COVID-19 Alert Level 3: What business owners, landlords and tenants, and employers need to know

20 April 2020

​The government today announces whether New Zealand will move to Alert Level 3 this week. Businesses should start planning and preparing for a change in alert level, whether it happens this week or later. In this update, we set out some of the key legal issues that we see arising under this new alert level.

​This article was published on 20 April​ 2020 and represents the legal position on this date. Due to ongoing developments, this guidance may no longer represent the correct position as of today. If you would like assistance on the below matter please get in touch with the contacts listed or your usual Bell Gully adv​iser. ​​

In summary:

Can businesses reopen and start trading under Alert Level 3?
  • Businesses allowed to operate under Alert Level 3 will be expanded to include all businesses where employees cannot work from home, but only if the business can operate “safely".
  • This will require businesses to have no physical contact with customers and to put in place appropriate safety precautions for employees.
Landlords and tenants' obligations under Alert Level 3
  • There is significantly more scope for disagreement as to whether clause 27.5 of the ADLS lease suspends rent and outgoings under Alert Level 3.​
  • The key issues will be whether a tenant is permitted to “access" the premises and “fully" conduct its business under Alert​ Level 3.
Issues for employers and employees​​ under Alert Level 3
  • For employees who can work from home, those arrangements continue.
  • Employers may need to review employees' shift patterns, working hours, types of work performed, and work locations to ensure compliance with health and safety requirements.
  • Under Alert Level 3, business will need a COVID-19 safety plan that outlines how they will operate safely.
  • Where employers are likely to experience a decrease in demand, it may be necessary to consider operating with a reduced number of staff – good faith consultation will apply.
  • Employers that have obtained the Wage Subsidy will need to be careful to apply the requirements of that scheme to all employees, whether or not they are able to return to full work duties.

Can businesses reopen and start trading under Alert Level 3?

Under Alert Level 4, all business premises must be closed except for those necessary for the performance or delivery of essential business (as described on The legal basis for this is an Order made under section 70(1)(m) of the Health Act 1956.

The government has not yet released the proposed Order that will give effect to Alert Level 3. However, it has released a guidance note here and a more detailed Q&A here.

Assuming that the proposed Order gives effect to the guidance note and Q&A, the businesses allowed to operate under Alert Level 3 will be expanded to include all businesses that can operate “safely".

The existing rules will continue to apply to supermarkets, dairies and petrol stations, which can have customers on their premises under controlled circumstances.

All public venues will remain closed under Alert Level 3. For businesses, this includes food courts, cinemas, gyms, pools, amusement parks and farmers' markets.

Other businesses can open their premises and workplaces, but only if each of the following four requirements are satisfied:

  • Workers cannot work from home,
  • Workplaces are operating safely,
  • Customers are not allowed on premises, and
  • There is no physical contact with, and between, customers.

In order to operate safely, businesses must comply with these Alert Level 3 settings, meet appropriate public health requirements and fulfil all other health and safety requirements. Under Alert Level 3, business will also need a COVID-19 safety plan that outlines how they will operate safely. This is discussed in more detail below.

The applicable public health requirements will vary by industry and sector. Each business will need to carefully consider the measures it must put into place in order to operate safely. MBIE has said that the necessary public health requirements include:

  • Regular disinfecting of surfaces,
  • Encouraging good hand hygiene by allowing frequent hand washing and sanitising,
  • Not having sick people in the workplace, and
  • Meeting physical distancing requirements.

The government's COVID-19 website states that these physical distancing requirements include keeping one metre between workers, recording who is working together, and limiting interaction between groups of workers.

Businesses should review specific guidance released by industry and sector organisations, as well as Ministry of Health advice for workplaces here.

In addition, businesses can only trade at Alert Level 3 if they eliminate physical contact with customers. For retail and hospitality businesses in particular, this will require contactless ordering, payment and delivery or pick-up processes. Businesses can accept online or phone orders, provide contactless payment options, and put in place “drive-through" style pick-up or home delivery options. Options for contactless pick-up may include allowing customers to collect their orders without entering the premises (such as from a table outside the premises).

Landlords and tenants' obligations un​​der Alert Level 3

Many landlords and tenants will be asking whether clause 27.5 of the Auckland District Law Society lease will give tenants a rent suspension during Alert Level 3. This clause is used in many (but by no means all) commercial leases.

Clause 27.5 provides that during an emergency, which includes a pandemic, a tenant may be entitled to have a 'fair proportion' of its rent and outgoings reduced. Such a reduction will apply if the tenant is “unable to gain access to the premises to fully conduct the tenant's business from the premises" for safety and other reasons, including a restriction on occupation of the premises by any competent authority.

During Alert Level 4 it is clear that clause 27.5 applies to many tenancies, because the government ordered all non-essential businesses to close their premises under the Health Act.

The precise terms of the Health Act Order for Level 3 will be important in assessing the extent to which businesses are required to close their premises (and therefore whether clause 27.5 applies). We would expect the focus under Alert Level 3 to be on whether a tenant is permitted to “access" the premises and “fully" conduct its business under the Level 3 Order. This, however, poses more questions than answers. For example:

  • What if a tenant doesn't think it can open safely under Alert Level 3, but a landlord thinks it can? There is significantly more scope for disagreement under this alert level than under Alert Level 4, which drew very bright lines.
  • What if a tenant can only partially open their business under Alert Level 3 – for example, a restaurant or clothing store? Landlords will consider that the premises can be accessed, and so clause 27.5 does not apply. Tenants are likely to focus on their inability to fully operate their business from the premises notwithstanding their access, and therefore seek a fair proportion reduction of rent and outgoings.

Many landlords and tenants have reached a commercial solution for the last four weeks, and we would hope that they continue to take a similar approach to Alert Level 3, to the extent possible.

Issues for employers and employees under Alert L​evel 3

From an employment law perspective, the impact of Alert Level 3 will depend on the nature of the employer's business and the way that employees can conduct their work.

For employers whose employees can work from home, those work from home arrangements continue. As explained in our earlier article, employers should consider any health and safety implications that may arise for their employees from a now extended period of working from home.

Employers that can safely re-open and operate their workplaces (in accordance with the rules outlined above) are allowed to do so at Alert Level 3 – but it will not be a “return to normal". In particular, as explained in the government guidance, employers will need to implement specific hygiene and safety measures before allowing their employees (or anyone else) back into the workplace.

Employers will also need to compile a comprehensive COVID-19 safety plan for operations under Alert Level 3. While the plan does not need to be reviewed or approved by WorkSafe, these considerations form the basis for workers, contractors and suppliers to be safe once work begins at Alert Level 3.

A COVID-19 safety plan should answer questions such as:

  • Are there risks from restarting your business or business activity that was shut down under Alert Level 4? If so, how will these be managed moving forward?
  • How will you gather information on the wellness of workers to ensure they are safe and well to work at Alert Level 3?
  • How will you manage an exposure or suspected exposure to COVID-19?
  • How will you continue to review and monitor work processes or risk controls?

A key consideration for a COVID-19 safety plan is how employers can keep their employees maintaining social distancing. Employers may need to review employees' shift patterns, working hours, types of work performed, and work locations in order to comply with these measures. For example, physical distancing requirements may require employers to create new shift patterns, allow rolling rest and meal breaks, and set earlier start and later finish times, so that employees can safely perform their work across each day.​

In some cases, the relevant collective or individual employment agreements may provide sufficient flexibility to implement such changes (likely dependent on the significance of the changes required). If the changes are significant and/or the relevant agreements are not sufficiently flexible, then temporary variations will need to be agreed in good faith. Even if variations are not required, employers and employees (and unions, where applicable) should work together, in good faith, to determine the most appropriate approach to these issues.

We expect that there will continue to be questions about pay and leave arrangements at Alert Level 3. Many employers will be able to re-open their workplaces, but will require a much smaller number of staff than under normal circumstances (for example, retail outlets that normally operate a full store but now only operate a “click and collect" function, or restaurants that are only offering takeaway and delivery).

Many employers that can fully re-open their workplaces are likely to experience reduced demand, which will impact on their need for staff. Employers may need to expand some parts of their business while downsizing other parts, which will impact on the particular duties that they require staff to perform. Further, we expect that some workplaces may choose not to open at all until Alert Level 2, because of the compliance costs associated with Alert Level 3 requirements.

Where employers have obtained the Wage Subsidy, they will need to be careful to apply the requirements of that scheme to all employees (whether they are working or not required to work during Alert Level 3). Where employers wish to make changes to employees' hours of work, remuneration, or duties (to reflect the practical reality of operating - or not - at Alert 3), this will likely need to be agreed with employees in good faith. Potentially, some form of extended “stand down" may be required, but this is likely to need to be agreed. Employers may also seek to agree that employees take paid leave (such as annual leave or alternative holidays), or may direct such leave in accordance with the Holidays Act 2003​.

Maintaining open lines of communication with staff and unions will continue to remain vital as employers navigate what Alert Level 3 means for their businesses.

If you have any questions about the matters raised in this article, please get in touch with the contacts listed, or your usual Bell Gully advise​r.

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This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.