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Terminating employment agreements during COVID-19 response and recovery

There are good faith processes to follow for workplace change, and redundancy should only be considered if no suitable alternative arrangements have been found.

Last updated: 11 June 2020

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Employers and employees need to work together as we unite against COVID-19 to protect New Zealand and keep each other safe. This means that normal obligations to keep in regular contact and to act in good faith are more important than ever. This is how employers and employees can be kind to one another.

Regular employment law applies to all employment relationships – regardless of the circumstances that we find ourselves in. This includes anything that has been agreed to in an employment agreement.

Deal with each other in good faith

Employers and employees, and their representatives, must discuss in good faith the implications of the COVID-19 response and recovery on their working arrangements.

Good faith includes the following three elements:

  • Parties must not act in a misleading or deceptive way.
  • Parties must be responsive and communicative.
  • Before making a decision, which may result in employees losing their job, the employer must give the affected employees sufficient information to be able to understand the proposal and then give them a proper opportunity to comment.

Good faith is also wider than this. It is more than just following the letter of the law. It involves treating others fairly using common sense.

Employers and employees may be considering changes that involve impacts on the continuity of employee’s work, such as changes to job descriptions, reducing hours of work or, where no alternative arrangements can be found, redundancy may be considered. These changes must be discussed in good faith, and use agreed consultation processes. 

During the COVID-19 response period, there may have been circumstances where the consultation process on changes could reasonably have been shortened if the employer genuinely needed to make quick adjustments to cope with their circumstances. Shortened processes must still occur in good faith and provide opportunity for workers to seek advice.

As we are now in the COVID-19 recovery phase, normal consultation processes should be followed for any workplace changes proposed during the COVID-19 recovery period.  This includes normal consultation timeframes and provision of information.

Guidance on workplace change processes

Good faith requirements

Access to financial support

COVID-19 Wage Subsidy Scheme

The Government’s Wage Subsidy Scheme supported employers and their staff to maintain an employment connection and ensure an income for affected employees. Applications for the Wage Subsidy Scheme closed on 9 June 2020.

COVID-19 Wage Subsidy – Work and Income (external link)

A Wage Subsidy Extension payment is available to support employers and their staff who are significantly impacted by COVID-19. 

Work and Income benefits

Employees who lose their job between 1 March and 30 October 2020 due to COVID-19 may be able to get the COVID-19 Income Relief Payment. People can check their eligibility and apply online on the Work and Income website.

COVID-19 Income Relief Payment – Work and Income (external link)

Alternatives to redundancy

An employer can’t make changes to terms and conditions agreed in an employment agreement without the agreement of an employee. This includes changing hours of work, wages or salary, or the nature of the job itself. Any agreed change to the employment agreement should be recorded in writing.

In some situations, such as genuine financial, commercial or economic problems, or a genuine restructuring of the business, an employer may consider proposing some or all of the following workplace changes, as an alternative to redundancy:

  • Changes to an employee’s job description.
  • A change to when or how work is undertaken (for example, shift work).
  • Reducing an employee’s hours.
  • Reducing an employee’s wages or salary, while still at least meeting the minimum wage requirements for each and every hour worked.

In these situations the employer must follow good faith processes for workplace change, which includes giving the employee a fair opportunity to consider, seek advice from their representatives, and respond to the proposed change.

Any agreed changes should be recorded in writing.

Redundancy should only be considered if no suitable alternative arrangements have been found, following a good faith process.

Good faith requirements


Where an employer and employee have not been able to agree to alternative working arrangements, redundancy may be considered.

Proposals that involve redundancy must be consulted on in accordance with good faith requirements and other employment law obligations. It includes any consultation processes outlined in the employment agreement.

Further information on redundancy

We recognise that these are unique and challenging circumstances and a ‘reasonable’ timeframe for negotiation and discussion with staff may have been shorter during the COVID-19 response period than required for a process undertaken pre-COVID. As we are now in the COVID-19 recovery phase, normal consultation processes should be followed for any workplace changes proposed during the COVID-19 recovery period.

Government, businesses and workers all have the same aims: to support businesses to continue through this period, retain as many jobs as possible, and ensure that those jobs do not reduce in hours or pay, more than what is necessary. 

Where the circumstances required a hastened process to engage with staff on those issues, the Employment Relations Act 2000 allows flexibility in the processes, including consultation timeframes, to achieve workforce and workplace changes. It is important that both employers and employees must deal with each other in good faith throughout any process.

Employers must:

  • engage with employees and their representatives meaningfully
  • provide them with as much time as possible to consider and respond to any proposal for change
  • consider any feedback and concerns they raise.

Employees also have a duty to act in good faith. This should inform how they and their representatives receive and consider proposals put forward by the employer.

Good faith requirements

Employees who have been made redundant are entitled to work, or be paid, their notice period and to redundancy entitlements as agreed in the employment agreement. Where no notice period has been agreed, a reasonable period of notice must be provided.

Employers who applied for the Wage Subsidy (after 4pm on 27 March 2020) or the Wage Subsidy Extension must retain the employees named in their application for the entire period they are receiving the subsidy or they will need to repay the subsidy.

