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Gutless tweaks to vulnerable worker provisions

Unpopular Part 6A provisions in the Employment Relations Act will continue to be a playground for lawyers and academics who thrive on uncertainty and chaos in the law.

Georgina Bond
Sat, 03 Nov 2012

Small businesses were unshackled from messy "vulnerable worker" provisions of the Employment Relations Act this week, but neither side of the bargaining table seems happy with the outcome.

And an employment law expert says the unpopular clause will continue to be a playground for lawyers and academics who thrive on uncertainty and chaos in the law.

Labour Minister Kate Wilkinson has made businesses with fewer than 20 staff exempt from legal obligations to take on any existing staff or meet their entitlements if they are taking over a business or service contract.

The Ministry of Business, Innovation and Employment has estimated 5500 people are covered by the vulnerable workers provision found in Part 6A (continuity of employment) of the Employment Relations Act, and most of them work in building and industrial cleaning industries such as catering, laundry and orderly services.

Employers and Manufacturers Association boss Kim Campbell singled out tweaks to Part 6A from the suite of employment law changes announced this week, as a gutless move by the government.

“Any law that guarantees employment to members of a union is flawed and should have been repealed in its entirety,” he says.

“For example, a business owner who dispenses with a cleaning company’s services for sub-standard work may still find themselves with the same people responsible for the sub-standard work.”

Business groups have generally felt that Part 6A was too complex, created uncertainty in terms of staffing levels, costs and inherited liabilities and was a barrier to open service.

Business lobby groups Business NZ and the Business Roundtable and industry association Hospitality New Zealand wanted full repeal of Part 6A.

Employment law expert Bill Hodge, an associate professor at the University of Auckland, also made the case for full repeal in his submission to the Department of Labour.

While small businesses would be happy with their exemption, the amendments had passed over the significant problems facing the larger companies, he says.

Disputes about what defined a “vulnerable worker” have already been all the way through the court system and Mr Hodge anticipates there will be more to come as businesses sought clarity on the murky provision.

“Someone on a six-figure salary could still be a vulnerable worker, and what is the definition of a cleaner? Does it include a dental hygienist?

“Well-intentioned, good employers will do their best to make it work in spite of the law, but it doesn’t take much for the well-intentioned to fall over,” Mr Hodge says.

Part 6A reform

Ms Wilkinson expects to introduce the following changes to Part 6A to Parliament by the end of the year. They include:

  • Businesses with fewer than 20 employees will be exempted from Part 6A.That means they are not obliged to take on the staff of a previous contractor.
  • Affected employees will have five days to decide whether they want to transfer their employment to the incoming employer. 
  • A requirement for the outgoing employer to forward employees’ information to the incoming employer, such as employment agreements, PAYE, wage and time or leave records.

  • A process to help the employers agree how to apportion liabilities for accrued service-related entitlements of employees who are transferring.
  • A requirement that employees must decide to transfer to a new employer within five working days (or a longer timeframe if agreed between the outgoing and incoming employer).

Avid critic 'gob smacked'

One of Part 6A’s most avid critics Grant McLauchlan, the boss of Dunedin-based cleaning company Crest Commercial Cleaning, says he is “gob-smacked" by the government’s “weak” action on Part 6A after more than three years had been spent on its review.

Large companies such as Crest had been denied control over who they employ, contradicting government rhetoric around innovation and productivity, Mr McLaughlin says.

The untested soft amendments will create negative downstream effects, he says.

“Companies looking for cleaning services are going to be inclined to choose small operators if they don’t like the cleaners, whether that’s for quality or security concerns, just so they can change the staff.

“But larger companies are being denied this 'freedom of association' right. This removes the even playing field in a very competitive industry and this is not right in a free economy.”

Mr McLaughlin asked who would now be keeping tabs on cleaning company staff numbers to see if Part 6A applied or not?

“We have had years of experience with the militant SFWU [Service and Food Workers Union] and I can guarantee they will be taking cases to the court at every opportunity.”

Mr McLauchlan spoke out about Part 6A after his Dunedin-based company was ordered, in two separate Employment Court Cases, to pay almost $20,000 for breaching its provisions.

He says he was told in cases concerning Part 6A of the Act, the court was expected to find in favour of the employee where there was doubt.

Impact on industry training

Mr McLauchlan says his biggest issue with Part 6A was its adverse impact on industry training.

Training volumes at the Building Services Contractors Industry Training Organisation (BSCITO) have fallen away from 1500 in 2009 to 776 in 2011.

He understands the volumes have since fallen further to 300, of which Crest makes up 50%.

“None of the large cleaning companies are investing in staff training through BSCITO because of the real possibility they could elect to transfer to the opposition tomorrow.

“This makes the very people Part 6A is designed to protect even more vulnerable.” 

Unions also pan the changes

Unions also panned the changes, saying they would give a competitive advantage to "cowboy" enterprises and mistreated some of the country’s most vulnerable workers.

Council of Trade Unions secretary Peter Conway says: “SMEs will have a significant incentive to undercut other tenderers by cutting employees terms and conditions.”

Service and Food Workers Union national secretary John Ryall says: “The reality is that the majority of employers in the industry are SMEs and this opens the door to massive exploitation of the lowest-paid workers in New Zealand."

Bigger companies better able to cope

Ms Wilkinson says the government’s review of Part 6A has found “significant operations issues around transferring employees’ entitlements and information to the new employment”.

But larger businesses were better able to adapt to the provisions while SMEs, which account for about a quarter of the affected industries, faced bigger proportional costs.

The biggest bugbear for submitters was the inability of a new employer to apportion any employee entitlements to the outgoing business.

What should employers watch out for?

Jennifer Mills and Christie Hall of law firm Minter Ellison Rudd Watts say the current vulnerable worker provisions have been difficult to navigate, so changes to improve their clarity are to be welcomed.

However, this remains a very technical area of employment law and some of the proposed changes appear to introduce further complexity.

Areas to watch for include:

Negotiations around leave

One of the main issues with the current legislation has been the ability of an outgoing employer to refuse to make a payment to the incoming employer in respect of leave entitlements that the incoming employer is required to honour.

Cabinet has proposed a negotiation process followed by a default mechanism should negotiations fail.

The concern regarding this proposal is that the relationship between the incoming and outgoing contractor is often acrimonious and to introduce an additional obligation for the two parties to negotiate may simply result in additional time and expense for both parties, when agreement is unlikely.

The negotiation process is also unlikely to assist with the issue of “tendering blind” because the incoming employer may not know the outcome of the “negotiations” until the tender process has been completed.

Benefit to SMEs in tendering process?

One of the most contentious changes is the proposal that the amended legislation will only apply to businesses with 20 or more employees. Where an incoming employee is a small or medium enterprise then they will be exempt from the provisions.

Employee organisations are likely to argue this will result in the employees most in need of assistance being denied the protection provided by the legislation.

But employers may argue this is a benefit to SMEs in the tendering process, particularly if there are performance issues with the outgoing employer’s personnel and the new employer wants to avoid those employees transferring to the new employer.

This may result in some interesting corporate structures in order to avoid the application of Part 6A.

Provision for litigation in the District Court

Clarity in this area is to be welcomed. The recent case of Healthcare of New Zealand v Capital and Coast District Health Board & Ors confirmed the Employment Relations Authority does not have the jurisdiction to hear inter-contractor disputes.

However, the new provision for litigation in the District Court (presumably between the outgoing and incoming employers) will need to be carefully managed to avoid double-ups and inefficiency if similar claims between the employers and employees are being dealt with in other jurisdictions.

No change to definition of employees to whom Part 6A applies

This definition has been clarified by recent case law (Lend Lease Infrastructure Services (NZ) Limited v Recreational Services Limited), where the Employment Court found that the terms “cleaning services” and “catering services” are not so wide as to include roles which do not involve traditional cleaning (such as dental hygienists, who “clean” teeth) or roles which involve cleaning as a small part (such as cabin crew, who collect rubbish from passengers).

However, the legislative terms are still sufficiently wide to cause confusion among many employers with “borderline” businesses, so it is interesting that Cabinet appears not to have chosen to address this at this point.

Georgina Bond
Sat, 03 Nov 2012
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Gutless tweaks to vulnerable worker provisions