Reducing employees’ salaries without consultation is no more appropriate during a pandemic than it would have been at any other time, a recent Employment Relations Authority determination demonstrates.

The case concerns six employees — four retail store managers, an HR manager and a communications manager — of the Eastern Bays Hospice Trust, more generally known as Dove Trust. When Level 4 lockdown was implemented, Dove immediately applied for and received the government wage subsidy. This was granted on the condition that employees had to be retained on at least 80% of their regular income for the period of the subsidy. Without any prior consultation, Dove advised its entire staff that they would be paid 80% of their regular income.

Some days later, it advised the six employees that it proposed restructuring their positions. Feedback was invited and given. Some days after that, the six employees received letters that their positions were disestablished as at the date of their respective letters and that the first four weeks of notice would be paid at 80% of their salary and the second four weeks (an extension to what was contractually provided for) would be paid at the subsidy rate.

The employees challenged the justifiability of their dismissals and the short pays. The determination just released relates to the part of their application relating to the payment at 80% of normal wages and the four weeks’ notice paid at the subsidy rate.

The employees’ argument was that Dove unlawfully made deductions from their normal wages or salary in breach of obligations under the Wages Protection Act 1983 and/or their employment agreements. Dove’s response was that, due to the COVID-19 restrictions, the workers were not ready, willing and able to work, and therefore there could not be a breach of either. It also said that the extended notice period was on terms the workers accepted.

The Authority found that none of the clauses in the employment agreements permitted deductions in the circumstances faced by Dove during the restrictions. Terms of employment cannot be unilaterally varied (ss 63(2) and 63A of the Employment Relations Act). The Wages Protection Act, ss 4 and 5, provides that wages must be paid without deduction unless there is written consent. If wages are payable, depends on the relevant agreement, and if they are, failure to pay them is an unlawful deduction under the Wages Protection Act.

The Authority found that there was no agreement to the reduction. However, Dove’s doubling of the normal notice period (acknowledged as generous and sensitive to the workers’ predicament) did not entitle it to set a remuneration rate different to that agreed within the relevant employment agreement. In the absence of consultation and agreement to a variation, it could not legally reduce wages or salary due under the employment agreement during the extended notice period.

So far as the Wages Protection Act was concerned, the Authority noted that, in the context of that Act, wages meant payment “for the performance of services or work”. Dove said that what the workers had been paid was not wages because the workers had not performed such services or work. The Authority was not swayed by this. The application of the Wages Protection Act operated within the context of the relevant employment agreement. The parties’ employment agreements did not provide for the suspension of wages or salary for non-performance in the circumstances faced by Dove. On the unchallenged evidence, the workers were at all times ready and willing to work.

Dove was ordered to pay the employees any amounts short paid. Consideration of penalties was deferred until the other employment issues were determined.

This judgment was the subject of a release today from the Ministry of Business, Innovation and Employment.

Source document: Raggett v Eastern Bays Hospice Trust t/a Dove Hospice