John Farrow, Partner at Anderson Lloyd, shares an overview of the recent Employment Relations (Triangular Employment) Amendment Act 2019, which came into effect on 27 June 2020, as it raises a number of interesting issues which would undoubtedly emerge in case law.
The Employment Relations (Triangular Employment) Amendment Act 2019 came into effect on 27 June 2020.
A triangular relationship is where an employee is formally employed by one entity but is actually under the control and direction of another. The Act uses the terminology a “controlling third party”.
A controlling third party is a person:
- who has a contract or other arrangement with an employer under which an employee of the employer performs work for the benefit of the person; and
- who exercises, or is entitled to exercise, control or direction over the employee that is similar, or substantially similar, to the control or direction that an employer exercises, or is entitled to exercise, in relation to the employee.
The Amendment Act allows an employee to bring a personal grievance against both their employer and a controlling third party. The employee needs to first raise a grievance in accordance with section 114 and apply to the Authority to resolve the grievance with its employer. The grievance needs to relate to an action that is alleged to have occurred while the employee was working under the control or direction of a controlling third party.
If those thresholds are met, then the employee or the employer, or both, may apply to the Authority or the Court to join the controlling third party to the proceedings to resolve the personal grievance.
The Authority or the Court must then grant the application to join the controlling third party if the employee has notified the controlling third party and that notification has occurred within the 90 day employee notification period. The application also must be granted where the employer has notified the controlling third party within the 90 day employer notification period
The Authority or Court must also be satisfied that an arguable case has been made out
- that the party to be joined to the proceedings is a controlling third party; and
- that the party’s actions caused or contributed to the personal grievance.
The Authority of Court may, at any stage in the proceedings, of its own motion join a controlling third party to the proceedings.
If the Authority of Court joins the controlling third party then it must consider whether to direct the employer, employee and controlling third party to mediation.
If the relevant 90 day notification period is missed and the controlling third party does not consent to being notified then the employee or the employer may apply to the Authority for leave to notify.
The Act does not provide guidance on when leave may be granted. The Authority may grant leave subject to any conditions it thinks fit if it considers it just to do so. If leave is granted the Authority must direct the employee, employer and controlling third party to mediation.
The Authority or Court may order the controlling third party to provide the employee either or both of the remedies in section 123(1)(b) and (c). In doing so, the Authority or Court must consider the extent to which the actions of the controlling third party caused or contributed to the situation that gave rise to the personal grievance.
The remedies against the employer and controlling third party must be awarded in a way that reflect the extent to which the actions of each contributed to the situation.
The Act allows for an order of payment by instalments but only if the financial position of the controlling third party requires it.
Opponents to the Act argued that an employee can already claim that a controlling third party is the true employer under section 6.
Cases such as Prasad v LSG Sky Chefs New Zealand Ltd and the recent Court decision of Leota v Parcel Express Ltd are cases on point. Prasad is more closely analogous, however Leota is certainly of significance.
One of the crucial issues will be whether or not there is an arguable case that the party to be joined is, in fact, a controlling third party.
The assessment of whether or not an entity exercises or is entitled to exercise control or direction over the employee that is similar or substantially similar to the control or direction that the employer exercises, or is entitled to exercise will be paramount. Assessment of control or direction are likely to mirror a Leota type analysis.
Having established control or direction, the employee or employer also needs to establish that the control or direction is similar, or substantially similar, to the control or direction that the employer exercises. That is likely to be an intensely factual enquiry.
For example, while a controlling third party may direct activity and monitor the quality of that activity, does it have substantially similar control if it doesn’t set the terms and conditions of employment, dictate the hours and have the ability to sanction for inadequate performance?
The new legislation provides the opportunity for employees to seek remedies from two different “pockets”. Non-employer businesses exercising any degree of control over a worker will need to be much more vigilant about how they treat that worker, including whether or not their actions are fair and reasonable. It would be wise to treat all workers as potential employees so that in the event the Court finds you are a controlling third party, your actions are defendable.
Clear documentation will be crucial. Agreeing from the outset the respective responsibilities for the employee will be crucial. If a business is engaging labour from a labour hire company, then it should proactively communicate with the labour hire company and ensure that where there are issues with the worker, it leaves it to the labour hire company to address those.
Unlike the Health and Safety at Work Act 2015, there is no prohibition on indemnities. Therefore contracts between labour hire companies and businesses engaging labour can include an apportionment of liability in the event of a PG being determined against the business or, indeed, against the labour hire company.
A potential controlling third party on the receiving end of an employee or employer notification will need to carefully consider whether it consents to mediation or whether it requires the employee to make an application to the Authority to join the controlling third party. In some cases the employer and the controlling third party will be at odds. In other cases they may work together to resolve the grievance or, alternatively, to defend the grievance.
The legislation raises a number of interesting issues which undoubtedly will translate into some intriguing case-law.
John Farrow is the Partner leading Anderson Lloyd’s National Employment and Health and Safety Team. He is a member of the Institute of Directors, a LEADR accredited mediator and a past president of the Otago branch of the New Zealand Law Society. Contact John at john.farrow@al.nz or connect via LinkedIn
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