30 April 2020 – COVID-19 and Redundancy
A frequent question that is being asked of our practitioners – “Can I still undertake restructure and/or redundancy activities if I have drawn a wage subsidy?”
Yes – within boundaries. Businesses can still undertake restructuring and implement redundancies in the COVID-19 environment.
However, that right is still subject to normal legal restrictions and considerations such as good faith, genuine business reasons and fairness.
Further restraints may be applicable in respect of wage subsidy undertakings, although receipt of the subsidy does not override existing employment obligations. Different tests apply for pre 4pm 27th March 2020 and post 4pm 27th March 2020 subsidy applications. The differences have a flow on effect in relation to the right to make an employee redundant.
Pre- 4pm 27th March 2020 – all employers who applied for the wage subsidy for an employee declared they would agree using “best endeavours” to retain the relevant employee for the 12 weeks duration of the subsidy.
Post 4pm 27th March 2020 – all employers who applied for the wage subsidy for an employee declared they would retain the relevant employee for the 12 weeks duration of the subsidy.
There are a number of other more onerous obligations on employers who applied post 4pm 27th March 2020 which can be found on the government’s Work and Income website.
There is some debate and uncertainty around what steps may meet the definition and threshold of “best endeavours”. Employers should at minimum keep records of what endeavours they undertook before approaching a restructure process and regardless of which declaration was agreed to, it is a positive obligation to retain and may place a fetter on what is fair and justified in all the circumstances.
The employer must still be able to demonstrate that “active steps” have been taken to mitigate the COVID-19 impact on the business before it can apply for the subsidy, for example engage with the bank, draw down cash reserves, make insurance claims, seek rent reductions etc.
The wage subsidy does not prevent the commencement of a restructure process within the subsidy period. Employers can start a consultation process.
An employer cannot unlawfully (by threat or duress) require an employee to use work alternatives such as leave entitlements, wage reduction and changes in the nature of the job.
The employer cannot, without agreement freely obtained, alter terms and conditions of employment. All changes, temporary or permanent, should be in writing.
An employer cannot target/select an employee who does not agree (i.e. “holds out”) to any reduction or alteration to their employment terms and conditions. This would be considered “improper purpose”.
However, if there is no agreement to alternatives and there is genuine financial commercial or economic reason for a restructure then provided all alternatives have been considered redundancy can occur.
BuckettLaw sees these as very challenging and rapidly evolving times.
The tensions between competing interests of employers and employees for survival has not, in recent history, been so sharply accentuated. Communication, transparency and keeping records is the key. Fairness and flexibility are also imperative.
Do not act now to regret later. Acting imprudently and in haste could be costly down the track.