It has recently been reported that employees are being required to agree to “no work, no pay” clauses as a condition of being employed.  Union groups have described this practice as “immoral” and have raised questions about whether such clauses are lawful.

 The reality though is that “force majeure” clauses, as they are known, are not new. They are relatively common place in employment agreements, however up until now they have been seldom relied on.  Typically such clauses state that where a business cannot operate due to circumstances beyond the control of either party, the rights and obligations of the parties are “suspended”.  In practice this means that if the employer is unable to provide work, the employee does not get paid.

 “Force majeure” clauses are intended to apply to events that are unforeseen or unpredictable, for example earthquake, fire, flood, or other “act of god”. Now, unsurprisingly, employers are drafting such clauses to expressly refer to pandemics and Government mandated lockdowns.

 Whether these clauses are enforceable will depend a lot on how they are drafted – they will need to be clear and specifically refer to the event in question.  There will also need to be a connection between the relevant event and the non-performance. In this respect, if the effect of a lockdown is that an employer can not operate its business, it may be able to rely on a force majeure clause to justify non-payment of staff.  However, if the employer can continue to operate but simply makes less money, it cannot truly be said that the employer is unable to meet its obligations – it has become more difficult, but not impossible.

 Questions are also being asked about whether a pandemic or Government mandated lockdown can actually be regarded as an unforeseen or unpredictable event in this environment.  It could be argued that the sudden rush of employers seeking to include these provisions in employment agreements specifically to cover pandemics and lockdowns is precisely because they are not unexpected. 

 Ultimately the Courts will be required to assess the reasonableness of these clauses on a case by case basis.  As a general legal principle they are not unlawful but the Courts have traditionally been reluctant to allow employers to withhold pay from employees who are otherwise ready, willing and able to work.  Employers should therefore expect that the Courts will tightly scrutinise the drafting and use of such clauses.

 The other argument that is being made in the current environment is that it is unfair to “force” employees to enter into employment agreements containing these clauses because effectively they have no choice – if they want the job they will have to agree to the terms.

 This is, unfortunately, the reality for a substantial number of employees who find themselves in a competitive labour market and with little bargaining leverage.

 The problem is that once an employee signs an employment agreement, it is very difficult to undo its terms.  The Employment Relations Act deals with the circumstances within which an employee can claim that a term or condition is unfair or unconscionable. 

 The relevant section provides that bargaining will be deemed to be unfair if the employer knew or ought to have known the employee was unable to adequately understand the implications of the agreement by reason of diminished capacity.  This may be because of age, sickness, mental or educational disability, communication difficulties, or emotional distress.

 This sets a high threshold and it will not be enough for an employee to say that they felt pressured to sign an agreement.  In most cases once an employee agrees to terms of employment, they are stuck with them.

Nonetheless, the Courts do exercise discretion in interpreting and applying force majeure clauses.  This includes a consideration of the relative bargaining power of the parties when entering into the agreement, what other options the employer might have (for example partial operation and/or the wage subsidy), the duration of the business disruption event, how clear the relevant clause is, and whether any procedural requirements, including consultation, have been met.

 These factors mean that it is very difficult to say with certainty that a clause will be enforceable in any one situation.  Whilst technically enforceability should be a matter of contractual interpretation and applying legal principles, questions of morality do inevitably factor into the exercise of discretion by the Courts. 

 The bottom line for employers, therefore, is that a considered – and fair - approach should be taken in each situation.