Updated 21 May 2020 – To furlough or not to furlough

As redundancies become the next anticipated COVID-19 employment surge, keeping staff on extended leave to avoid redundancy may be a fairer and more commercially savvy option.

Is furloughing better for job retention than the wage subsidy?

Buckettlaw is currently experiencing a surge in redundancy consultations. We are aware that companies are preparing for redundancies upon the expiry of the government wage subsidy program.

Redundancy is always open to abuse. It often comes as the wolf in sheep’s clothing disguised as “genuine business “reasons when in fact it is used for improper purpose. COVID-19 can act as a cloak over improper purposes, allowing businesses a convenient opportunity to target unwanted employees.

No doubt businesses will find that the redundancies will be a fertile ground for costly litigation from desperate former employees.

Consultation means looking at and considering viable reasonable alternatives. Air New Zealand recently announced the retention of its pilots by way of furloughing as an option, and this option was further extended to cabin crew for a period of up to three years.  Effectively this means leave without pay while the business recovers. Pilots that would have been made redundant have been given the option to be called back when the sector recovers and jobs return. In some cases, we understand that the furlough period could be 10 years and pilots can opt to take redundancy at any time.

This approach gives both the employer and the employee security. Employers will be able to retain workers who have the skill and experience and will avoid transactional costs such as retraining and rehiring costs.

Employees retain the right to the job with all attendant entitlements that go with it such as good faith and engagement as well as continuity and security of employment.

The Government may want to take a closer look at the practice of furloughing once the wage subsidy period expires. Wage subsidies are good at retaining jobs, but it won’t help those who lose their job when the subsidies dry up.

The furlough, however, allows employees to ‘retain’ their jobs until they become available again. Employers won’t be able to use COVID-19 as an excuse to dump unwanted employees without good reason. Forced unpaid leave may not be great for an employee, but it beats redundancy and provides opportunity and ongoing participation in an employment relationship.

Employees will be able to engage in alternate employment while furloughed. A pilot might choose to work in a cafe until his job returns. They would also be entitled to drop their furlough rights at any time and claim any redundancy entitlements.

Not all employees have a strong union who could negotiate these terms on their behalf. Perhaps it’s time for the government to incentivise this practice through the law once the wage subsidy program comes to an end?

Businesses without improper motives should not require an incentive; the furlough brings the benefits of retaining skilled employees familiar with the organisation. In other words, it reduces transitional costs. Employees would be less likely to litigate; they can be assured that the redundancy is genuine; if the role returns, they will return with it. Encouraging the furlough should only negatively impact businesses who misuse the COVID-19 crisis to make unjustified redundancies.

Furloughing brings benefits for both existing employees and law-abiding employers – in an economic downturn, there must be divergent thinking. Level heads and level playing fields make furloughing an interesting and possible way through the economic and employment minefield.

It’s not only about businesses it’s about employment – the two go in tandem.
Furloughs are not an ‘everybody wins’ solution; in an economic crisis nothing is. Allowing existing employees to ‘reserve’ newly created positions would lower the number of opportunities that become available as the economy recovers. If furloughs become commonplace a graduate pilot may have to wait longer for an opportunity to arise.

Furloughs flush out non-genuine redundancies and focus on job retention.  Currently in some circumstances it’s business-takes-all. Some businesses are improperly using the wage subsidy to sponsor redundancies and holiday pay. Some companies in making employees redundant are disregarding their employment obligations. i.e. redundancies without consultation or good faith.

What is clear is that the Government must employ divergent thinking. Crystallising furlough rights in law may be a way to protect employee rights during these extraordinary times.


although BuckettLaw is based in Wellington City, it services clients throughout New Zealand, with a focus on servicing employees and organisations in certain regions.

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