Triangular Employment - August 2018

For some time the concept of triangular employment has been an issue.  In the recent case of Prasad v LSG Skychefs [2017] NZEmpC 150, to which the current legislation applied, the Court found the employee of a labour hire company was in fact employed by the LSG Skychefs, but there were particular circumstances in that case.

The Employment Relations (Triangular Employment) Amendment Bill has two stated purposes.

  • The first is to ensure that employees employed by one employer (the primary employer), but working under the control and direction of another employer (the secondary employer), are not deprived of the right to coverage of a collective agreement covering the work being performed for the secondary employer.

  • The second purpose is to ensure that such employees are not subjected to a detriment in their right to allege a personal grievance.  Where an employee is employed by one employer (the primary employer), but working under the control and direction of another employer (the secondary employer), that employee may join the secondary employer to any personal grievance action. This is not automatic but requires the approval of the Authority or the Court.

Secondary Employer

Whether or not these changes become a problem for a secondary employer (ie a business contracting a worker from a labour hire company or similar) depends on the extent to which the secondary employer controls the contracted worker.

A secondary employer for the purposes of this amendment is one “that exercises, or is entitled to exercise control or direction over the worker equivalent or substantially equivalent to that which would normally be expected of an employer”.

Clearly if the employer contracting the worker exercises a high degree of control over the worker (or is entitled to do so) they will be found to be the secondary employer of the worker.

What does that mean?  To take it by degrees……..

  • If the worker is assigned to tasks they can perform on their own (or works in conjunction with other temporary workers of the labour hire company) and is largely responsible for their own work (or is supervised by another employee of the labour hire company), then the business contracting the worker may not be a secondary employer.

  • If the worker is integrated into the operations of the business contracting the worker from the labour hire company, with employees of that business directing and controlling the worker, then even though the worker may be employed, paid and otherwise managed by the primary employer there will be a considerable risk that the business contracting the worker is a secondary employer.

  • If the business contracting the worker has fully integrated the worker into its operations, to the extent there is almost no contact between the primary employer and the worker, and conducts any disciplinary actions and performance reviews concerning the worker, and the contractual arrangement is of long standing, it is almost certain the business will be a secondary employer.  That is what the Court found in the recent case of Prasad v LSG Skychefs [2017] NZEmpC 150.

Right to Join Collective Agreement

Where a worker is performing work for a secondary employer, the next issue is that the worker has the right to join any applicable collective agreement to which the secondary employer is a party, provided that the coverage clause of the collective covers the work the worker will perform.

If the worker joins the collective (simply by becoming a member of the union party) the worker will have to be paid not less than the applicable pay rates in the collective. In many cases this will increase the rate of pay of the labour hire workers which is the intent of the legislation.

Such workers may also have access to other provisions of the collective agreement, such as redundancy compensation.  If the worker is on a trial period that may be unenforceable unless the collective agreement makes provision for trial periods (noting that trial periods are likely to be limited to employers with fewer than 20 employees).

Personal Grievance

Where a worker raises a personal grievance against the primary employer, if the grievance has been raised with the secondary employer the worker may apply to the Authority or the Court to join the secondary employer to the grievance.

Should that occur, the secondary employer then becomes liable with the primary employer for any remedies awarded, unless the Authority or the Court rules otherwise.

Analysis

  • Any employer hiring temporary workers from a labour hire company or similar needs to have a hard look at their situation. 
  • Where the employer engages a significant number of such workers, particularly where the arrangement has been long standing, bells should start ringing!

  • In that case serious consideration should be given to reducing the number of temporary workers and replacing them with direct hire employees.
  • As to the question of flexibility, direct hire employees can still provide significant flexibility if they are employed on a casual, flexible part time or temporary basis. In any event if the workers have been on board for a long period of time, arguably they are not providing much flexibility. Labour hire workers could still be used for situations where there is a sudden and/or short term need. 
  • The future cost of labour hire workers may make their use uneconomical.  This is particularly the case where the secondary employer is a party to a collective agreement covering the work. In that case the workers will be able to join the union to get the same pay rates as the employer’s own employees, then of course the labour hire company’s margin would be on top. 

  • On the other hand you could just continue on in the knowledge that you need to manage labour hire workers more carefully than before, provided you understand and accept the risks you’re getting into. But even then, the costs are likely to be higher, even if the labour hire company cuts its margin.