circumstances, it is not unreasonable for a more swift consultation period to be employed, than would ordinarily be expected.

Impact on wage subsidy if an employer makes an employee redundant

Businesses need to be cautious, and consider whether a wage subsidy will be sufficient to prevent redundancies in three months’ time.   

To be eligible for the Government’s $150,000 maximum payment per business, employers must declare that on their best endeavours, they will continue to employ the affected employees at 80% of their income for the 12 week subsidy period. 

The wage subsidy is to be used exclusively to subsidise employees’ wages, as an alternative to job losses. Accordingly, if a business makes an employee for whom it is receiving a wage subsidy redundant during the 12 week period, it would be in breach of the purpose of the Government subsidy.

 Potential Immigration consequences

While it is understandable that employers have their attention on contingency planning, they also need to be mindful of the serious implications of business decisions on migrant staff, for whom there will be additional factors to consider under immigration law. This can include obligations to provide certain hours of work per week, limitations regarding job and location changes, and the requirement to declare redundancies when supporting future Essential Skills Work Visas, obtain Accreditation or Approval in Principle to recruit from offshore. We expect Government announcements and easing of some restrictions in this area to provide protection for otherwise vulnerable migrant workers. However, employers in these circumstances are wise to seek advice.

 Ongoing support

We understand this is a stressful and uncertain time. However, the specialist employment law team at DTI Lawyers are working with businesses (big and small) across a multitude of sectors to provide advice regarding planning for and managing the impact of COVID-19. We are resourced to work remotely, and have capability to manage both urgent and ongoing enquiries. If you would like further information or specific advice, please contact us on 07 282 0174.

The information contained in this article is accurate as of the date of publication, but please note in this rapidly moving environment, you should review the DTI Lawyers website, or contact our team, to ensure it remains up to date.