Employment structures continuously evolve and develop. As a result, employee rights need to develop alongside these structures in order to promote fairness. Currently, one notable development in the way employment relations can be structured in practice is triangular employment. To address this structure, the Employment Relations (Triangular Employment) Amendment Bill has been enacted. This is due to come into force next year.

What is triangular employment?

Triangular employment is where an employee is formally employed by one business but is subsequently under the control and direction of another business in their day-to-day work. An example of this is recruiter outsourcing. The current law that the Bill is designed to change is that employees are only able to bring personal grievances against their primary employer. This left a gap in the law where issues were created by the third party company during their day-to-day management of the employee.

Prasad v LSG Sky Chefs New Zealand Ltd recognised that an employment relationship can go beyond a bilateral arrangement between employer and employee. This case involved two plaintiffs who were employed by a labour hire company. These employees were hired out to LSG. LSG argued that the plaintiffs were employed by the labour hire company, not by LSG.

The Employment Court noted that it is not uncommon for workplace relationships to morph overtime to no longer reflect the agreement between the parties when the relationship started. An employee could be classed as a contractor by contract, but the nature of their employment may indicate something else. To determine whether someone is an employee, the Court held that the nature of the relationship must be assessed. Things that were determined as indicative of an employment relationship included:

  • expectation of compliance with company processes and ongoing supervision to enforce this for example, health and safety and security training
  • rostering practices
  • contacts for additional work requests
  • how performance management issues are dealt with
  • whether company uniforms are required so that contractors are indistinguishable from employees
  • obtaining and maintaining security clearance
  • who controls the payroll
  • work pattern is regular and performance expected by both parties
  • continuity of relationship over an extended period of time.

The Court then looked to the degree of control exercised by LSG over the workers and how integrated the workers were in LSG’s company.

It was found on the facts of the case that both workers were employees of LSG alongside the labour hire company. In response to the finding of this case, Parliament moved to codify the control test through the Bill.

What impact will the Bill have?

The Bill has extended the definition of employer in the Employment Relations Act 2000 (the Act) to include a “controlling third party”, consequently furthering personal grievance rights to employees.

The purpose of the Bill is to ensure that employees, who are under the control and direction of a business that is not their formal employer, have access to personal grievance rights afforded to all employees in the Act. Under the new section 103B of the Act, the controlling third party can be joined to the personal grievance action if the claim relates to their controlling actions. The court will grant the joinder if:

  • notification requirements to the third party are met, namely that notice of the personal grievance is given to them within 90 days and
  • an arguable case has been made out that
    • the third party is the controlling third party and
    • the party’s actions caused or contributed to the personal grievance.

Where the controlling third party is found to have caused the issue, section 123A rules that the third party can be ordered to pay compensation as set out in section 123.

What this will essentially mean is that it will not be effective for an organisation that is truly in charge of work performed by an employee, to hide behind an organisation such as a labour hire company. The extension of the Act to include this employment arrangement ensures that all employees are given equal access to personal grievance rights.

For further information, contact your Employment Lawyers at Bell & Co on (04) 499 4014