COVID-19 – How does the Government wage subsidy affect employer obligations to pay employees/keep employees in jobs?
There is, understandably, a high level of stress and anxiety amongst employers and employees alike at the current time. The important thing for everyone to remember is that employment law remains unchanged. That means, one of your primary obligations, whether you’re an employer or an employee, is to act in good faith. Open and honest communication right now will go a long way to appeasing some of the stress and anxiety and getting everyone through this uncertain time together.
The burning question
The central question most employers and employees have at the current time is about payment of wages/salaries. The starting point is that employers remain liable to pay their employees as per their employment agreements. There are some exceptions which will be contained in employment agreements (e.g. a force majeure clause in the employment agreement but definitely seek legal advice before going down that path), but generally there is no automatic right to suspend or reduce payments to employees.
How are employers paying employees less then?
If an employer wants to pay employees less than the contracted amount, then it will need to propose this to their employees and follow a consultation process. In dire financial circumstances then the consultation process does not need to be lengthy. The feedback I’m receiving to date is that most employees are readily agreeing in current circumstances to employer proposals to temporarily reduce pay as they know the alternative will likely be redundancies.
How does an employer make a proposal to pay employees less?
The key here for employers is to be mindful of its employment obligations. If you’re proposing to reduce employee pay, then you need to:
act fairly and reasonably in all the circumstances;
provide your employees with access to information relevant to the proposal to reduce their pay and an opportunity to comment on that before you make your final decision; and
your decision must be genuinely justified on the basis of valid commercial reasons (you shouldn’t have too many issues with this requirement if your financials support immediate cost cutting being required to keep the business viable).
Is this justified?
Many employers are asking their employees for flexibility and making proposals to reduce wages/salaries in order to keep jobs, rather than turning to redundancies. Generally, if an employer’s financials demonstrate that cost cutting is required now to keep the business viable this approach of reducing pay will be justified. This is the sensible approach at the current time when we cannot be sure how long the financial impacts of COVID-19 are going to be felt for and the Government is currently providing support to employers to keep employees in jobs.
Employers are expected to consider reasonable alternatives such as using the Government’s wage subsidy and agreeing with employees to reduce pay and hours as an interim measure to get through this temporary situation – rather than turning to redundancies. Some employers are jumping straight to redundancy proposals, but if they have not considered all reasonable alternatives (such as that set out above), then they are going to struggle to justify redundancies solely on the basis of the financial impact of COVID-19.
How does the Government’s wage subsidy help/change things?
The Government has of course stepped in with the wage subsidy and the sole purpose of that is to support businesses to keep employees in jobs. There was some concern initially that employers needed to keep paying employees 80% of their usual wage/salary in order to qualify/retain the wage subsidy. The difference between the wage subsidy amount ($585.80 per week for full time employees and $350 per week for part time employees) and 80% of employees’ usual wages/salaries was causing some stress to employers and leading them to view redundancies as the only viable option. However, the Government has helpfully come out on 27 March 2020 and clarified that where it is not possible for employers to pay 80% of their employees’ usual wages/salaries then those employers must at least pass on the whole value of the wage subsidy to each affected worker. This Government support should remove the need for the vast majority of redundancies at the current time.
Where can employers and employees get advice?
Helpfully, there is a lot of commentary online from the Government and employment law experts. You will find answers to a lot of FAQs online (and I will put up a blog post in the coming days to answer some of these too). If your situation is a bit trickier, or you’re an employer needing some cost-effective help in meeting your employment law obligations in the current circumstances, feel free to reach out.
