The Employment Court has recently issued a judgement in the first case relating to whether employers were entitled to direct employees to take annual leave during the nationwide lockdown in 2020.  Given that employees are able to bring claims for arrears of wages for up to 6 years from the date of any entitlements arising, this decision could have significant consequences for multiple employers.

The case was brought by 3 employees of Carter Holt Harvey LVL Limited (“Carter Holt”) which runs a manufacturing plant at Marsden Point that transform logs into finished products.  It arose in the context of a decision by the company to require all employees to take 8 days of leave (starting with annual leave and moving to unpaid leave if the employee had no entitlement), during the third and fourth weeks of the lockdown.

This was communicated to employees in some haste, on the same day that the Prime Minister announced that New Zealand was going into an Alert Level 3 lockdown immediately and would go into a strict, Alert Level 4 lockdown on 25 March 2020.  In making this decision, Carter Holt was aware that it would not be regarded as an “essential service” and therefore could not continue operating during the lockdown.  As a consequence, there would be no work for employees at the plant. 

The company explained in Court that it was under pressure at the time to get the plant into a safe state to close down, and to ensure its ongoing financial viability.  It also said it wanted to provide employees with clarity and certainty about the intended approach.

Employees were informed of the decision by email and text message, however there was no direct communication with E Tu, the union representing a significant number of the affected staff.

The Court considered the application of the Holidays Act which provides that annual holidays are to be taken at a time agreed between the employer and employee, but if agreement cannot be reached, an employer can require an employee to take annual holidays by giving not less than 14 days’ notice.

The key issue in the case related to what the requirement to try to reach agreement meant in the exceptional circumstances of the lockdown.

Carter Holt argued that it reasonably assessed that it would not be possible to reach agreement taking into account its understanding of its workforce and the history of consultation, which included a strong culture of employees not engaging outside of work hours.  It also relied on the significant practical constraints arising out of the compressed time available and its commercial judgment that employees should be provided with certainty and paid for at least some of the Alert Level 4 period as normal wages.

In short, the company argued that there was simply no capacity or opportunity to seek to reach agreement with employees on the timing of annual holidays prior to the business closing down.

The Court expressed sympathy for the employer and acknowledged the pressure for all entities and individuals in New Zealand.  However, it emphasised that “there was no suspension of employees rights or employer obligations”. It also said that whilst Carter Holt had priorities and aims when considering what to do about employee leave and pay entitlements, it had to adhere to the legislation.

Ultimately the Court found that whilst the circumstances may have meant that a truncated process for attempting to reach agreement with employees was warranted, in this case there was no attempt to reach agreement or even engage with staff. Given this, the company was not entitled to require employees to take annual holidays.

However, had the consultation and notice requirements been complied with, the Court found that the company could potentially have required employees to take leave during the lockdown.  It rejected the argument that due to the constraints imposed by Alert Level 4, employees could not be said to be taking annual holidays. 

In coming to this view, the Court held that employers are not obliged to make a qualitative assessment of whether each employee has been able to fully utilise their leave.  It further noted that the lockdown affected people differently, with some enjoying the opportunity to spend time with family and do home based activities, and others who would have preferred to be able to go away and who found the lockdown stressful and intense. 

Regardless, whilst being locked down was not how employees may have chosen to spend their annual holidays, employers are not obliged to ascertain from them what they will be doing and ensure that it provides for rest and relaxation.

There are no doubt thousands of employees across New Zealand who were directed to take annual leave during the COVID – 19 lockdown periods.  This case potentially opens up the floodgates for many of those employees to now claim reimbursement of that leave from their employers.