Table of Contents
Are employees entitled to take sick leave on the basis of a risk of contracting Covid-19?
Generally speaking, an employee is not entitled to take paid sick leave unless they or their spouse, partner or dependent is clinically sick.
An employer may require an employee to provide proof of sickness or injury. This will usually involve a medical certificate from a doctor saying that the employee is sick or injured (or their spouse, partner or dependant) AND isn’t able to work.
If the employee did not attend work by reason of sickness or injury, the employer may ask for proof of sickness:
- for more than 3 days in a row, then the employee shall produce the supporting medical certificate at that employee’s own costs; and
- less than 3 days in a row, then the employee can be required to produce the supporting medical certificate at the employer’s costs
Are employees entitled to take other leave on the basis of a risk of contracting Covid-19?
As mentioned above, the default position is that an employee is not entitled to take paid sick leave unless they or their spouse, partner or dependent is clinically sick.
That is an employee who unilaterally elected to take time off work is not entitled to sick leave. However, the employee may be entitled to paid leave (if any), in the form of annual leave.
An employee who is ready, willing and able to work but for the unsafe workplace may be entitled to be paid (without leave).
Can I direct an employee to go home if I suspect he/she is sick?
An employer is legally required to observe the Health and Safety at Work Act 2015. In short, an employer is required to ensure the health and safety of its workers and workplace. If there is a risk of general infection, or if the workplace is unable to function effectively due to employee absences, an employer may also be justified in closing down the workplace altogether.
In the circumstances, where an employee (or their spouse, partner, dependents) is infected and is not ready or able to work, the employee can use up his/her leave entitlement (sick / annual). However, in light of the Covid-19 Leave Payment, an employer can apply for this leave payment and pass it onto the employee. Note, employees aren’t required to have used any or all their paid leave entitlements before they can receive this payment.
Can an employer require an employee to take annual leave?
The Holidays Act requires an employer and employee to try and agree on when annual holidays are to be taken. Failing agreement, an employer can direct an employee to take annual holidays on 14 days’ notice. Failing which, an employer would have broken the Holidays Act 2003.
Can an employer require an employee to take unpaid leave?
Generally speaking, where an employee is willing, ready and able to work, the employer is obliged to pay that employee, unless certain exceptions are available:
- force majeure clause under the employment agreement; and/or
- the doctrine of frustration.
It is important to note that the requirements of both of the above exceptions are high, and it all depends on the specific circumstances of your business operations. We recommend caution in relying on the above 2 avenues to force an employee to take unpaid leave. Failing that the employer exposes itself to a personal grievance complaint.
Faced with long-lasting business downturn, what could an employer do?
Employers and businesses are faced with a real risk of a long-lasting downturn. In light of this risk, an employer may inevitably be forced to consider taking on more drastic measure to ensure its labour costs are kept to a minimal to maximise its survival over the upcoming business downturn. These options include:
- firmwide reduction of working hours of all staff;
- redundancy/letting go one or more staff; and
- major restructuring/change of business model; and
- loss cutting and closedown.
To achieve any of the above, an employer will have to engage in good faith discussions / meetings with employees. After discussions, a variation of employment could be entered into. We strongly recommend adherence to procedural fairness requirements. We can provide templates on how to convene the meetings, variations of agreement, redundancy letters.
What are my options if the business cannot pay its suppliers?
Contracts will often specify a list of events or circumstances that constitute force majeure, and epidemic or pandemic are a common inclusion. Generally, a broader force majeure definition will also be included, requiring that the event or circumstance:
- be unforeseeable
- be outside of a party’s control
- could not have been avoided or overcome, and
- causes a party to be unable to perform its contractual obligations.
The specific wording of a contract will also govern mitigation responsibilities, notice requirements and timing.
The application of the foreseeability principle is interesting at this point in time. For contracts entered into now, coronavirus is a foreseeable event or circumstance. It is the future trajectory and the impact which is unknown.
In the event of a successful force majeure claim, a party will be relieved from the need to perform the affected contractual obligations, and the contractor/supplier will typically be entitled to an extension of time.
This may, in some cases, be of little use to the principal/purchaser whose project or delivery is delayed, having flow on effects and additional costs. Losses of this sort are not usually covered by business interruption insurance but you should check your insurances or speak with your broker to be sure.
As coronavirus continues to spread, businesses should be proactive in assessing and taking practical steps to manage and minimise project risks that may arise. This might include:
- checking affected contracts to see whether coronavirus would be covered by force majeure provisions and ensuring that notice and timing requirements are being complied with. Accurate record keeping of correspondence will be important to setting up and responding to contract claims
- engaging as early as possible with counterparties to consider alternatives to avoid or minimize the impacts of coronavirus, such as accessing goods and materials from unaffected suppliers. This is particularly relevant given force majeure regimes often include a duty to mitigate
- confirming whether insurance cover might assist where loss, not otherwise covered by contract, occurs and ensuring that any policy requirements are complied with
- considering impacts across a broader contractual structure, for example how does relief granted under one contract impact a party’s obligations under a ‘down-stream’ contract?, and
- checking whether you can get out of a contract for prolonged force majeure e.g. is there an express ability to terminate if the event continues for an extended period of time?
In addition to force majeure clauses, the doctrine of frustration may be of assistance.
Doctrine of frustration
You may be subject to the doctrine of frustration even if there is no force majeure clause in the contract. The doctrine of frustration means that a party does not need to comply with a contract where, through no fault of their own, an event makes performance impossible or completely different from what the parties originally intended. Some examples are where:
- the thing that is the subject is no longer available (e.g. when a hall to be hired burns to the ground);
- the purpose of the contract cannot be achieved (e.g. an event, which is the subject of the contract, is cancelled);
- there is government intervention (e.g. some actions required under a contract may be prohibited by law); or
- long delays frustrate a contract, but only where the long delay means that the parties are dealing with completely different conditions to those previously agreed on contemplated.
