Duty to consult, good faith behavior with employees

Last Tuesday came the announcement we all dreaded: New Zealand is going to Alert Level 4.

But we’ve been here before, we’ve gotten out of it, and we’ve learned from it. For business leaders, it is time to reflect on these lessons, especially in the context of labor law.

While there have only been a handful of use cases related to Covid-19, the rulings we have identified a number of points employers need to be mindful of as they navigate this latest lockdown.

Here are some of the main lessons learned from the Covid-19 cases.

Lesson 1: Force majeure clauses are not a quick fix

Some employment contracts contain a “force majeure” clause, also known as the business interruption clause, which either predates Covid-19 or has been implemented as a result.

In general, these clauses state that the employer can reduce wages, or not pay wages at all, when he cannot operate his business for reasons beyond his control. Certain clauses may also allow an employer to terminate employment in similar circumstances.

A cafe in Snells Beach, just north of Auckland, relied on such a clause to lay off seven cafe workers on March 19, 2020, days before the first lockdown.

The clause read: “If the employer’s activity is interrupted by unforeseen events beyond its control (eg … a pandemic), the employer may be unable to provide you with work to be performed”.

The Employment Relations Authority ruled that this is a type of “frustration” clause and that the legal standard for frustration is high. The authority concluded that the circumstances did not exist at the time to justify the use of the clause – the cafe could still function as gatherings of 100 people were still allowed.

The cafe also did not consult the workers on the termination of their employment. Each employee simply received a letter indicating that their employment was terminated. The dismissals were deemed unjustified.

The outcome would have been different if the cafe owners had invoked the clause during the lockdown and properly consulted before deciding to lay off. Their failure to do so meant they had to pay the seven employees a total of $ 136,000 in lost wages and compensation.

Lesson 2: Labor law is not suspended during confinement

Employers are not advised to assume that they will be forgiven for not complying with employment law simply because of a foreclosure or the wider impacts of Covid-19 on their business.

The labor court was very clear that the pandemic did not act to suspend employee rights or employer obligations. In particular, there are ongoing and fundamental requirements for acting in good faith and as a fair and reasonable employer.

Sollys Freight, a trucking and contracting company in Christchurch, failed to meet both of those obligations when it laid off two employees in last year’s lockdown. Sollys did not consult on the layoffs and made the decision pending whether they would receive the government wage subsidy.

Sollys attempted to argue: “the standard expected of a fair and reasonable employer has been significantly altered by the context of the global pandemic and economic turmoil”.

This did not work with the Authority, which considered that it was unjustified to terminate the employment while waiting to know the subsidy, especially since by asking for it, Sollys had declared that it would do everything possible to keep all staff in place.

The authority also considered that the lack of consultation meant that the dismissals were procedurally unjustified. As a result, Sollys was ordered to pay her two

former employees a total of $ 58,000.

Lesson 3: Be Careful With Pay Changes

There is no clear legal answer as to whether the “no job, no pay” principle applies during a foreclosure. In particular, opinions are divided on whether an employee has the right to pay in circumstances where he cannot work, but, at the same time, an employer cannot provide work, such as in a situation of locking.

The conservative approach is that employers should seek a deal before reducing or withholding pay (unless a force majeure clause is in place, but even then be careful).

This is the position taken by the authority in a case involving a hospice in the Bay of Plenty.

In this decision, the authority concluded that the employer had acted illegally in reducing employees’ wages to 80% without first seeking an agreement.

Because the employees were ready and willing to work and, without the containment, were able to meet their contractual requirements, the remuneration of the authority held could not be reduced without their agreement.


Employment law can be difficult to master at the best of times, let alone a foreclosure. The key points to remember are:

– Employees must be consulted on decisions that affect their retention in employment.

– All contractual and legislative rights continue to apply during containment.

– Do not wait for leniency from the authority or the court if you do not respect the law during confinement.

– Get legal advice.

– Jessica Higgins is a labor / litigation associate at Dunedin Anderson Lloyd law firm. The opinions expressed in this article are those of the author and do not purport to be specific legal or professional advice.

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