Few employment laws, including Fiji’s Employment Relations Act 2007 (ERA), could foresee the COVID-19 crisis. Fiji employers, beginning with the flattened tourism industry, have had to move fast to conserve cash, including pay cuts and temporary layoffs. Now comes the paperwork. What’s legal? And how should these urgent arrangements be kept within the law?
It is hard to predict how recent employer measures – some drastic – will be seen in future by Government, the courts and worker’s representatives. Employers are the ones taking those measures – including what they may believe are compassionate ones. But they may be later accused of taking advantage of the crisis, or acting too quickly at workers’ expense.
The ERA offers no easy ‘one-size-fits-all’ solution. Each employer will need to think about and apply different legal solutions to suit its individual circumstances and those of their workers. Two important things for employers are:
- a good understanding of your legal options
- clear, fair and empathetic communication with your workers.
Temporary options while keeping your workers
These are the most common and these are the legal implications:
- Leave without pay (LWOP) – If there is no stand-down clause in an employment contract, the ERA does not normally allow an employer to unilaterally to send its permanent workers on LWOP. Section 24 of the ERA could permit an employer to apply LWOP if the employer is genuinely prevented from providing its workers with work because of an ‘Act of God’ (essentially a natural event that was unpredictable). The COVID-19 pandemic may meet this test, but there is no clear judicial decision to that effect yet.
- Enforced annual and other paid leave – Some employers are making their workers use up their accrued paid leave (e.g. annual, family care, sick and bereavement leave) (often before putting them on LWOP). This also helps the employer “run down” its liability for unpaid leave in its own accounts. The ERA normally requires leave periods to be agreed with a worker. So there needs to be a process by which sending a worker on paid leave is made lawful.
- Reduced hours – Other employers are sharing available work and reducing hours to keep as many of their staff as possible in paid work. This may also be justified under s.24 – but it is advisable to correctly communicate and document the reasons and, if possible, get an appropriate signed agreement
Positioning yourselves correctly for temporary options
- Act of God? We think that, if the issue is tested in future Fiji employment litigation, the current crisis will probably be regarded, in s.24 terms, as an “Act of God”. But that is not a legal cure-all for employers’ current emergency arrangements. Under the s.24 test employers are still required to prove that the Act of God resulted in them being unable to provide work. The Courts are unlikely to allow an employer to preserve profit levels by slashing wages, if there is work to do.
- Employers have a legal duty of good faith to their workers – and no more so than when the measures they are taking are to the disadvantage of those workers
- So it is important to communicate clearly and honestly with workers on the effect of the current crisis on the business and the steps the business is taking to deal with it. At the earliest opportunity this should be done in writing.
- Most workers will accept cuts to wages or employment hours, however reluctantly, if they understand that these are necessary and their jobs are preserved – meaning a prospect of returning to full-paid work in future. It is important, as far as possible, that this acceptance is recorded in writing.
- Not every worker and trade union will be understanding. That does not mean that those workers and union will succeed in any future litigation – but it means employers must position themselves legally to ensure that they do not end up claiming benefits that more co-operative workers are denied because they were prepared to make sacrifices.
Permanent terminations – different considerations
Permanent termination is the most drastic employer response. However it may be the right one if the effect of the current crisis will permanently change the employer’s business – and there will be fewer jobs even when times are better. This may also be fairer option to workers. There is no point in allowing unrealistic expectations of future work, which prevents them from considering other options.
Permanent terminations continue to be widely misunderstood by employers and are fertile ground for future litigation. Some key points:
- unless a non-renewable fixed-term contract (that is, the contract is self-terminating and says that it may not be renewed) or contract for a specific task is coming to an end, termination without cause is no longer possible under Fiji law. This is true even for contracts that appear to permit it. The law requires employers to state a reason and a worker can challenge the justification for any termination. In the current crisis that reason is most likely to be economic (but see next bullet point).
- frustration? An employer might argue an employment contract is “frustrated” in terms of s.24 (and therefore the worker is not redundant). Frustration occurs only when, without fault of either party, performance of the contract becomes impossible due to an unforeseen event (or events) which result in the parties’ obligations under the contract being radically different from those originally that were contemplated. A long “lockdown” preventing an worker coming to work might be such an example, if the nature of the work means that the worker cannot work from home. However successful defences of frustration of employment contracts are uncommon. Section 41 of the ERA also allows an employer to terminate an employment contract where the employer “is unable to perform the contract”. However, this provision is largely untested so it is not clear what this entails (and whether, for example, the unjustified dismissal and redundancy provisions of the ERA might apply anyway).
- termination for redundancy The ERA defines ‘redundancy’ widely as ‘no longer being needed at work for reasons external to a worker’s performance or conduct’. It appears to include all terminations (other than for misconduct or underperformance) where the employer makes a conscious decision that the worker is no longer needed. It encompasses all terminations for ‘economic’, ‘structural’ or ‘technological’ reasons. Many, if not most, COVID-19 related terminations might be described as occurring for economic or structural reasons. So employers who implement terminations without following the proper process may well face significant claims for compensation down the line.
- getting redundancy right The redundancy provisions in the ERA often confuse employers. For example, the obligation to give a worker all relevant information about a contemplated redundancy to allow for consultation is often confused with the requirement to give notice of termination. ERA requirements make it impossible to simply give pay in lieu for this “consultation” period.
- contract terms are still important. For example, employment contracts of casual, temporary, single term or task workers may allow employers to release workers more easily than in the case of permanent workers or those on indefinite employment terms. Where termination for redundancy is necessary, this is not simply a matter of paying the statutory compensation (usually one week’s pay for each completed year of service). The other terms of the employment contract (including a collective agreement) must also be followed. These rights vary.
The next few months in Fiji will be times of severe economic stress. Employers may come under legal pressure from workers and unions over their economic responses to the current crisis. Measures taken now for short term relief may carry legal consequences later. So it is important to carefully review the options you have taken – or intend to take. Just because your competitor has done something does not mean your case is the same.
Evidence showing that you communicated clearly and acted fairly – and as far as possible with the agreement of your workers and union – is your best protection against future claims. Each case will be different and will depend on the circumstances of your business – and what your employment contracts say. In extraordinary times the law is not clear or easy to navigate.
The information and opinions in this Legal Alert are for general information purposes only. They are not intended as specific legal or other professional advice and should not be relied upon or treated as a substitute for specific advice. Munro Leys can accept no responsibility for any loss arising from reliance on the general information contained in this Legal Alert.