On Tuesday, New Zealand's Minister of Labour made the expected announcement that Cabinet has decided to amend Part 6A of the Employment Relations Act 2000 (the Act).

The object of Part 6A is to preserve the employment conditions of specified categories of employees (namely those who provide cleaning or food catering or laundry services) when the business that they work within is transferred, contracted out or sold. The Minister of Labour may vary the categories to include other groups of employees that have limited bargaining power and work in a sector where restructuring occurs frequently and tends to undermine employees' terms and conditions of employment.

Reform

The Government plans to introduce the following changes to Part 6A to Parliament by the end of this year:

  • Businesses with fewer than 20 employees will be specifically exempted from Part 6A. A small or medium-sized business that takes over an existing contract will not be obliged to take on the staff of a previous contractor. Such businesses account for approximately 25% of those operating in the affected sectors.

  • A new requirement will be introduced for the outgoing employer in a restructuring situation to forward an employee's information to the incoming employer, including employment agreements, PAYE, wage and time or leave records.

  • A specific process will be introduced to assist employers in agreeing how to apportion liabilities for accrued service-related entitlements of transferring employees.

  • Affected employees will be required to decide whether to transfer to employment with the incoming employer within five working days.

  • Additional penalties and compliance orders will be inserted to address non-compliance with Part 6A. In addition, Part 6A will specifically require the outgoing employer to provide the incoming employer with an "implied warranty" that they have not taken steps to damage the business of the new employer (such as by unreasonably increasing employee entitlements before the restructuring takes place). Breaches of the implied warranty may be litigated in the District Court.

Rationale for change

The general consensus among employers is that Part 6A currently imposes unduly onerous obligations on them and creates a barrier to open services. The Government expects that the proposed amendments will provide more certainty and clarity for employers, while retaining the key benefits and protections for vulnerable employees. The Ministry of Business, Innovation and Employment says that the proposed amendments provide an appropriate balance of efficiency and equity.

Current scheme

Part 6A is designed to manage the potential disadvantage to vulnerable employees of repeated renewal of their employment agreements as a result of frequent restructure. Part 6A currently sets out a two-tiered framework of employment protection that applies to restructuring which results in an employee's work being undertaken by a new employer (so that the employee is no longer required by their employer to perform the work).

In its current form, Part 6A is complex and unsatisfactory in a number of ways:

  • An employee may choose whether to transfer to a new employer (rather than transferring automatically), which creates uncertainty for the parties in terms of staffing levels and costs. In particular, a new employer may inherit liability for transferring employees' accrued entitlements.

  • Clients (or service users) inevitably inherit the old provider's workforce, even if they decide to change service provider (for example, due to poor quality services)

  • The transfer rights of employees are burdensome on employers, particularly if transferring employers are poor performers or only part of their role transfers and they are faced with the prospect of multiple employments.

Other changes

The Minister has also confirmed other amendments will be made to the Act, including:

  • removing the obligation in section 33 of the Act to conclude a collective employment agreement (CEA) unless there is a genuine reason not to do so;

  • empowering the Employment Relations Authority to declare in certain circumstances that collective bargaining has ended;

  • removing the requirement in section 63 that for the first 30 days of employment non-union member employees must be employed on terms of a CEA that would be binding if they were union members;

  • allowing employers to opt out of bargaining for a multi-employer collective agreement;

  • introducing a mechanism for partial pay reductions for partial strikes or situations of low level industrial action; and

  • changes to the disclosure of personal information (a response to the Massey decision of 2011 in relation to redundancy selection processes).

For more information on these changes, see our earlier update of 18 May 2012 entitled Changes announced to law on collective bargaining and flexible working.