In 2020, at the start of the first COVID lockdown, I wrote an article on the option of using ‘furlough leave’ to cover the highest (usually) business outgoing, namely staff wages.
If you, as an employer, are having cash flow problems following the recent flooding/ cyclone crisis, and your business may be temporarily shutting down, the question of whether you must retrench arises. But there is another option to cease paying wages but retain staff for when your business gets up and running again – furlough leave.
Furlough leave is a temporary leave of absence for economic reasons and is designed to save jobs. A ‘furloughed employee’ is an employee placed “on a leave of absence”. The absence would involve zero hours/zero pay. The concept of furloughing your employees was untested pre-covid. However, it was successfully used by Air New Zealand to allow them to place their employees on unpaid leave/furlough leave as an alternative to redundancy, some cabin crew for up to 3 years, after the massive downturn following the COVID-19 pandemic.
So how do you furlough an employee? The usual contractual rules of IEA variation apply. Some (rare) contracts have a ‘Shortage of work clause’, which allows the employer the right (with agreement) to place employees on reduced hours, or alternatively, temporary leave, with correlating pay reduction. If your does not, see if your contracts have a flexibility clause or variation clause that says the employer can change (‘vary’) specific terms of employment, for example:
· hours or days worked
· rates of pay
· the place of work
Even if furlough is covered by a shortage of work/flexibility/variation clause, you will still need to consult and agree with employees that they will be furloughed, because New Zealand employment law does not give the employer a unilateral right to withdraw work/pay. If the alternative is redundancy, it is very likely that employees will agree to being furloughed in order to continue to receive the security of ongoing employment and the statutory entitlements that cannot be contracted out of eg. Annual and sick leave, Kiwisaver, etc. A further advantage to furlough is that if employees have had a reduction in hours of work/pay, they may also be able to access support from Work and Income, so they are not left with no avenue of income at all.
Any agreed furlough must be properly recorded in writing* and care must be taken that the employer selects people for furlough in a fair way to avoid any discrimination. It is a good idea to include:
· the date furlough starts
· the specific terms of the furlough e.g hour and/or wage reduction
· when the furlough will end and/or be reviewed
What is the benefit to an employer to furlough staff and not retrench? One certainty is that businesses will recover from recent weather events, and will want to get back up and trading as fast and optimally as possible. If you have retrenched your staff, you may have paid redundancy compensation, lost talent and staff investment. You now face the unappetising prospect of having to recruit and retrain staff, which may set your momentum back months. If you have furloughed staff, (usually one of your business’s least appreciated assets,) your start-up would be faster and better staffed.
Comments