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Triangular Employment Relationships

The Employment Relations (Triangular Employment) Amendment Act 2019 (new law) came into effect on 28 June 2020. This means a third party who has day to day control of an employee’s work, but is not the employer of the employee, could be exposed to a personal grievance claim from the employee.

A triangular employment relationship involves three parties. The employer (agent), the employee and a third party who may control the employee (controlling third party). This type of relationship often happens in the labour hire industry.

Previously, employees could not raise a personal grievance against the controlling third party unless the employee could prove that the controlling third party was his/her employer.

However, the new law makes it much easier for an employee to bring a personal grievance claim against a controlling third party. Both employee and employer can apply to the Employment Relations Authority (Authority) or the court to join a controlling third party to a personal grievance proceeding to resolve a problem or a claim.

The Authority or the Employment Court must grant the application to join a controlling third party if it satisfies three conditions:

  1. the controlling third party is advised of the personal grievance by either the employee or employer within the 90 days limitation period;
  2. there is an arguable case that the party being joined is a controlling third party; and
  3. there is an arguable case that the actions by the controlling third party caused or contributed to the personal grievance.
    If the Authority or the Employment Court finds a controlling third party liable for a personal grievance claim, the controlling third party may be ordered to pay loss of wages and/or compensation under section 123(1)(b) and (c) to the employee.

Therefore, a controlling third party will no longer be able to distance itself from personal grievance claims simply for the reason that the controlling third party is not the a party to the employment relationship.

However, it is still unclear as to what the controlling third party obligations are under the new law and how these are different from its obligation to its own employees. Case law developments will provide this guidance.

We recommend that both employers and controlling third parties carefully consider their contractual relationship in terms of a possible triangular employment relationship to identify and minimise any risks that may potentially give rise to claims under the new law.

In particular, attention should be paid to ensuring there are well written contracts governing the relationship and expectations between the parties and in particular who has ‘control’ of the employee.

Terminating the work arrangements of an employee is one area where we have seen possible tension between the various parties.

Example
An employee is sent home by the controlling third party for an unspecified reason and told not to return (no due process). The recruitment company is notified that the controlling third party no longer wants the employee in their work environment. The recruitment agency has entered into an agreement with the employee to provide work at that site and is bound to terminate that agreement with due process but can no longer do so. The recruitment agency can no longer satisfy their part of their contractual duties due to the actions of the controlling third party. We suggest in this notional situation, the controlling third party could arguably be joined to a personal grievance action against the recruitment agency if the recruitment agency terminates without due process being followed.

If you have any questions in respect of the triangular employment relationship, please contact our employment law team for advice.

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.

For further information

JSR-1

Jay Rajendram

AMT-New-1

Alexandria Till

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