Part One: The Operation of Part 6A

This section addresses the first part of the review relating to the requirement in law to assess whether the operation of Part 6A has met its objectives, and if not, whether any amendments to Part 6A are necessary or desirable to meet those objectives. This section presents seven areas, related to the operation of Part 6A, where issues have been brought to the attention of the Department of Labour. This section may not capture all the issues associated with the operation of Part 6A. We welcome your comment on additional matters, as well as on the areas of focus presented here.

1. Level of Awareness amongst affected employers and employees

Awareness of the provisions of Part 6A is important for the effectiveness of this law. Lack of awareness can expose employers and employees to disadvantage during a restructuring event. Incoming employers who do not request or receive information may face hidden labour costs, such as unpaid holiday pay, annual holidays, wages and other entitlements. Pressure on labour costs for employers can affect employees with potential cuts to hours and jobs.

Failure to comply with the law is often as much about a lack of awareness as the lack of willingness or ability to comply. The consequences are significant for the competitiveness of commercial enterprises and for the protection of employees against disadvantage. This may apply to the legislation in general or to specific aspects of the law, such as disclosure of employee entitlement information. Information disclosure supports potential employers by ensuring a level playing field in the tender process and it supports employees by ensuring they are able to make an informed choice regarding the transfer their employment.

The range of responses that Government could consider to improve the level of awareness of Part 6A requirements includes:

• expanding the distribution methods and content of information available
• developing guidance notes for parties to restructuring
• producing a code of practice under Part 8A of the Employment Relations Act.

Part 1 Question 1: What is the extent of your knowledge about the provisions in subpart 1 and 2 of Part 6A of the Employment Relations Act 2000?

Part 1 Question 2: What is the extent of your knowledge about the provisions in subpart 3 of Part 6A of the Employment Relations Act 2000?

Part 1 Question 3: How would you describe the knowledge of Part 6A among parties who are/may be affected by it, including employers and principal enterprises, employees and representatives?

Part 1 Question 4: What approach would you consider most effective in building the awareness of provisions in Part 6A?

2. Transference of accrued entitlements

There is a statutory obligation on the current employer to provide employee transfer cost information to the incoming employer but the law does not require the transfer of funds to the new employer to meet the costs of employees' accrued entitlements, such as holiday pay, annual holidays and sick leave.

Holiday pay cannot be paid out to employees prior to the transfer, so the incoming employer is dependent upon the proactive transfer of funds by the outgoing employer. When Part 6A was enacted it was intended that the transfer of accrued entitlements would be considered during the commercial negotiations, as this allows for a greater degree of flexibility for the parties involved than would be the case if there was a prescribed obligation to transfer accrued entitlements.

Anecdotal evidence indicates that the current flexible approach may create confusion and disadvantage for both employees and employers in some situations. Some employers note that this is the biggest issue they have with Part 6A. The failure to transfer accrued entitlements has the potential to impose financial costs on employees and employers; to generate employment relationship problems that impact on the smooth transfer of the contract for service; and, to impact on the productivity and profitability of the business. Employees covered by Schedule 1A tend to be on employment agreements providing for wages marginally above the minimum wage and the non-payment, or stalled payment, of entitlements can impact on their ability to meet personal financial commitments.

Alternatively there is also anecdotal evidence that in some cases, especially amongst larger firms, a business practice has evolved which takes the accrued entitlements properly into consideration and in these circumstances the transfers are working well.

The range of responses that Government could consider to improve the transfer of accrued entitlements includes:

• raising awareness of the requirement to transfer entitlements so that they are properly considered and viable in practice during the commercial negotiations
• amending the legislation to require outgoing employers to resolve liabilities at the point of transfer, including the possibility of having employees paid out and therefore losing entitlements (for example entitlements to annual holidays) but otherwise retaining continuity of employment
• amending the legislation to create an obligation on the outgoing employer to transfer the liabilities to the incoming employer.

Part 1 Question 5: What problems are you aware of, for any of the parties involved, around the transfer of accrued entitlements?

Part 1 Question 6: What approach would you consider most effective to ensure the transfer of funds to the new employer to meet the costs of an employee's accrued entitlements?

Part 1 Question 7: Should there be a choice about whether accrued entitlements are transferred or paid out by the outgoing employer at the point of transfer.

Part 1 Question 8: Discuss any issues that might arise for any of the parties by establishing an obligation in the Act to transfer funds.

