Lockdown redundancies found to be unjustified

Process defects, predetermination, and lack of justifiability in the decision to make two employees redundant

Solly’s Freight (1987) Limited (SFL) applied for the wage subsidy on 25 March. SFL was anticipating it would be significantly affected by the lockdown. The managing director had already requested the Christchurch branch manager, Mr Welsh, prepare a list of 7 employees to be dismissed in the event redundancies were necessary. The applicants, Mr de Wys and Mr Jenney, were both named in the list.

On 26 March Mr de Wys received reassurance from Mr Welsh that SFL was “going to pay everybody for 40 hours…” That was reinforced on 31 March when SFL sent a letter to all employees which said SFL had applied for the wage subsidy. The letter said that SFL would use its best endeavours to carry on and if the wage subsidy was received “well and good, if not changes to our operation will become absolutely necessary.” The letter said restructuring “may become necessary in time” but did not say it was currently under consideration. On 1 April Mr Jenney received reassurance from Mr Welsh at a toolbox meeting that he did not need to “worry too much about redundancy”.

On the morning of 2 April Mr Adrian (SFL’s systems manager) received a phone call from a Ministry of Social Development (MSD) official in relation to the wage subsidy. Mr Adrian told the MSD official that some employees were to be excluded from SFL’s wage subsidy application. A list of names, including Mr de Wys and Mr Jenney, was provided to the MSD official later that day. These names were recorded as “no longer with the company.” The Authority held that on the morning of 2 April SFL knew, or ought to have realised, that it would soon receive the wage subsidy funds.

However, the same day Mr Adrian told Mr Welsh that SFL was going to send redundancy letters to the 7 employees on the redundancy list. Before the letters were sent, Mr Welsh spoke to Mr de Wys over the phone and to Mr Jenney in person to tell them that they were to be dismissed on the grounds of redundancy. The 2 April letter said that despite SFL’s wage subsidy application, SFL had not been successful in contacting MSD “let alone obtain funding.” The letter said SFL could not “just go on waiting…We have no work.

The dismissals

SFL provided no information about why it came to the view it could not “just go on waiting” especially given SFL knew when the 2 April letter was sent (or ought to have known) that it would soon be paid the wage subsidy. The statement about not having had contact with MSD was incorrect. The Authority said the statement “we have no work” was an ‘overstatement’ as it knew it was an essential service and could continue to cart essential freight.

The Authority noted that SFL had declared in the Wage Subsidy application that it would use its ‘best endeavours’ to retain its employees, but instead it excluded Mr de Wys and Mr Jenney from that very application prior to dismissing them. SFL also had obligations to consult with the employees before deciding to dismiss them on the grounds of redundancy and SFL did not fulfil this obligation.

The Authority found that the employees were both unjustifiably dismissed. The process defects were more than minor and resulted in unfair treatment. The Authority said no fair and reasonable employer could have decided on 2 April that the Mr de Wys and Mr Jenney were surplus to SFL’s requirements, after reassuring them on 26 March/1 April and by the 31 March letter about the continuity of their employment if the Wage Subsidy was received.

Both employees received compensation for lost earnings. They also received compensation for humiliation, loss of dignity and injury to their feelings, these awards being $10,000 and $15,000.

Lessons

This case indicates that the Employment Relations Authority will not apply a different standard to dismissals which occurred as a result of COVID-19 or during the lockdown. An employer still needs to follow the ‘ABC’s’ for a redundancy. This means consulting with employees before any decision has been made and providing all of the relevant information so that employees can effectively take part in this consultation process.

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