COVID-19 Employment Update: Business planning and redundancies

Many businesses are considering in the evolving climate of COVID-19 whether the business can continue to operate, and if so, for how long.  We have seen a number of businesses refining and re-designing their business to accommodate various restrictions, for example providing more services online and without any face-to-face contact, and the use of contactless orders and delivery of products.

Businesses are looking at proposals for a number of changes in the workplace, including ways of working, changing staff roles, changes to hours, and redundancies.

One of the key concerns employers have is around redundancies during COVID-19. Here are some common questions we have been hearing from employers.

Can we make staff redundant now?

The government released a Modified Wage Subsidy package on 27 March 2020.  All applications by employers for the Wage Subsidy lodged after 4pm on 27 March 2020 will be assessed against the new criteria of the Modified Wage Subsidy criteria, all those applications lodged before that time will be assessed against the earlier criteria.

Under the Modified Wage Subsidy criteria, the employer signed a declaration that it must retain the employees contained in the application for the full 12 weeks and pay them the Wage Subsidy.

Under the earlier criteria, the employer signed a declaration that it must make “best efforts” to retain the employees contained in the application for the full 12 weeks, and also to pay the employees more than the Wage Subsidy if possible.  It is not clear what “best efforts” might mean in the current context of COVID-19.

Under this earlier criteria an employer is still able to make redundancies if it follows proper process of consultation, however it must have considered the business case for staff retention and the availability of the wage subsidy for the 12 weeks. 

We note that annual leave for an employee will continue to accrue during the 12 weeks, so employers are accruing costs in that respect.  There may be other costs associated with continuing the business for the 12 weeks which make it not commercially viable for an employer to keep employees employed for the 12 weeks, even with the wage subsidy. 

There are a number of other government assistance packages designed to assist businesses with finances and cashflow during this difficult period.  Employers should take all of these into account when considering the commercial viability of continuing to employ staff for 12 weeks.

Under employment law the test for a lawful redundancy is whether it is substantively justified and reasonable in all the circumstances, and whether a fair process was followed. 

What is fair and reasonable in the context of COVID-19 is not clear, and the commercial decisions facing employers at the present time are filled with uncertainty about cost predictions and markets. 

What is certain is that any proposed restructures or redundancies must follow a process of consultation with potentially affected employees prior to any final decision being made.

What does fair process for redundancy mean?

Any proposals for change should be presented to employees so they are given a reasonable opportunity to provide feedback on any proposed changes. 

Employers are obliged to consider all feedback, before any decision is made. 

Alternatives to redundancies that may be considered include:

• Agreed reduced hours
• Agreed taking of annual leave accrued or in advance (or for example unpaid leave)
• Alternative duties and/or business models
• Other ways of reducing or minimising costs for the business

Employers also need to refer to an individual’s employment agreement and follow any contractual obligations in respect of any redundancy.

What if we already made staff redundant due to COVID-19. Can I re-hire them?

The government has announced that the wage subsidy is available for employees who have been dismissed due to COVID-19.

An employer can re-hire any employee it has already dismissed due to COVID-19, and apply for a wage subsidy for that employee.  The criteria are that the employee was:

• employed by the business as of 17 March 2020; and
• the business had to let them go because of COVID-19; and
• the business did not apply for the COVID-19 Wage Subsidy for the employees.

Further queries?

Our specialist senior employment lawyer can assist with any queries you may have regarding redundancies and any other employment queries regarding proposed changes in the workplace and business operations due to COVID-19. 

Please contact Catherine Pendleton on catherine.pendleton@turnerhopkins.co.nz or 02111 55 302