The New Zealand Employment Court has ruled that whether labour-hire (i.e. agency) workers are considered employees will depend on a factual assessment of the relationship between them and the ‘host’ company using their services.
In many industries labour-hire agencies (i.e. temporary employment agencies) supply workers to ‘host’ companies. The host companies do not employ the workers but pay the labour-hire agencies for their services. This provides many advantages to host companies, including increasing the flexibility of the host company's workforce.
In Prasad v LSG Sky Chefs New Zealand Limited, the Employment Court addressed a claim that two workers were actually employed by the host company using their services. The Court found that the host company was the workers’ employer because contractual documentation about the working relationship was non-existent or unclear, the host company had a significant degree of integration and control over the workers and the work was of indefinite duration.
Solutions Personnel Limited (‘Solutions’) is a labour-hire agency that provided labour for hire to LSG (the host company). LSG provides catering services to airlines and has several hundred people working for it. Some of these workers are employees and some are not. LSG relies heavily on workers provided by agencies such as Solutions.
Two workers were the focus of the case. Ms Tulai worked at LSG for about four years. She had an independent contractor agreement with Solutions. Mr Prasad worked at LSG for approximately two years as a loader, also under an independent contracting agreement with Solutions and a related company. Neither worker had an agreement with LSG.
Both Mr Prasad and Ms Tulai had a limited understanding of employment law and of the agreements they signed with Solutions.
The Court’s ‘Real Nature’ Approach
The Court had to determine the ‘real nature’ of the relationship between the workers and LSG. It first looked at the terms of any agreement between the parties and then at how the relationship operated in practice.
The Court found that the agreements between Solutions and the workers were ‘poorly worded’. The Court largely discounted these contracts because they were confusing and because of deficiencies in the way the agreements were signed. The Court concluded neither worker understood the agreement each was asked to sign, nor did Solutions take any steps to explain the agreement or the working arrangements. The Court held the workers were ‘steam-rolled into signing a document which they had no real understanding of’.
The Court then analysed how the relationship between the workers and LSG operated in practice. It found that in practice, the workers operated more like employees than independent contractors. They worked only for LSG and had little control over when and how they worked or what work they did. They were integrated into LSG’s business, wore LSG uniforms and provided timesheets to LSG, which also controlled their rosters (although they were paid by Solutions). Despite the fact that LSG used both employees and labour-hire workers, there was little distinction between them in practice. Taking into account all these factors, the Court concluded that the reality of the working environment pointed strongly towards an employment relationship.
What Does this Decision Mean?
This case demonstrates that labour-hire workers are not automatically barred from being considered employees. However, whether or not they are employees is a highly factual matter and dependent on the individual circumstances. In this case, the facts pointed strongly towards the workers being employees, since in practice the relationship operated as one of employment, despite some signs that it was intended to be an independent contractor relationship.
The Court noted that it would be less likely that a host organisation would be found to be an employer where the obligations and roles of each party were well-documented and agreed at the outset and the work was temporary or supplementary. In contrast, where the documentation is unclear or non-existent, the work is of indefinite duration, there is a significant degree of supervision and the host company deals with control and performance issues, this is likely to indicate that the worker is an employee.
In the wake of this decision it is likely that labour-hire arrangements will come under increased scrutiny.