When can an employer require an employee to take annual leave under the Holidays Act?

The Employment Court has issued another judgment that employers obligations and employees rights were not suspended during the Covid-19 Alert Level 4 Lockdown. In E Tū v Carter Holt Harvey the Court held that Carter Holt Harvey Ltd acted in breach of the Holidays Act when it required employees to use annual leave without first attempting to seek their agreement. [1]

The Background Facts

Carter Holt Harvey Limited (CHH) operated a manufacturing plant. On 23 March 2020, it was announced that New Zealand would be moving to Covid-19 Alert Level 4 Lockdown in two days’ time. That day, the CEO of the CHH Group advised employees of CHH by email and text that they would be required to take eight days of leave from 9 to 22 April 2020 (the third and fourth weeks of the lockdown). Employees would be required to take annual holidays in the first instance, followed by any other type of leave available to the employees (i.e. long service leave, alternate days or unpaid leave if required). Public holidays within the period were paid in accordance with the Holidays Act. 

The CHH Group stated that it wanted to ensure its employees had clarity about their pay prior to the lockdown. It considered the most appropriate approach was to pay employees and require them to use some of their paid leave entitlements.

When E Tū was advised of the approach intended by CHH, an E Tū organiser tried to contact CHH to persuade it to change. It first wrote in an attempt to discuss the requirement, but following no response, E Tū wrote again, reiterating its position. E Tū made a third attempt to engage in a discussion with CHH. The union noted that other employers had continued to consult and communicate with E Tū during this period and questioned why CHH had not done the say. At this time, CHH wrote back. It ultimately asserted that it had acted consistently with the Act, the collective agreement and its good faith obligations.

The Substantive issue - Was there a breach of the Holidays Act?

The legal issue determined by the Employment Court was whether this direction was compliant with the Holidays Act. Specifically, whether CHH could lawfully require employees to take annual leave during the Lockdown.

Under section 18(3) of the Holidays Act, when annual holidays are to be taken by the employee is to be agreed between the employer and employee. Section 19(1) states that an employer may require an employee to take the annual holiday, if the parties are unable to reach agreement under sect5ion 18(3) as to when the employee will take their annual holiday. Section 19(2) requires that an employer must give the employee not less than 14 days’ notice to take the annual holiday.

The employer and employee/union positions

The employees’ position was that the Holidays Act did not enable the employer to require them to take annual holidays unless there had been good faith communication and an attempt to agree.

CHH argued that the Act does not impose any specific process on an employer before it reaches an assessment that it was unable to agree with employees on when annual leave to be taken. CHH submitted that while an employer’s assessment must be reached in good faith, this may be based on what is practically open to the employer in the time that was available, before it considers that the holidays should start. It argued that the employer’s assessment may be based on its experience with the workforce, commercial realities and the need to make a quick decision. In this case, it submitted that it was unable to reach agreement because:

• The employees had a history of not engaging in work-related communications outside of work hours and communication options were limited;
• There was little time between the announcement of the Lockdown and its commencement;
• It was practically constrained given the short intervening timeframe. by the health and safety work involved in shutting down its operations and shift arrangements;
• In its commercial judgment, it wanted to ensure that employees had clarity and certainty about their pay before the Lockdown commenced.

Decision of the Court - Carter Holt Harvey in breach

The Court highlighted that the Holidays Act contemplates an employee making an application for leave and the parties attempting to reach agreement. Further, the Act requires parties to deal with each other in good faith, which includes being responsive and communicative with each other. 

The Court reiterated similar decisions reached regarding employment through the Covid-19 period; that while an employer may have faced considerable pressure at the time, “there was no suspension of employee rights or employer obligations”. CHH was obligated to comply with the Act. 

The Court concluded that CHH could not say it was unable to reach agreement with employees when it had made no attempt to do so. It was not entitled to require the employees to take the annual holidays it had directed. 

Lessons for employers

The Court did accept that in the extraordinary circumstances, this may have called for a shorter process in trying to reach agreement with the affected employees regarding when they may take annual holidays. However, even when consultation or agreement appears (or is) challenging, an employer is required to communicate with its employees in good faith, including at least attempting to reach agreement over the timing of annual holidays before making a direction they be taken.  

The specialist employment law team at DTI Lawyers can assist you with advice on Holidays Act compliance, audits of pay and leave, and leave calculations. You can contact the team by email at [email protected], or by phone: 07 282 0174.