Are redundancy entitlements the same as redundancy payments? 

Clearly not, according to the Supreme Court.

When a group of cleaners from Massey University took their employment case all the way to the Supreme Court this year they wanted the right to negotiate redundancy entitlements after re-tender of the Massey University cleaning contract. 

Fifty cleaning staff elected to transfer to global cleaning company OCS as their new employer after it won the cleaning contract at the university in June 2010.

But two months later they were informed their work would cease unless they were prepared to accept different and less beneficial terms and conditions of employment.

The workers wanted the right to bargain for redundancy compensation because their collective employment agreement precluded them from receiving redundancy payments.

The Employment Court supported their claim but the Court of Appeal turned them down.

This month the Supreme Court unanimously allowed the cleaners’ appeal.

That final installment of the longstanding case addressed the circumstances in which employees may bargain for redundancy entitlements under the “vulnerable worker” provisions in Part 6A of the Employment Relations Act 2000.

Minter Ellison Rudd Watts partner Jennifer Mills and senior associate Christie Hall explain below how the case illustrates the way the uncertainty around these provisions is causing disputes and costly litigation between employers and employees.

By Jennifer Mills and Christie Hall

The case arose out of the re-tender of the Massey University cleaning contract.  When the previous contract expired, Massey sought tenders for the work.  OCS was the successful tenderer. 

As “vulnerable workers” under Part 6A, the cleaners providing services to Massey were able to transfer their employment to OCS. 

OCS then informed the cleaners that they would be made redundant unless they were prepared to accept different and less beneficial terms and conditions of employment.

Under Part 6A, if a new employer proposes to make a transferring employee redundant for reasons relating to the transfer, that employee is entitled to bargain for “redundancy entitlements” from the new employer. 

However, this right to bargain only applies if the employee’s employment agreement either does not provide for redundancy entitlements in that situation or does not expressly exclude redundancy entitlements for those reasons or in those circumstances. 

Once the right to bargain has been triggered, if the parties are unable to reach agreement as to the redundancy entitlements to be offered to the employees, the Employment Relations Authority may set the redundancy entitlements, having regard to a number of specific factors.

In this case, the cleaners’ collective employment agreement expressly excluded “redundancy payments” due to downsizing of the client contract or the loss of a client contract. 

The court concluded that for the entitlement to bargain for redundancy entitlements to be triggered, the employee must show not only that there is no provision for redundancy entitlements in the employment agreement, but also that the agreement does not expressly exclude redundancy entitlements.

In this case, the express exclusion of “redundancy payments” meant that the employees were unable to bargain for redundancy payments.

The court then considered whether this prevented the employees from being entitled to bargain for any non-payment based form of redundancy entitlement. 

The Court of Appeal had previously concluded that the exclusion of redundancy payments excluded the right to bargain for any other form of redundancy entitlement.  However, the Supreme Court noted that the expression “redundancy entitlements” is defined in the Act as including (but not being limited to) redundancy compensation.

The court saw this as demonstrating that redundancy entitlements can take forms other than the payment of monetary compensation. This could include, for example, a right to retraining, access to outplacement counselling, CV preparation services or a wider redeployment search than is strictly required by law.

Therefore, the court concluded that an express exclusion of a right to “redundancy payments” cannot be regarded as an express exclusion of redundancy entitlements.

Where an agreement excludes all forms of redundancy entitlements, there can be no bargaining for entitlements when an employee is made redundant after transferring under part 6A. However, in the event that only one form of entitlement is excluded, employees are free to bargain for other forms of entitlement.

The cleaners (though their union) are, therefore, able to bargain with OCS in relation to other redundancy entitlements, but they are precluded (because of the express provision in the collective agreement) from bargaining for redundancy payments.

This case is one of a number of recent decisions of the courts in relation to Part 6A.  Other recent decisions include:

• the Employment Court’s decision in Lend Lease Infrastructure Services (NZ) Limited v Recreational Services Limited, which looked at the scope of employees covered by the “vulnerable worker” provisions.  In that case, the Court found that the terms “cleaning services” and “catering services” are no so wide as to encompass roles which do not entail traditional cleaning (such as dental hygienists, who, arguably, clean teeth) or roles which involve cleaning as an incidental part (such as cabin crew, who collect rubbish from passengers).  In Lend Lease, it was held that garden labourers were not providing “cleaning services”; and

• The Employment Relations Authority determination in Healthcare of New Zealand Limited v Capital and Coast District Health Board & Ors, in which the Authority found that it had no jurisdiction to hear the parties’ dispute regarding who was liable for payment in respect of the leave entitlements which had transferred to an incoming service provider under Part 6A (employees who transfer under Part 6A are entitled to have their accrued but unused annual leave, sick leave, alternative holidays transfer with them, but Part 6A is silent as to whether any contingent liability in respect of that leave will also transfer).

These cases illustrate that there is still a large degree of uncertainty in the practical application of the Part 6A and that this uncertainty is causing disputes and costly litigation between employers, employees and incoming and outgoing service providers.  

Labour Minister Kate Wilkinson is currently considering recommendations by the Ministry of Business, Innovation and Employment in respect of a review which was conducted into Part 6A in 2010. 

In a Cabinet paper regarding other employment law changes released in May 2012, the minister stated that she expected Cabinet would be considering a further paper regarding her review of Part 6A in June 2012. 

Watch this space.

Jennifer Mills is a partner and Christie Hall is a senior associate at Minter Ellison Rudd Watts.