Recent Decision by Employment Relations Authority Concerning Wage Reductions and the Government Wage Subsidy

Recent Decision by Employment Relations Authority Concerning Wage Reductions and the Government Wage Subsidy

During the Alert Level 4 New Zealand Lockdown ("Lockdown") we saw many businesses reduce employee wages and apply for the Government Wage Subsidy due to the effect of Covid-19.

A recent Employment Relations Authority decision, Raggett & Ors v Eastern Bays Hospice Trust, t/a as Dove Trust, [2020] NZERA Auckland 266 provides some important guidance for those who made reductions to wages or who are intending to do so.


On 24 March 2020, the day before Lockdown, the Employer applied for and received the Government Wage Subsidy ("GWS"). In making the application the Employer signed a declaration stating "You agree you will, using best endeavours, retain the employees named in your application in employment on at least 90 percent of their regular income for the period of the subsidy".

The Employer had retail stores but due to Lockdown the employees were unable to work. The Employer sent a memorandum to all staff advising that from the following week staff would be paid 80% of their salary/wages. The Employer subsequently undertook a restructure.  Staff were informed that their positions were disestablished and they would receive eight weeks’ notice of termination (this was double their contractual entitlement) with the first four weeks of notice to be paid at 80% of their salary and the second four weeks to be paid at the GWS rate of $585.80 per week.

The employees brought a claim in the Employment Relations Authority ("ERA") challenging the reduction in pay on the basis that they had not agreed to being paid anything short of their normal wages and salary. The Employer argued that because the workers were not able to work, there could be no breach of the Wage Protection Act 1983 or of any contractual terms.

ERA's Decision

The ERA found that the Employer's argument was a stretch of the reading of the Wage Protection Act.  The workers did not agree to be paid 80% of their wages or salary. As per the Employment Relations Act, the terms of employment cannot be unilaterally varied. Therefore in the absence of consultation and agreement to reduce or vary their pay, the actions of the Employer were unlawful.

In addition, the Authority also found that although the notice periods were extended, the Employer could not set a remuneration rate different to that agreed within the employment agreement.  The Authority noted that the Employer could have consulted with the workers about the proposal to extend the notice period and to pay the extended notice period at a different rate to the contractual salary in the Employment Agreement.  It concluded that the Employer did not have a legal basis to reduce wages due under the employment agreements during the extended notice period.

The Employer was ordered to pay the outstanding amounts.

This decision confirms the established employment principle, that an employer must obtain an employee's consent for any change to an employee's terms and conditions. That consent must be in writing in accordance with the Employment Relations Act 2000.

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© McVeagh Fleming 2020

This article is published for general information purposes only.  Legal content in this article is necessarily of a general nature and should not be relied upon as legal advice.  If you require specific legal advice in respect of any legal issue, you should always engage a lawyer to provide that advice.

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