RESTRUCTURING IN THE AFTERMATH OF COVID-19

 

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With the Government indicating that a decision will be made on Monday 20th April as to whether the Level 4 Lockdown requirements will be lifted later next week, it is now time for Employers to start preparing their business for its future shape.

The expectation is that New Zealand will return to Level 3, “businesses that can work from home should continue to do so for a period” with other businesses slowly opening their doors to the public. No one is expecting business to return to its pre-lockdown status for a considerable period and therefore any re-start will be gradual and will need to be well planned and managed.

Cashflow will continue to be a significant impairment for many businesses over the next three to six months and therefore managing the ongoing costs of business, including staff wages, on a reduced cashflow will requirement sound management decision making.

Primary to these considerations will be seeking answers to the following questions:

  • Will I be able to retain all of my staff?
  • If not, how many and who will I need to let go?
  • For those being retained, will I be able to honour their previous terms and conditions of employment (remuneration and hours) or will these need to be renegotiated?
  • How do I achieve any structure change to the business without creating additional risk and liability?

The reality is that unemployment is expected to increase significantly in the short term and that many businesses will need to shed at least some of their staff. The obligations of the Employment Relations Act 2000 will continue to apply in full and therefore any change to an employee’s terms and conditions of employment, including potential termination on the basis of redundancy, will need to be completed in a procedurally fair manner to avoid unnecessary personal grievances.

For businesses accessing the Government’s Wage Subsidy Scheme, you have signed a commitment that you will retain the employees who you are receiving the subsidy for, for at least the duration of the 12 weeks of the scheme, this being approximately Friday 12 June 2020.  While some employers believe that, if they do wish to progress redundancies prior to this date, it will simply be a matter of returning the subsidy for those employees back to the Government. However, these is no direct mechanism within the Scheme that indicates that this is possible, or acceptable, based on the commitments made within the application process.

Therefore, it appears that you are obligated to retain these staff as employees until at least the end of the 12-week period. Within employment case law there is however a clear distinction between the date of providing an employee with notice of termination and the date on which the employment actually ends. Employment commentators therefore hold the view that commencing a restructure consultation process, making decisions, and providing notice of termination can occur prior to the end of the 12 week period as long as the employee is retained within their employment until this 12 week period ends – i.e. an extended notice period that will coincide with the ending of the 12 week period.

This then raises questions around whether an employee should be required to return to work at all during the consultation period and what remuneration arrangements will continue to apply during consultation and for any extended period of notice.

With many employers already having received the wage subsidy payment for the full 12 week period, at a minimum this payment will need to be passed on in full to the potentially affected employees. Any arrangements over and above this amount will need to be negotiated and agreed with the employees as part of the restructure consultation process.

The restructure consultation process should therefore end with two clear decisions being made; confirmation as to the ongoing employment status of the employee and, if being made redundant, agreed provisions regarding payment arrangements covering the period from the date of the decision to the final date of employment.

For those employees who are to be retained, where the existing terms and conditions cannot continue to be honoured, a temporary variation to the employee’s terms and conditions of employment will need to be negotiated. This may differ significantly from the remuneration arrangements agreed to cover the initial lockdown period with the potential that these arrangements may remain in place for an extended period. Where a business has a Collective Agreement in place, a temporary variation to the hours of work provisions may need to be negotiated with the Union to align these to the future operating model of the business.

Such discussions, with individuals and unions, should start immediately to avoid being placed in a situation where employees are expecting to return to their full hours and remuneration entitlements after the ending of the lockdown period – where this will not be sustainable for the business.

If you are considering a restructure of any description that will result in potential redundancies and/or temporary changes to terms and conditions of employment and want to ensure that you are continuing to meet all procedural fairness obligations, please contact us for assistance.


As mentioned throughout this article, we can assist in the following areas to limit your risk and liabilities:

  • Redundancy
  • Changes to Terms and Conditions of Employees
  • Restructuring your Business
  • Preparing appropriate legally compliant documentation
    • Including letter and Employment Agreements or variation to existing agreements.

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