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Minimum wage - do you need to work?

Auckland is currently in another Level 3 lockdown. Hopefully this will be confined to the three days currently specified. The extent of the situation in New Plymouth is unclear, but currently the rest of New Zealand is at Level 2.

Level 3 lockdown Papatoetoe

The first Employment Court case relating to employment rights and obligations during the pandemic came through at the end of December last year. Interestingly, the judgment was decided by a majority, not consensus. This illustrates the minefield of rights that employers and employees were dealing with last year during the lockdown.

Should the lockdown continue for an extended period, the judgment provides a reminder that employers need to be mindful of the Minimum Wages Act (the Act) in the event that they need to reduce wage costs.

The Gate Gourmet case

Gate Gourmet provides in-flight catering services to passenger aircraft, both domestically and internationally.

On 23 March 2020 the Government announced the Level 4 lockdown from 26 March 2020. The Director-General of Health subsequently made an order requiring all premises to be closed, unless they came within excepted categories, such as essential services. Gate Gourmet was an essential service and was permitted to stay open for business throughout the lockdown. There still was an expectation that even essential services would restrict their activities to only those that were essential.

The employees in question had employment agreements that provided for full time employment for a minimum 40 hours per week. They were paid the minimum wage.

Following the Level 4 lockdown, Gate Gourmet advised employees and the unions representing them that, as a result of having very little work to offer employees because of the pandemic, it would need to partially shut down operations.

On 26 March 2020, Gate Gourmet proposed to its employees a number of options:

  • Option one – employees take all entitled annual leave until it was exhausted, at which point the employee could move to option two;
  • Option two – it would pay the employees at the rate of at least 80 per cent of their normal pay;
  • Option three – it would pay the employees at the rate of at least 80 per cent of their normal pay, and the employees could then use their annual leave entitlement to supplement their income in order that they receive 100 per cent of their normal pay.

Gate Gourmet confirmed both to its employees and to unions that, if an employee had not been rostered on and had not asked them to come to work, that meant Gate Gourmet had no work for them and they should stay at home. On the same day Gate applied for the Government wage subsidy.

The union rejected option one and agreed to options two and three for its members, subject to Gate Gourmet complying with all applicable legislation.

The law

Section 6 of the Act provides that, subject to certain exceptions, an employee covered by the Act:

“shall be entitled to receive from [their] employer payment for [their] work at not less than that minimum rate”.

Section 7(2) of the Act provides that no deduction in respect of time lost by any employee shall be made from the wages payable to the employee under the Act except for time lost by reason of the default of the employee, or by reason of the employee’s illness or of any accident suffered.

However, the Act does not define “work”. Its meaning has to be ascertained from its context and purpose. This concept has been central to recent cases such as the sleepover cases. These cases are based on whether the employees were working at the relevant times and guided by factors identified by the Courts, namely:

  • the constraints placed on the freedom the employee would otherwise have to do as they please;
  • the nature and extent of responsibilities placed on the employee; and
  • the benefit to the employer of having the employee perform the role

The majority decision found that none of the factors identified applied to the Gate Gourmet employees when they stayed home. It said that accordingly they were not working for the purposes of the Act and no statutory minimum wage entitlements arose.

The minority decision said that the employees could have (genuinely) agreed to temporarily amend their terms and conditions of employment to reduce their hours of work (for example, to 32 hours per week) but could not agree to a reduction in their wages to 80 per cent otherwise it would breach the Act.

Conclusion

It is good to have some clarity from the Court on its interpretation of the Act. It confirms that there a number of “tools” available to employers where employees are ready and willing to work, but the employer simply does not have the work to provide because of external forces such as a lockdown. However, both the majority and minority only addressed the question of the minimum wage legislation. They left the door open for arguments that entitlements arose under the contract in question. It remains prudent for the parties to reach agreement on any changes to the terms of employment.