Business Interruption with Natural disasters. Who Pays?

In light of the recent natural disaster and flooding which is impacting various regions throughout the country, including Auckland, the health, safety and security of people should be the main concern of all employers and staff.

Employers and employees should remember to keep in regular contact and deal with each other in good faith, including about managing work and considerations such as working from home, payment obligations, taking leave, etc.

There may be different reasons in terms of why an employee cannot work following the extreme weather event the country is experiencing. These can include:

• An employer may be unable to provide work for employees who are willing and able to carry out their agreed hours of work, for example – if the employer’s premises has been damaged by the floods and/or it is not safe for them to be at the work premises.
• Employees can’t access the workplace because of restrictions not directly related to their own workplace and out of their employer’s control, for example - road closures, damage to infrastructure, safety issues relating to adjoining buildings or evacuation due to flooding, etc.
• An employee (or their dependant) is sick or injured and unable to work.
• An employee has to care for a dependant because usual care is unavailable, for example – the directive from the Ministry of Education about imposed childcare and school closures.
• An employee is willing and able to work but their usual mode of transport is unavailable, for example – their vehicle was damaged by flood water.

If working from home, or other options cannot be mutually agreed, then the question of ‘who pays’ is likely to boil down to who is defaulting on their obligations to work, or to provide work under the terms of an employment agreement, for example:

• If a children’s centre or school is closed due to the Ministry’s directive, but their staff (e.g. teachers) are ready, willing and able to work, then the employer is defaulting and should pay staff their normal pay;
• If employer has work available and their premises has not been damaged by the floods, but an employee is unable to get to work due to the roads being closed, or their vehicle being damaged and therefore they are not ready, or able to work, then the employee is defaulting and the employer is not obligated to pay them their normal pay.

Employers and employees can't assume that time away from work in these circumstances would be either paid or unpaid without looking at the employment agreement, workplace policies and the specific circumstances. The employer and employee should look at their employment agreement to see if this type of situation is covered and the extent of any specific contractual obligations that might apply. If it’s not in the agreement, then it is up to both parties to talk about it in good faith and agree what the time away from work will be classed as, or what other alternative options might work, e.g working from home.

If the employee's partner or dependent family member isn’t injured or sick but he or she requires care, eg because their child's school is closed, the employee can’t take sick leave because their dependant is not sick or injured. In some cases, employees may be able to continue to work while caring for their family, if the employer and employee agree to this arrangement. If it’s not appropriate or possible for staff to continue working, employees and employers will need to agree on what basis the employee is off work and how that period is going to be managed.

Options for leave and/or payment:

• Annual holidays
• Annual leave in advance of entitlement
• Using any entitled alternative holidays
• Discretionary special leave, either as provided for in employment agreements or workplace policies or by an ad hoc agreement between the employer and employee
• Leave without pay
• Employees can take sick leave if their partner or dependents are injured or sick and they have sick leave available or the employer agrees to extra sick leave.
• Other paid or unpaid leave either as provided for in employment agreements or workplace policies or by agreement between the employer and employee
• Advance on wages, i.e. a temporary loan with the obligation to repay.

Whichever option the employer and employee agree on may depend upon the circumstances, including the nature and extent of the disaster and how long it lasts for. Once all leave entitlements under the Holidays Act 2003 and any negotiated additional leave or any anticipated leave entitlements run out, employees and their employers will need to consider further options in good faith (and consider the impact these options will have on business recovery later).

Employers should also carefully check any terms of their insurance policies, including about paying staff wages during a natural disaster and contact their insurer, or insurance broker as soon as possible.

A snapshot of entitlements: