Snells Beach Café ordered to pay over $136,000 for abruptly sacking employees just before New Zealand’s first alert-level 4 lockdown in 2020
During the wake of the first wave of the COVID-19 pandemic employers were forced to make rash decisions under immense pressure and uncertainty. Despite this, the Employment Relations Authority (the Authority) has recently made clear that such circumstances do not lead to a dispensation of employee rights and employer obligations.
In a judgment earlier this year, the Authority found that Bayside Fine Food Ltd (trading as Snells Beach Café) had unjustifiably dismissed eight of their employees a week before New Zealand moved to alert level four lockdown.
The facts
In early March 2020, Snells Beach Café proposed to their employees that a “business interruption” clause be added to their employment agreements to cover the employer for unforeseen events, including pandemics, that were beyond its control. The clause proposed that in such events the employer would consult with employees and decide whether the employment relationship could reasonably continue.
Soon after the clause was added to the agreements, all employees were called to a “compulsory staff meeting” where they were handed dismissal letters on the basis of a business interruption (Covid-19).
Eight of the employees raised personal grievances for unjustified dismissal.
The Authority decision
While the Authority recognised the immense pressure the café owners were under in the uncertain and unprecedented times of COVID-19, they ultimately held that all eight employees were unjustifiably dismissed.
The key reasons were:
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The “business interruption” clause was essentially a frustration clause, meaning that it provided for the end of the contract when an unforeseen event occurred making performance (or continued employment) impossible. The test for frustration is high and very rarely met; the employer needed to demonstrate they truly could not trade on.
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In this case, continued business was not impossible, as gatherings up to 100 were still permitted so the café could still operate.
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In the event that business was affected, the Government had already announced an economic support package for businesses which the café could have relied on.
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The employer did not consult or negotiate with their employees. This meant that the employer did not have the benefit of its employees’ reasonable suggestions on how to trade on, and did not comply with the terms of its own business interruption clause which it sought to rely on.
On this finding, the Authority ordered Snells Beach Café to pay a total of over $136,000 to its employees.
Lessons for others
With lockdown back in the forefront of employers’ minds once again, here are some key takeaways that should be learnt from expensive lessons such as this:
- Employees’ rights and employers’ obligations are enduring – not even a pandemic will dispense with them. This is especially so for core obligations such as the duty of good faith and the requirement to act fairly and reasonably. The Authority and Employment Court will not take kindly to breaches.
- Consulting with and giving notice to employees about proposed changes is necessary in all situations and the advice or feedback from your employees should be genuinely considered – it may even save your business.
- When thinking about changing your employees’ terms of employment due to the pandemic, you must make a sober assessment as to whether your actions are necessary. This means free from outside emotions, pressures and stress. This a difficult task and one employers find difficult due to being so invested in their circumstances. We recommend seeking objective, professional advice to help make wise decisions.
How can we help?
WRMK Lawyers has Northland’s largest team of employment law specialists. If you need some help or guidance, please give one of us a call or contact your usual WRMK lawyer for advice. You can view our Employment Law team here.
WRMK Lawyers takes all reasonable care to make sure that the information in this article is up-to-date and accurate at today’s date. It is necessarily general information and not intended as legal advice to be relied upon.
Our thanks to David Grindle for writing this article, a version of which was first published in the Northern Advocate on 26 August 2021.
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