One of the options being considered by employers during the lockdown is to require employees to take annual leave. However, during a Government briefing yesterday, in response to a question from a reporter, the Minister responsible for MBIE appeared to express disapproval of this practice. So, let’s take a deep dive into this issue.
S19 Holidays Act
Section 19 Holidays Act allows employers to require employees to take annual leave. However, there are several prerequisites to this:
1.The employee must have annual leave entitlement available to him/her. Whilst this may seem obvious, it is important to remember that when we talk about annual leave entitlement, we are referring to annual leave to which an employee has become entitled under the Act. If your practice is to accrue annual leave on a monthly basis in your payroll system, accrued annual leave in your payroll system may not be annual leave to which the employer has become entitled under the Act. For example, under the Act an employee does not become entitled to annual leave until they have worked for 12 months. Therefore, under the Act they would have no annual leave entitlement until the 12-month anniversary regardless of how you accrue it in your payroll system.
2.The employer and employee must first have failed to reach agreement on when the annual leave must be taken. In the present situation, this means you will have needed to consult with your employee about taking that annual leave during the lockdown and failed to reach agreement.
3.If you have failed to reach agreement, then you must first give 14 days’ notice of the requirement to take annual leave. You can’t agree to shorten this period.
So why the disapproval?
The Minister was not given the opportunity to explain his disapproval of this practice, but my best guess relates to the wage subsidy. In my view, if an employer has applied for a wage subsidy to pay normal wages, then that subsidy shouldn’t be used to pay an entitlement that arose prior to the lockdown such as annual leave – in theory, an employer should have put that money aside already to pay their employees. In my view, the wage subsidy is for normal wages, not annual leave, but I am aware that other lawyers have expressed a contrary view. The risk for the employer is that when this is all over, they will be required to reinstate that annual leave and potentially they have breached their declaration.
Employees that refuse to work
Many non-essential businesses are working remotely and are relying on their employees to keep going despite challenging circumstances. But what if your employee refuses to work?
Alert Level 4 is a lockdown, not a holiday. If work is available and the work can be carried out safely (by which I mean complying with social distancing requirements, like remote working) then your employees have an obligation to perform that work. I think everyone understands that productivity will drop and that the amount of work available will drop, but that’s not an excuse to down tools completely if your employer is asking you to work. So, what does an employer do?
1.Refusal to follow a lawful and reasonable instruction is misconduct. The terms ‘lawful and reasonable’ need to be assessed in light of the lockdown which in turn places the obligation on the employer to ensure the work can be carried out whilst complying with the requirements of the lockdown. But if that can be achieved, an employer would have grounds to go through a disciplinary process with that employee. Whilst the employer may choose to wait until the lockdown is finished before starting that process, it would pay to warn your employee of the consequences now. The duty of good faith would also require you to attempt to understand the reason why your employee was refusing, and you would need to take that into account when deciding whether disciplinary action was appropriate. For example, additional childcare responsibilities may be making it impossible for employees to work. In this case, my advice is to proceed with compassion.
2.If work is available, and the employee refuses to carry it out then in normal circumstances the employer would have no liability to pay wages and salary. In essence, the employee is on unauthorised leave without pay. However, complications arise in the present situation due to the work subsidy. In my view, an employer has an obligation to pass on that work subsidy to the employee and any failure to do so would breach the declaration provided by the employer at the time of application for the subsidy. Similarly, the employer has provided a declaration to top up the subsidy to 80% minimum and any failure to do that would breach the declaration. In terms of the top up, the promise was to make ‘best efforts’ and there is no clarity at present whether an employee who refuses to work would be entitled to be paid the top up. However, employers should be aware that breaching the declaration is a crime so you need to balance whether it is worth the risk – the disciplinary route is probably the best.
A word about suspending employment and bank finance
I have said previously that suspending an employee’s employment is a viable alternative to a redundancy because it keeps the employee employed while you figure out what to do. However, it is not a long-term option because the downside of suspension is that it may deny the employee access to employment benefits. However, the upside is that it buys both parties time to work out an alternative solution. That alternative solution can take the form of the wage subsidy or bank finance.
In recent days, the Government has reached agreements with banks to spread the risk of business loans required due to Covid 19. Now that loan finance is available, employers will be expected to investigate that loan finance before applying for a wage subsidy and before making redundancies.
My recommendation to all employers is to speak to your bank to see what help is available. And, if you are an employee consider a mortgage holiday. I understand that both options are not ‘free’ in the sense that both entail interest costs, but in this environment cash (or liquidity) is king to ensure you come out the other side.
I am not a property lawyer, but my attention was drawn to this helpful article yesterday on whether you have an obligation to pay rent on your business premises during a lockdown: https://norlinglaw.co.nz/how-to-avoid-paying-your-commercial-lease-in-the-era-of-covid-19/
As we move through the lockdown, your mental health and those of your employees is likely to suffer, so please be wary of this. This is just a reminder that I am a qualified life and executive coach, so if you need someone to talk to then I am available for sessions. Hotline clients can use their hotline hours for coaching sessions.
Stay safe and indoors