A full court of the Employment Court is to consider the Employment Relations Authority’s ruling on whether an employer can reduce an employee’s salary without consent after accepting the Covid-19 Wage Subsidy.
The Authority found that the employer, Dove Hospice, claimed the government’s wage subsidy scheme to allow it to pay employees at least 80% of their normal wage. A number of employees were unable to work during the level-4 lock-down period and without consultation Dove paid employees at the reduced rate over the period.
It is a well-established principle that an employer cannot unilaterally vary an employee’s contract of employment - specifically by reducing their wages without consent. An employer is not precluded from approaching employees to discuss and renegotiate their terms and conditions. However, it is fundamental that any variation to the employment agreement requires the genuine consent of the parties, whether the variation takes the form of an alteration to existing terms and conditions or the imposition of a new contractual term.
The Dove case is complicated by its acceptance of the government’s wage subsidy scheme and then paying its employees 80% of their wages in accordance with minimum requirements of the subsidy. However the employees did not agree to have their wages reduced to 80%. They were told they would to be paid 80% of their contracted wages over lock-down and this would be reviewed in late April. Dove then proceeded to unilaterally impose the changes to the employment agreements.
In the Authority Dove argued what they were paying was not wages as defined in the Wages Protection Act during the Covid period which allowed them to alter the wage in the agreements to 80%. The Act sets out that a wage is something paid to an employee ‘for the performance of services or work’ – which is what Dove claimed did not happen over the Covid lockdown period as the roles the workers were employed in were not able to be carried out at home. If the Authority accepted Dove’s argument, then any non-performance of work would allow an employer licence to make changes and get out of their contractual engagement to pay wages.
The Authority did not accept Dove’s argument and held that wages are paid for a contract of service which employees are willing to carry out.
The Authority found the employees were willing and able to carry the work out. It was not their fault Covid made them unable to work and nothing in the employment agreements specifically authorised Dove to deduct wages for circumstances such as Covid.
Therefore, the Authority found that Dove breached its obligations under the Wage Protection Act by reducing, without consent, their employees’ wages to 80% of their normal rate. In the context of the Covid-19 Wage Subsidy Scheme, an employer must therefore have sought genuine consent of the employees before reducing their wage to the minimum 80% of the rate in the contract.
It will be interesting to see how the full court of the Employment Court interprets this case and whether there is a basis for arguing that breaches of employment agreements based on commercial necessity can be justified.