You may have heard a lot about force majeure (or major event) clauses recently. A force majeure clause is commonly found in employment agreements and entitles a party to terminate, suspend or be excused from their obligations if a force majeure event occurs (aka an event which occurs beyond reasonable control). Whilst it is dependent on the actual wording of the clause, common examples of a force majeure event include fire, earthquake, flood and pandemic.
Most recently, the question on everybody's mind is whether a force majeure clause can be used to dismiss or suspend employees in the ongoing COVID-19 pandemic. While the answer to that will depend on the wording of the clause and how it is applied, in any event, the clause is not a slam dunk to easily get rid of employees when times are tough, and a robust consultation process is still required before any decision is made.
This is highlighted by a very recent decision of the Employment Relations Authority.1 In this case, an Auckland café was ordered to pay $136,800 to ex-employees after it incorrectly relied on a force majeure clause to terminate employment a week before the Alert Level 4 lockdown. In making its decision, the Authority applied the justification test in section 103A of the Employment Relations Act 2000, and considered the following further questions.
- Did the circumstances referred to in the clause exist at the time it was invoked?
- In invoking the clause, did the employer comply with the obligations contained therein?
The Authority held that neither the justification test nor the above two questions were met, and that the employer had failed to meet the minimum requirements of a fair and reasonable employer. Regardless of the clause referring to “pandemic”, the café could still operate at the time in question (gatherings up to 100 were still permitted) and, importantly, the café did not consult with employees before making its decision to terminate. Out of the blue, the employer simply handed employees a letter setting out its decision to terminate their employment.
While we expect similar cases to come through the courts, it is unlikely that this very strict test will change. Employees can continue to expect the same rights as before the COVID-19 pandemic hit New Zealand, and employers must follow the same fair process that they would where any potentially disadvantageous decision to an employment relationship is involved. The fact a pandemic exists will also not be enough to justify dismissal unless it is impacting on the business at the time in question.
In light of recent lockdown periods, it would be sensible for employers to review their force majeure clauses. We strongly recommend that employers seek legal advice in taking such steps but make some suggestions below:
- The clause should be drafted to include “pandemic” and “government directions” as force majeure events.
- Employers should consider all other reasonable options before making a decision to dismiss via a force majeure or any other clause. For example, employers may · propose reduced hours and/or pay to employees.
- Employers should follow a robust consultation process if they decide to apply a force majeure or any other clause. We recommend using a similar consultation process (if not the same) as would be used in a restructure, and keeping the four-part justification test front of mind.
Footnote
1De Sousa v Bayside Fine Food Ltd [2021] NZERA 27.
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