If employees have been notified that they will be made redundant

Employers are not eligible for the Wage Subsidy Extension for employees who have received notice of redundancy. If an employer and employee agree to cancel the redundancy before the employer makes an application, the employer is able to include that employee on their application form.

Where a redundancy is cancelled, the worker continues to be an employee and employment law continues to apply. If redundancies still need to be considered at the end of the Wage Subsidy Extension, employers will need to start a new redundancy process.  

If you have already made your staff redundant

If you have made staff redundant because of the impact of COVID-19, you could think about re-hiring your employees if you are eligible for the Wage Subsidy Extension. You will need to re-hire the employees before you apply for the Wage Subsidy Extension.

If an employer dismisses an employee and reinstates or re-employs them within 1 month, the employee’s employment must be treated as continuous for the purposes of entitlements under the Holidays Act.

It is expected that employers and employees would operate in good faith and employers would look to reinstate or re-employ the worker on the same terms and conditions.

Wage Subsidy and Wage Subsidy Extension

Wage Subsidies and redundancies

The Wage Subsidy and Wage Subsidy Extension require employers to retain the employees named in their application for the entire period they are receiving the subsidy (12 weeks for the Wage Subsidy and 8 weeks for the Wage Subsidy Extension).

If an employer has to make an employee redundant during the period they are receiving the Wage Subsidy or Wage Subsidy Extension:

  • they can use the subsidy to pay the employee any notice period arising from the redundancy, and
  • they must repay to Work and Income any balance of the subsidy that’s left after the notice period has been paid.

An employer cannot use the subsidy to make any contractual redundancy payments to an employee. Redundancy payments should be made in accordance with the provisions in the relevant employment agreement.

The Wage Subsidy and Wage Subsidy Extension obligations are in the relevant declaration that employers agreed to when they applied through Work and Income.

Obligations if an employer applied before 4pm on 27 March – Work and Income (external link)

Obligations if an employer applied on or after 4pm on 27 March – Work and Income (external link)

Obligations if an employer applied for the Wage Subsidy Extension – Work and Income (external link)


If an employer has been placed into receivership the receiver will have responsibility for decisions on running the business. Each situation will be different depending on the nature of the company in receivership. Contact the receiver for specific information about your situation if your employer has been put into receivership, or seek legal advice. You may wish to contact a Community Law Centre for advice or your union.

Community Law (external link)

Depending on the circumstances the receiver may cancel your existing employment agreement, or they may offer you a new employment agreement with different conditions. Employment laws still apply, and the receiver will be required to keep in regular contact with you and act in good faith.

Termination on ‘frustration of contract’ grounds

A frustrated contract is a contract that, after it was agreed, becomes incapable of being implemented, due to an unforeseen event (or events), resulting in the obligations under the contract being radically different from those considered by the parties to the contract at the start.

Employers would not be able to terminate the employment on ‘frustration of contract’ grounds where workers are able to do the majority of their usual duties.

There might have been circumstances where the COVID-19 Alert Level restrictions disrupted businesses in such a material manner that the employer was unable to determine with any certainty how they may be able to continue or resume operations. Whether this would be enough to provide legal justification for termination of employment would depend on the specifics of each agreement and the requirements of the job.

These circumstances are unlikely to exist now that we are in the COVID-19 recovery period.

Employers are strongly encouraged to seek specialist advice before relying on ‘frustration of contract’ grounds to terminate an employment agreement.

The Government introduced the COVID-19 Wage Subsidy Scheme to support employers to keep their workers employed wherever possible. The wage subsidy was introduced to relieve the financial burden on the employer and support employment arrangements to stay in place (where the employees were unable to work temporarily). 

Wage Subsidy and Wage Subsidy Extension

A requirement of the Wage Subsidy and Wage Subsidy Extension is to make best endeavours to pay employees at least 80% of their normal wages or salary. If the employee is continuing to work their normal hours, a reduction in their pay to 80% still requires good faith consultation and written agreement.

Employers are required to pass on at least the full value of the relevant subsidy rate, except where the employee’s normal wages are less than the relevant subsidy rate. In this case, the employee should be paid their normal wages and employers can use any excess subsidy to help pay the wages of other affected employees.

If an employee is working (either from home or at a workplace), then they must be paid for each and every hour that they work at their agreed wage rate. This rate cannot be below the minimum wage rate.

Employers must still follow good faith and other employment law obligations, including any contractual consultation processes, when making proposals on how they will manage changes to work, hours or pay, if they are only passing on the Wage Subsidy.

This process may have been able to be sped up if the employer genuinely needed to make rapid adjustments to cope with their circumstances during the COVID-19 response period. However, the process should at a minimum involve a clear proposal being communicated to all staff, an ability to seek advice, with an opportunity to comment or respond, and the employer must consider all such comments or responses.

This could have been done under a very tight timeframe where the circumstances required it during the COVID-19 response period. Any unions present in the workplace must still be engaged with as part of this process.

Any agreed changes should be recorded in writing.

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