3. Employee transfer costs information

Part 6A provides for the disclosure of information about employees and their entitlements for the purposes of entering into, or terminating, a service delivery agreement. This information is provided in aggregate form rather than as individual employee details. Issues relating to timeframes and the provision of information in aggregate form are outlined below.

Disclosure timeframe

Information about employees and their entitlements must be disclosed in sufficient time for the person making the request to use the information before a transfer occurs. The phrase "sufficient time" allows for flexibility around the different circumstances that might arise, such as the speed of the transfer or the number of employees involved. However, the flexibility may also result in disruptions in the transfer process if information is not timely and therefore useful for employers and if employees do not receive information early enough to make an informed election to transfer. Efficient and transparent information transfer eases the process of tendering for a contract, while delays are inefficient and increase risks of businesses making ill-informed tenders. At the same time the preference of parties may be to absorb the risks in order to retain flexibility around timeframes.

Aggregate information

The legislation requires that the information is provided in an aggregate form and in such a way that the privacy of individuals is protected. Consequently, the new employer may not access details about the inherited terms and conditions of employees until the transfer has taken place. A lack of liaison between the outgoing and incoming employers can result in the new employer relying on the employees themselves to provide accurate details of entitlements.

Such informality can lead to misunderstanding and complications that generate disputes and uncertainty for those concerned. More detailed and individualised information provided to the incoming employer could avoid this problem. Similarly it may be useful to also transfer any information that has been collected about an individual employee's performance.

The range of responses that Government could consider to improve the provision of employee transfer costs information includes:

• amending the legislation to provide timeframes in relation to the date of the request, and/or the date of the transfer
• amending the legislation to require timely provision of written information about costs relating to particular employees
• repealing the transfer costs information provision.

Part 1 Question 9: What issues are you aware of in relation to the timeframes for the employee transfer cost information?

Part 1 Question 10: What additional information would improve the smooth transfer of a contract for service?

Part 1 Question 11: What administrative and/or financial implications are you aware of in relation to providing the required information?

Commercial sensitivity

Public companies have a responsibility of disclosure to the New Zealand Stock Exchange when changes in a public company's position affect its competitiveness. The continuity of employment provisions, as provided for by Part 6A, can trigger these disclosure requirements and so consideration should be given to the overall impact of this on commercial sensitivity.

Part 1 Question 12: What issues are you aware of in relation to commercial sensitivity and requirements to disclose employee cost information?

4. Partial transfer of employment

Schedule 1A of the Act defines the categories of employees given higher protection under Part 6A Subpart 1. Situations may arise where part of an employee's work falls within Schedule 1A and part does not or where an employee's role is split between two employers following the restructuring.

Example 1: Restructuring occurs in a company that provides both catering and entertainment services and the employee is only eligible for continuous employment protection for the catering part of their job. The entertainment position is either redundant or retained by the principal enterprise.

Example 2: A company terminates a contract to provide catering services with one contractor and enters into new arrangements with two new contractors, one providing staff takeaway services and the other providing kitchen services. Employees working on a single roster across both services will transfer to two separate employers with two different operating systems.

The partial transfer may result in complex arrangements for the transfer of entitlements at the point of transfer for the new employer/s. It may also be costly for employers who retain an employee for a limited set of tasks and for employees, who may be subject to greater tax obligations by holding two jobs.

Part 1 Question 13: What is your experience with partial transfer situations?

Part 1 Question 14: What changes or improvements do you suggest to ensure a smooth and efficient transfer in partial transfer situations?

5. Transfer of employees in a poorly performing service

A change in service provider is sometimes motivated by perceptions of poor quality service. Part 6A does not enable the performance of employees to be a factor in a tender process because employees can exercise their right to transfer to the new employer. In effect, the question of service quality becomes the responsibility of the business as a whole and not of particular employees. This reflects the policy intent that the contracting process was not a vehicle to address employee performance issues, for which other avenues and legal supports exist. The result of continuity of employment is that the responsibility for managing poor performance rests with the employer and the principal enterprise cannot determine the makeup of the workforce that the contractor inherits.

Part 1 Question 15: Describe your experience of transfers involving poorly performing services and the impact on you your organisation or your business?

Part 1 Question 16: What are your views on the impact of Part 6A on tendering processes?

