Pay Cuts and the “No work, No pay” Principle

31 July 2020

The first case concerns Eastern Bays Hospice Trust t/a Dove Trust (“Dove”) which is an essential business that was not prevented from operating during lockdown.  Initially Dove decided to only pay employees 80% of their normal pay.  Later through a restructure process it disestablished their positions.

It’s important to realise that this determination was made on the papers and restricted to two points raised under urgency, being Dove’s decision to:

  1. Only pay employees 80% of their normal pay, and
  2. Pay the redundancy notice period at only 80% of the employees’ normal pay.

The employees did not agree to the pay cuts. Plus the Authority found that “on the evidence the workers were at all times ready and willing to work”. It was Dove’s decision to require them to not attend work and therefore the pay cuts were unlawful. 

In relation to the redundancies, the Authority found the employees were underpaid for the notice period, because there was no legal basis for the pay cut in the first place. Dove also decided to be generous and provide an additional 4 weeks’ notice, but only paid at the wage subsidy rate.  Surprisingly, the Authority found that while the decision to unilaterally increase the notice period was generous, Dove was obliged to pay the additional notice at the employee’s full rate of pay.  

That decision is being appealed. 

The second matter is also an ERA determination, Sandhu v Gate Gourmet.  The Company provides in-flight catering services at Auckland Airport.  As such it is an essential business that could operate during Level 4 lockdown, but due to the reduced level of business it decided to partially shut parts of its business.

Employees were offered various options including taking annual holidays or a 20% pay cut which could be topped up to normal pay by taking annual holidays.

A key factor in this case is that the employees were only paid the minimum wage. 

Following various discussions with the employees’ union, Gate Gourmet’s final decision was to pay the minimum wage of $18.90 per hour to employees still working, but only $15.12 per hour to those not working (ie only 80%).

The Authority decided that:

  1. Gate Gourmet is an essential business and COVID restrictions did not prevent it from operating, rather it was Gate Gourmet that prevented the employees from working.
  2. There was no agreement for a pay cut, therefore the employees were entitled to be paid for their contracted hours.
  3. Because of the Minimum Wage Act they could not be paid less than $18.90 per hour.

Whether the employees were “ready, willing and able to work” was argued by the parties. The Authority determined that Gate Gourmet is an essential business that could work, it had availed itself of the wage subsidy and, in the absence of any other alternative course of action, had prevented the employees from working and therefore was obligated to pay their contracted hours.

In our view the following are key points:

  • If an employee agrees to a pay cut there is no problem - provided the employee is not being paid less than the minimum wage for time actually worked.
  • A unilateral pay cut per se, is unlawful – no surprises there.
  • However, we say a properly conducted process to restructure hours of work can result in a lawful reduction in pay, commensurate with the change in hours of work.
  • In the case of non-essential businesses that were prevented from operating during lockdown by Government decree, we say the failure to provide work is not the fault of the employer and so the “no work, no pay” principle comes into play.  Although the employees may have been ready and willing to work, they were not able to do so.
  • In the case of essential businesses like Dove and Gate Gourmet, there is an argument that the employees were not able to work because there was no work for them to do; and on that basis the “no work, no pay” principle also comes into effect.

We are going to have to wait for the Employment Court to decide whether the above ERA determinations are upheld.  The Dove appeal is expected to examine some of these issues.

In the meantime, do not concede that reducing an employee’s pay requires their consent – it will depend on the circumstances.  Similarly, don’t concede that the “no work, no pay” principle has no standing – there will be cases where employees are ready and willing to work, but not able to do so for reasons that are not the fault of the employer.