HR Practice For Payroll Practitioners

HR Practice for Payroll Practitioners

Frustration of contract (Force Majeure)

This is a unique situation that payroll may never encounter, but it is another form of termination of employment.

A frustration of contract is when, without the fault of either party, an extraordinary and unforeseen event makes it impossible for the parties to perform the obligations created by the contract. The other common name for this is “Force Majeure”.

How frustration could occur

New Zealand law recognises various grounds that may lead to the frustration of a contract. These grounds typically revolve around events that were unforeseeable and beyond the control of the parties. The key measure is that the event must make the performance of the contract impossible, illegal, or radically different from what the parties intended.

Examples of situations where a contract may be considered frustrated include:

natural disasters;

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government interventions; or

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• death or incapacity of a key individual.

Example:

An employee works as a special customs broker for the import of one specific item that has numerous government requirements that must be documented while it is under high-security containment (at the border). Overnight, the government changed the law to stop the import of this specific item into New Zealand. This impacts the business instantly in that it cannot import the item anymore, and the employee whose sole job was this item has no role anymore.

What does it mean for payroll?

If the employer has no other options to redeploy the employee (this is not a legal obligation), payroll will pay the employee a termination pay based on the standard terms and conditions up to the date of the frustration. NZPPA recommends in any frustration of contract situation that, the business seeks external legal advice before actioning.

© New Zealand Payroll Practitioners Association, Sep 2024, Ver 12

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