However, the threshold for frustration is high. It is not enough that performance is now more expensive, onerous or difficult. The effect of COVID-19 must be so significant that the parties are required to perform something quite different to that originally contemplated by the parties.
The courts tend to consider several factors in deciding whether a contract has been frustrated including:
- the terms of the contract;
- its factual background or context;
- objectively, the parties’ knowledge, expectations and assumptions regarding risk;
- the nature of the event which is causing the non-performance; and
- whether the contract may be able to be performed in the future.
Finally, take care and get legal advice before asserting frustration. The doctrine of frustration may be excluded if the contract already deals with a particular risk expressly; and if you have no basis for asserting frustration of contract, you may be found to have breached the contract resulting in a potential claim against you [Adapted from Minter Ellison Rudd Watts website].
If all else failed and your suppliers are pursuing you, a business owner can be sued in the Disputes Tribunal, District Court or the High Court. If the stakeholders of the business have signed as guarantors, then they would be personally liable.
What are my options if the business cannot pay rent?
Check your lease. Most of leases are signed on the Auckland District Law Society template, which in its recent edition have a “No Access in Emergency” clause. In short, if a tenant is unable to gain access to the premise for reason of public safety, on reason of competent authority, a fair proportion of rent and outgoings may be reduced.
Even if your lease does have such clause, you should still ask your landlord to reduce or postpose your rent and outgoings. This would include the marketing fees most mall tenants would be required to pay in normal times.
We have helped several clients send such request letters to their landlords. We can help you review your lease and draft the request on your behalf.
Can anyone apply to put me into liquidation?
Under s 241 Companies Act 1993, a creditor (including contingent or prospective creditor) may apply to the Court to commence liquidation. The Court may appoint a liquidator if satisfied that: the company is unable to pay debt (s 241(4)(a)).
Reducing insolvency risk
Businesses should consider and plan for such impact on their key commercial relationships. This planning and risk assessment should include a review of the company’s ability to meet existing contractual obligations, including:
- analysis of potential or actual breaches of covenants in loan and security documentation; and
- material adverse changes clauses/force majeure clauses (most likely triggered in the event of a pandemic being declared by the World Health Organisation) in key supplier and customer contracts.
At risk businesses are encouraged to seek legal advice on the ability to terminate contractual arrangements, compliance with directors’ duties, drafting standstill arrangements and assisting in the restructuring of existing facilities.
Word of warning, a director has personal liability if he or she continues to trade whilst the company cannot pay its debt.
Do I qualify for any government assistance?
If you have been made redundant or your working hours have been significantly reduced due to the current COVID-19 outbreak and you need money help with day-to-day expenses while you are looking for full-time work, you may apply for the Work and Income Jobseeker Support.
For you to be qualified for Jobseeker Support, you generally need to either:
- Not be in employment and looking for a job;
- Be in part time employment seeking more work;
- Have a health condition or disability which affects your ability to work. This means that you have to reduce your hours or stop work for a while. We may still be able to help if you have a job to go back to.
Below are some of the eligibility requirements:
- You are willing to accept suitable employment;
- You are aged 18 years or over, or 20 and over if you have dependent children;
- You are a New Zealand citizen or permanent resident who has lived here for at least two years at any one time since becoming a citizen or permanent resident, and who normally lives here.
For more information on the eligibility requirements and the level of support you may get, please visit:
Should you decide to apply for the Jobseeker Support online, please visit
What can I do if my employer reduces my hours of work or sends me home?
Your employer can’t change your hours of work without reaching prior agreement with you, or without going through a fair and thorough restructure process. If they do, you should seek legal advice. If after going through the proper process, your working hours have been affected due to the COVID-19 outbreak, you may be able to receive COVID-19 wage subsidy.
Who is eligible for the Covid-19 Wage Subsidy?
The government announced a Wage Subsidy and a Leave Subsidy available to support employers affected by COVID-19. Since 3 pm 27 March the Leave Subsidy has been cancelled and rolled into the Wage subsidy. This is because under Alert 4, all businesses (except essential services) are not allowed to open to the public. The cancellation of Leave Subsidy will avoid double dipping to take place.
The objective of the Wage Subsidy is to enable employers to retain employees and avoid widespread redundancies or businesses closing. Your business must have experienced a minimum 30% decline in actual or predicted revenue over the period of a month, when compared with the same month last year, and that decline is related to COVID-19. Your business must be registered and operating in New Zealand and your employees are legally working in New Zealand.
The Covid-19 Wage Subsidy will be paid at a flat rate of :
- $585.50 per week for those employees working 20 hours or more per week (full-time rate);
- $350.00 for people working less than 20 hours per week (part-time rate).
The subsidy is paid as a lump sum and cover a maximum of 12 weeks per employee.
The applicant is required to make a declaration which includes:
- its name
- IRD number
- the names of those employees, their date of birth and their IRD numbers
- The applicant will also declare that during the period when it is subsidized by the government, it will not terminate the employment of its employees or make them redundant; it will also pay at least 80% of the normal wage of its employees, if the employers is unable to do so, it will pass on all the subsidy it has received from the government. If any employer is in breach of this requirement, it is liable to be prosecuted.
- When an employer makes such a declaration it must have received the written consent of its employees before it can release the names, date of birth and IRD numbers of its employees.
- An employer is only allowed to make the application once, as such all applicants must read and understand the requirements thoroughly before completing the application.
Those eligible to apply for a Wage Subsidy include the self-employed, sole traders, contractors, incorporated societies, and registered charities.
Please note that the above is not legal advice.
We are happy to have a free initial consultation with you.