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Who's the boss?

Employment law institutions in New Zealand have yet to grapple in any detail with issues arising from complex employment arrangements, typically the labour on hire arrangements, so-called triangular (or tripartite) employment relationships. If your company engages workers using a labour hire company, there are some important factors and fishhooks for you to be mindful of. This article identifies some of those factors and summarises the potential risks.

In most circumstances, the identity of an employer won’t be in dispute.  It will be obvious from the employment agreement and the parties’ understandings who is employing whom.  But there are some occasions where the employer’s true identity is unclear, either because of complex corporate structures that are in play or because the worker is supplied by a labour hire company to perform work for a third party enterprise.  The arrangement can either be temporary or long term. Often the client enterprise pays a premium as a cost effective alternative for not having to manage the employment relationship or absorb employment costs of statutory entitlements such as holidays and leave.  This practice has become increasingly common in a number of industries in New Zealand.

The default position is that “temps” are employed by the labour hire company and not the enterprise for whom they may only work for a short time.  But the situation can quickly become more complex, or it may change over time when the placement  is not short term.

Lengthy placements or ones that change over time  present a potential risk to a number of organisations that work with independent labour hire companies The Employment Court has observed in a few cases so far the potential for triangular relationships to exist, but this will be assessed on a case by case basis and is intensely factual.

The starting point is section 6 of the Employment Relations Act 2000, which sets out the meaning of ‘employee’, and which includes a statutory test that requires decision-makers to examine the “real nature” of the relationship.  Generally, that will start with consideration of the terms and conditions of any employment agreement as well as the manner in which the employment relationship operated in practice.  This requires an assessment of, among other things, the parties’ intentions, as well as the degree to which the employee is under another party’s control and is integrated into that party’s business, as well as the economic reality of the agreement.  Because the law is not well developed in respect of triangular relationships, where the identity of an employer is in dispute, there is inevitably a need to obtain specialist (and situation-specific) advice.

This is particularly true following the Court’s recent decision in Prasad v LSG Sky Chefs.  Briefly, this case – decided by a full Court – concerned a company – LSG – that obtained workers using a labour hire company.  LSG provided in-flight catering services to airlines and had several hundred people working for it, some of whom were employees in the traditional sense, while others were engaged using labour hire companies.  In Prasad, while the Court acknowledged cases from the UK, which generally rejected the argument that an end-user (the organisation contracting with the labour hire company) can become an employer, it also expressed concern that triangular arrangements (as between an organisation, a labour hire company, and a worker) were being used (or could be used) to side-step minimum employment standards.

In Prasad, the Court applied the ‘real nature test’ contained in section 6.  It noted that LSG interviewed workers in advance of accepting them to work, provided timesheets to the labour hire company from which workers’ pay was calculated, generated work rosters, provided workers with LSG uniforms, and managed any performance issues.  Given that control and on the basis of the manner in which the workers were integrated into LSG’s business, the Court found a mutuality of obligation existing between the worker in question and LSG and, accordingly, that the real nature of the relationship was one of employment.

Significantly, the Court confirmed that it is not unusual for workplace relationships (to use a neutral term) to morph over time such that, what might start as a relationship outside of the Employment Relations Act 2000 could, over time, become one captured by it.  This presents a potential risk to companies that use labour hire companies to provide workers.  The Court has said that what is significant is how the worker in question is treated by the putative employer, and not just how long they might spend working for them.  For example, what degree of control does the enterprise to whom the worker is assigned exercise over their work?  How integrated into the enterprise is the worker?  What do the parties understand of the relationship?

If your company uses workers provided by labour hire companies it’s important that you receive advice on any risks that arrangement might present.  Given the Court has referred to the need to consider every circumstance on its merits, receiving only general advice is not recommended.  Rather, a company in this position should receive bespoke advice from specialists to ensure that any risk is mitigated.  This is something that our specialist lawyers have recent experience with and can advise on.


This article is current as at the date of publication and is only intended to provide general comments about the law. Harkness Henry accepts no responsibility for reliance by any person or organisation on the content of the article. Please contact the author of the article if you require specific advice about how the law applies to you.

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