Feeling vulnerable? Aspects of Part 6A clarified

Part 6A of the Employment Relations Act enables certain "vulnerable employees" – mostly cleaners and caterers – to follow their work if it is transferred to a new employer (eg. if the business is sold or their employer loses a contract to another employer).  The affected employees in this situation can elect to transfer their employment to the new employer, taking their current terms and conditions, service and accrued entitlements with them. 

Two recent cases have provided some guidance on how these (notoriously difficult) provisions will be applied in practice.

Making a valid election to transfer

The Employment Court in Doran v Crest Commercial Cleaning Limited considered what employees needed to do in order to make a valid election under Part 6A to transfer their employment to a new employer. 

Mr Doran was a cleaner at Hills, a cleaning company who lost its cleaning contract to another provider, Crest.  Mr Doran decided to elect to transfer his employment to Crest.  Hills attempted to contact Crest's director to convey Mr Doran's election, to no avail.  When contact was finally made, Crest's director was uncooperative, but Hills provided the information it was required to provide under Part 6A. Hills reiterated many times in its correspondence with Crest that Mr Doran was electing to transfer. 

Mr Doran made his own attempts to contact Crest and communicate his election to transfer.  He also found it difficult to get hold of Crest's director.  When contact was finally made, Crest's director asserted that Mr Doran's election to transfer was not valid as he had not received the election in writing and signed.  A subsequent email from Mr Doran to Crest's director clearly electing to transfer was ignored. Mr Doran then issued a personal grievance against Crest, the success of which depended on a finding that he had validly elected to transfer, and was therefore a Crest employee with standing to bring a personal grievance against Crest.

Crest argued that an affected employee must elect to transfer within five working days of termination of the outgoing employer's contract, that the election to transfer must be in writing and signed, and that the employee must notify the incoming employer of their election three days before the transfer occurs.  None of these requirements appear in Part 6A, and they were all rejected by the Employment Court. 

The Court confirmed that Part 6A requires that affected employees be given a "reasonable opportunity" to exercise the right to make an election.  As what constitutes a reasonable opportunity will vary in each case, it would undermine the purpose of the legislation to impose rigid timeframes.

The Court also held that an election need not be in writing and signed to be valid.  The right to elect to transfer was "unqualified" and need not be communicated in particular way.  An election may be conveyed in writing or orally, by the affected employee or by someone acting on his or her behalf.

It was held that Mr Doran had made a valid election, so was entitled to bring a personal grievance.

Bargaining with the new employer for redundancy entitlements

In SFWU v OCS Ltd the Supreme Court considered the extent to which employees could bargain for redundancy entitlements if they were made redundant by the new employer after they had transferred. 

Part 6A expressly grants employees who have transferred a right to bargain with the new employer for "redundancy entitlements" if they are made redundant post-transfer for reasons relating to the transfer.  However the right is limited.  Employees may bargain for entitlements only if their employment agreements do not provide for redundancy entitlements, or do not expressly exclude redundancy entitlements, in this situation.

In this case, the collective agreement excluded redundancy payments where employment was lost due to the loss of a client contract.  It was silent as to other redundancy entitlements. 

The Supreme Court considered the meaning of "redundancy entitlements" under the Act, which is defined to include "redundancy compensation".  The Court saw this as indicating that redundancy compensation can take forms other than monetary compensation, such as retraining. The Court decided that the employees here could not bargain for redundancy compensation, but could bargain for other non-monetary entitlements, as they had not been expressly excluded.

The take-outs

The short points to take out of these cases are that elections can be made informally, and that employers should take care in drafting their technical redundancy provisions to ensure that vulnerable employees' entitlements or non-entitlements are clear. 

More broadly, the take-out from both cases is that the Authority and courts will interpret the provisions of Part 6A (as they should) consistently with their stated purpose, which is to protect employees affected by transfers of business.  Therefore, where there is ambiguity or doubt – and there is plenty of both in Part 6A – employers should expect that to be resolved in the employees' favour.