29 August 2022

Lockdown leave – when is annual leave not annual leave?

Employers and employees alike will be keenly interested in the recent Employment Court decision of E Tū Incorporated & Ors v Carter Holt Harvey LVL Limited & Intervenors [2022] NZEMPC 141 EMPC 285/2021.

On 23 March 2020, when the Prime Minister announced the country would be going into alert level 4 lockdown in two days, businesses scrambled to plan their operations during the lockdown.  This included how to deal with paying salaries and wages if businesses could not operate and employees could not come to work.  Undoubtedly like many businesses, Carter Holt Harvey LVL Limited (Carter Holt) decided that its employees should take annual leave for some or all of the lockdown period.  The case concerned whether Carter Holt was entitled to require its employees to take annual leave in the way that it did.

Section 18(3) of the Holidays Act 2003 (Act) provides that “when annual holidays are to be taken by the employee it is to be agreed between the employer and the employee”.  However, section 19 of the Act sets out the circumstances in which an employer may require employees to take annual holidays.  If the employer and employee are unable to reach agreement under section 18(3) as to when the employee will take annual holidays, the employer can require the employee to take annual holidays by giving the employee 14 days’ notice.

Operating under a tight timeframe to get its operations shut down safely and manage business commitments to clients and customers, Carter Holt decided to tell its employees that they needed to take leave during the lockdown.  This decision was communicated to employees by email and an instant messaging app at the end of the day on 23 March 2020.  Carter Holt told its employees that they would be paid their normal salary for the first two weeks of the lockdown, and then would need to take eight days of annual leave over the Easter break. While the emails and messages were not perfect, the Court found that notifying employees in this manner was, at least in form, compliant with the Act’s 14-day notice requirement.

Carter Holt’s decision was made quickly: it said, to give certainty and clarity to its employees.  Carter Holt did not attempt to discuss the proposal with its employees before making the decision.  Carter Holt’s view was that, given the time constraints and the unusual circumstances, it would not be able to reach an agreement with all its employees. Some of them were members of the E Tū Incorporated union (Union).  Accordingly, Carter Holt considered it was “unable to reach agreement” with its employees and was entitled to require them to take annual leave.

Whilst acknowledging the pressure on entities and individuals arising from the rare and exceptional circumstances of the 2020 lockdown, the Employment Court observed that employee rights and employer obligations had not been suspended.  The Court said Carter Holt made no attempt to engage with employees to seek their agreement to take annual leave.  Carter Holt could have communicated with its workforce through email and the instant messaging app.  Furthermore, Carter Holt did not respond in a timely way to several emails from the Union representative regarding annual leave. 

Carter Holt could not say that it was unable to reach an agreement when it had made no attempt to do so.  The Court did acknowledge that, while a more truncated process for reaching agreement may have been used, that did not mean that, objectively, agreement could not have been reached. Accordingly, the Court found that Carter Holt had no managerial prerogative to require employees to take annual leave and that section 19 of the Act was not engaged.


No qualitative assessment required for leave to be annual holidays

The Council of Trade Unions, as intervenor in the case, argued that because employees could not go away on holiday during the lockdown, employees could not take annual leave in the sense intended by the Act, namely, to enjoy rest and recreation.  Those businesses whose employees agreed to take annual leave during the lockdown will be relieved that the Court did not accept that argument.  Observing that people use their annual leave in different ways, the Court stated that employers are not required to assess whether their employees’ holiday plans constitute “rest and recreation”.  Provided the employer and the employee have reached an agreement about when the employee will take their annual leave, the fact that it is an enforced ’staycation’ does not change that it is annual leave.

Interestingly, during the period when the employees were directed to be on annual leave, Carter Holt asked employees to complete health and safety training modules.  Eight modules were sent with an estimated completion time of roughly 45 minutes.  Carter Holt’s HR advisor contacted employees by telephone to ensure they completed the training modules.  The Court did not make any observations about whether this was appropriate, having ultimately found that Carter Holt was unable to require employees to take annual leave. 

While the employer is not required to make a qualitative assessment regarding how an employee spends their holiday, it is another thing entirely to require an employee to undertake work whilst on annual leave.  In our view, this would be inconsistent with one of the Act’s purposes: to enable employees to have time for rest and recreation.

The above information is of a general nature only. The information in this article does in no way constitute legal advice and all readers should contact a law firm for advice relating to their specific circumstances.

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