6. Schedule 1A

Defining the employees for whom subpart 1 of Part 6A applies

Schedule 1A identifies which categories of employees are affected by subpart 1 of Part 6A. It does this by specifying particular services (cleaning, caretaking, laundry, orderly and food catering) and particular sectors, facilities or places of work where the relevant services are carried out. These identified workers are commonly known as 'vulnerable workers,' although this term is not present in the legislation.

Part 1 Question 17: What is your understanding of the meaning and extent of the phrase "vulnerable worker"?

Part 1 Question 18: What issues are you aware of, if any, in relation to the definitions provided in Schedule 1A?

Applications to amend Schedule 1A

Section 237A of the Employment Relations Act 2000 sets out a process by which the Minister of Labour can add to, or omit from, or vary, the categories set out in Schedule 1A. To make an amendment the Minister must have:

• received a request for an amendment to Schedule 1A
• received a report from the Department of Labour that assesses this request
• consulted on the Departmental assessment of the request
• be satisfied certain criteria is met (as outlined below).

To approve an addition to Schedule 1A the Minister must be satisfied that the proposed new categories of employees work in a sector where restructuring occurs frequently, where the restructuring tends to undermine terms and conditions of employment, and where employees have little bargaining power. A rigorous assessment of whether an applicant meets these criteria can require an onerous level of information, complex judgements and there is no clarity on the outcome of any assessment process. This could result in a lengthy process and resources being expended by the applicant, consulted parties, government agencies and Government, with no gain.

Another difficulty with this process arises because, while the policy did not anticipate that applications would be made for small and regional groups of workers to be added to Schedule 1A, the legislation does not clearly exclude this from occurring. The inclusion of a small localised group in Schedule 1A may result in inconsistencies and inequities for other similar employees outside of the geographic scope of the application. Furthermore, granting such an application could create a precedent for numerous small scale applications which may not be an efficient use of resources.

The range of responses that Government may wish to consider to improve the process for amending Schedule 1A could include:

• more specificity in the legislation around which sectors are eligible, and more clarity around the outcome of an application
• repeal section 237A so that any proposed amendments to Schedule 1A would need to be part of a parliamentary process.

Part 1 Question 19: What parameters and process could help to ensure fair and consistent outcomes for proposals to amend Schedule 1A?

7. Protection for employees not specified in Schedule 1A (subpart 3 of Part 6A)

Subpart 3 of Part 6A requires that all other employment agreements (where subpart 1 of Part 6A does not apply) include employment protection provisions relating to negotiations between an outgoing employer and a new employer about the transfer of affected employees to the new employer. The object of this subpart is to provide protections to employees involved in restructuring and impacts on most New Zealand workers.

Issues related to employee protection provisions (EPP) were recently before the Employment Court in a challenge to a determination by the Employment Relations Authority (Norske Skog Tasman Ltd v Manufacturing & Construction Workers Union Inc and Anor (Colgan CJ, Travis J, Couch J, 9 December 2009, AC 49/09).

Part 1 Question 20: To what extent do you believe provisions in employment agreements for all other employees have achieved the objective of providing protection for employees in the event of restructuring?

The Court considered whether they should constrain an employer from restructuring, in the case where the employer and employees had not negotiated an EPP, until the parties have agreed on an EPP. The Court decided that it is not empowered to make a compliance order in this case and therefore could not restrain the employer from restructuring. This case raises a question as to whether there is an issue with enforcing subpart 3 of Part 6A.

Part 1 Question 21: Are there some employment circumstances where subpart 3 of Part 6A should not apply, for example employment in small and medium sized enterprises?

Part 1 Question 22: How do you suggest compliance with the employee protection provisions should be achieved?

Part 1 Question 23: What issues are you aware of in relation to employment protection provisions?

8. Other issues

We are interested in any other issues that you may be aware of that have not been addressed in this discussion paper in relation to the operation of Part 6A. In particular you might want to consider the following questions:

Part 1 Question 24: What specific costs and benefits have you encountered in your experiences of part 6A?

Part 1 Question 25: What, if any, do you believe are unintended consequences resulting from the application and interpretation of part 6A?

Part 1 Question 26: What are your views on whether Part 6A is fair to affected employers?

Part 1 Question 27: What are your views on whether Part 6A is fair to affected employees?

Part 1 Question 28: What suggestions do you have to improve the application and workability of Part 6A?

Part 1 Question 29: What changes to the current employment relations legislation would make the most difference to productivity in your workplace? Why?