The Employment Court ruled in late May that in a subsequent contracting situation a senior employee with some managerial or at least supervisory responsibilities (and a minority shareholding in a parent company of his employer) was entitled to elect to transfer to the incoming contractor (Matsuoka v LSG Sky Chefs New Zealand Ltd).

By way of background, LSG had won a tender for a catering contract with Singapore Airlines previously held by Pacific Flight Catering (PFC). The incoming contractor asserted that the vulnerable workers legislation was intended to protect only employees engaged in the specified labour intensive sectors in low paid work. LSG argued that since Mr Matsuoka's employment conditions were commensurate with a manager's employment terms, he should not be entitled to elect to transfer to LSG.

The Court disagreed. It observed that Part 6A of the Employment Relations Act 2000 (ERA), commonly known as the vulnerable workers legislation, made no reference at all to the term "vulnerable workers". Therefore, whether or not an employee was "vulnerable" should not form part of the test to determine whether the employee was protected under the legislation. The Court upheld Mr Matsuoka's right to elect to transfer to LSG, notwithstanding his seniority, generous employment conditions, shareholding and close relationship with his managing director.

The case arose as part of a wider dispute between LSG and PFC as to which employees were eligible to transfer to LSG, and followed an interim determination of the High Court that there was no duty of care owed by PFC to LSG (see our March update).

Key points for employers

Three key points of interest arise from this decision for employers involved in a business restructuring which triggers the continuity of employment provisions for vulnerable workers in Part 6A:

  • Employees who are not "vulnerable" in the traditional sense but who are engaged in providing a qualifying service could be eligible to transfer;
  • In relation to food catering services, employees performing only delivery functions (without handling or preparing the food) would qualify, and therefore be eligible to transfer;
  • An affected employee working full time and responsible for a wide range of duties in respect of various service users and/or contracts could nevertheless be entitled to transfer to the new employer on a full time basis.

Part 6A

Part 6A provides continuity of employment protections for specified categories of employees in the event of a business restructuring, which results in their work being performed by another employer. Restructuring for this purpose includes first time contracting out, subsequent contracting, contracting in and business transfers and sales.

Workers covered by Part 6A include employees who provide services in cleaning and food catering in any workplace, and laundry, orderly and caretaking services in specified workplaces.

"Food catering services" included delivery as well as preparation of food

In deciding the case, the Court first had to determine whether Mr Matsuoka was an employee who provided "food catering services".

Mr Matsuoka had no connection with preparing or handling food, but delivered and unloaded it. The Court held that food catering services included both the preparation and delivery of food for consumption in a catering situation. Further, the Court opined that food catering services included the provision of drink (as well as food) and implements for consuming items provided.

Part 6A applied notwithstanding outgoing contractor, (PFC), not Mr Matsuoka's employer

PFC, the outgoing party to the Singapore Airlines catering contract, was owned by PRI, another entity in the group. PRI employed Mr Matsuoka.

Section 69C(5) of the ERA defines subsequent contracting as a situation where:

  • person A (Singapore Airlines) has an agreement with person B (PFC) under which B performs work for A; and
  • the work or some of the work is actually performed by employees of B; and
  • the agreement expires or is terminated; and
  • A enters into an agreement with person C (LSG) under which C performs the work for A.

Section 69F provides that the continuity of employment protections in Part 6A apply if as a result of a proposed restructuring (which includes subsequent contracting), the employee will no longer be required by their employer to perform their work; and the employee's work is to be performed by or on behalf of another person.

The Court found that there was a subsequent contracting for the purposes of the legislation even though Mr Matsuoka was never employed by PFC. This was because PRI had engaged in a restructuring as a consequence of the loss of the Singapore Airline contract, which restructuring resulted in Mr Matsuoka no longer being required to perform his work. That work was to be performed by LSG.

Mr Matsuoka entitled to transfer to incoming contractor full time

Section 69I(2) provides that if an eligible employee elects to transfer, then to the extent that the employee's work is to be performed by the new employer, the employee becomes an employee of the new employer on the same terms and conditions, including terms and conditions relating to whether the employee is employed full time or part time.

Mr Matsuoka provided a wide range of duties for a number of different airlines, the respective proportions of which fluctuated according to business needs and flight schedules. PFC employees were not dedicated to specific airlines. They each performed tasks for all airlines with which PFC had food catering contracts.

LSG argued that the transferring duties should be restricted to work Mr Matsuoka previously performed exclusively in relation to the Singapore Airline contract, which the Court found amounted to approximately one hour per day. In other words, only part of his employment should transfer to LSG, and the other part comprising all other duties should remain with PRI.

The Court accepted that multiple employment could result where there was a clean division of job duties between different employers. However, the circumstances of this case were such that the only workable interpretation of section 69I(2) was that in electing to transfer, Mr Matsuoka did so as a full time employee. It was relevant that his work was affected by the restructuring to the extent that his employment with PRI was to be terminated for redundancy. In these circumstances, the Court concluded that a transfer on any basis other than full time would not be on the same terms and conditions as required by the legislation.