October 2012
Employment Relations Act 2000
Review of Part 6A:
Continuity of Employment
THE FINDINGS OF THE REVIEW OF PART 6A
OF THE EMPLOYMENT RELATIONS ACT 2000
October 2012
1
CONTENTS
Executive summary .............................................................................................. 3 Part 6A of the Employment Relations Act 2000 (Part 6A) ......................................... 3 Review process ................................................................................................. 3 Findings of the policy review of subparts 1 and 2 of Part 6A ..................................... 4 Findings on the operation of Part 6A ..................................................................... 5 Background ......................................................................................................... 6 Development of the policy of providing continuity of employment protection .............. 6 Current policy of special protections for some employees (subpart 1 of Part 6A) ......... 6 Population groups most affected by the special protections ...................................... 7 Current policy for all other employees (subpart 3 of Part 6A) ................................... 8 The broad legal framework for restructuring and redundancy ................................... 9 Summary of submissions to the 2009/10 Review ...................................................... 9 Consultation process and timing .......................................................................... 9 Numbers and make up of submissions .................................................................. 9 Broad directions for change suggested by submitters ............................................ 10 Key areas of concern and for improving the operation of Part 6A ............................ 10 Review of the policy of subpart 1 of Part 6A ........................................................... 11 Stage One: 2009/10 submitters views on the policy of subpart 1 of Part 6A ............. 11 Discussion and analysis .................................................................................... 15 Further cost-benefit analysis ................................................................................ 18 Conclusions of the policy review ........................................................................... 19 Review of the operation of Part 6A ........................................................................ 20 Knowledge and awareness of the Part 6A ............................................................ 20 The transfer of accrued entitlements .................................................................. 22 The provision of employee cost information ......................................................... 26 Poorly performing services ................................................................................ 30 Schedule 1A – employees to whom subpart 1 of Part 6A applies ............................. 32 Subpart 3 ....................................................................................................... 34 Appendix A: Terms of reference for the review of Part 6A......................................... 36 October 2012
2
Executive summary
Part 6A of the Employment Relations Act 2000 (Part 6A)
1
The objective of Part 6A of the Employment Relations Act 2000 (the ER Act) is to
provide employment protection for employees when an employer’s business
undergoes restructuring and the employee(s)’ work is assigned to a new employer.1
2
Subpart 1 of Part 6A (subpart 1) provides special continuity of employment
protections for a defined set of employees, listed in Schedule 1A of the ER Act.
These protections include a right to transfer to the new employer on existing terms
and conditions. The employees covered by subpart 1 provide cleaning, food
catering, caretaking, orderly, and/or laundry services in specified industries.
3
Subpart 2 of Part 6A (subpart 2) provides the right to certain persons to request
aggregated employee cost information. The information must be provided in
“sufficient time” for it to be taken into account prior to the requestor making
decisions about whether to be involved in a proposed restructuring, for example,
when making decisions about whether or not to tender or enter into a contract.
4
Subpart 3 of Part 6A (subpart 3) provides protection for other employees not
covered by subpart 1, by requiring employment agreements to contain employee
protection provisions that outline processes to be followed during restructuring
when this involves the sale, transfer or contracting out of a business.
5
Subpart 4 of Part 6A (subpart 4) requires the Minister of Labour to require a report
to be prepared on whether the operation of Part 6A has met its specified objectives
and, if not, whether any amendments are necessary or desirable. The Minister of
Labour is also required to present a copy of the report to the House of
Representatives.2
Review process
6
In addition to the review requirements, focused on the operation of Part 6A in the
legislation (the operational review), the scope of the Review of Part 6A (the Review)
included consideration of whether the policy of providing special protections for a
defined set of employees was still relevant and desirable (the policy review).
7
The Review of both the operation of Part 6A and the policy it gives effect to,
proceeded in two stages. These were:
Stage One (2009/10): On 30 November 2009, Cabinet approved the Terms of
Reference for the Review [CAB Min (09) 42/7 and EGI Min (09) 26/7 refer]. On 15
February 2010, the Minister of Labour released a discussion paper setting out key
questions for the Review and calling for submissions. The former Department of
Labour (the Department) received 146 submissions. The Department also sought
advice from a Sector Advisory Group. This first stage of the Review was completed
in April 2010.
1
In relation to subparts 1 and 2 of Part 6A, restructuring refers to contracting out, contracting in,
subsequent contracting, or the selling or transferring of an employer’s business (or part of it) to
another person.
2
Subpart 4 provides that the Minister of Labour must require the report to be prepared as soon as
is practicable three years after the commencement of the Employment Relations Amendment Act
2006. This Act commenced on 14 September 2006.
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8
Stage Two (2012): In 2012, the Department undertook further analysis to improve
its understanding of the on-going relevance and desirability of subparts 1 and 2
and, in particular, to gain a better understanding of their costs and benefits for
affected employers, employees, and industries. This included an independent costbenefit analysis of subparts 1 and 2. This cost-benefit analysis involved interviews
with a range of key stakeholders, including members of the Sector Advisory Group
that contributed to the 2009/10 review, and reference to existing statistical
databases.
9
The review drew on qualitative evidence that included public submissions to the
initial 2009/10 review process and key stakeholder interviews undertaken as part of
the 2012 cost-benefit analysis, and quantitative evidence from existing statistical
databases.
Findings of the policy review of subparts 1 and 2 of Part 6A
Stage One
10
Stage One of the review found that:
a
while Part 6A may appear overly complex and imposes costs on, and reduces
flexibility for employers, on balance the benefits seem to outweigh the costs,
b
Part 6A achieves an appropriate balance between ensuring continuity of
employment protection for the defined set of employees and business
performance and productivity in the affected sectors,
c
despite the concern of some employers, the relevant industries had remained
highly competitive, and
d
there were, nevertheless, significant operational issues impacting on the
affected businesses. The issues were largely concerned with the transfer of
individualised employee information and accrued entitlements at the time of
transfer, and problems with the disclosure of employee cost information prior
to restructuring decisions.
11
The Stage One review work found that most employer submitters would prefer that
Part 6A be repealed and that it is considered, overly complex and inequitable.
Despite these issues, the Review findings also indicated that in practice the policy
works and on balance it is worthwhile. All employee submitters wanted Part 6A
retained (albeit with some improvements).
12
In Stage One it was also found that while Part 6A has been a concern to some
employers, the relevant industries have remained highly competitive. Furthermore,
an appropriate balance of efficiency and equity is achieved through this policy when
compared with alternative approaches, such as enhanced general protections.
13
Larger employers who are dealing with the requirements of Part 6A more
frequently, have found ways to make the provisions work for them. However many
smaller employers, who did not deal with Part 6A frequently, face a greater level of
risk in managing unknown financial liabilities they may incur in the transfer process.
14
Finally the Stage One review process concluded that overall the legislation
contributes to positive social and economic outcomes in New Zealand. These
findings are partly premised on the following:
a
industries with low-skilled and low-paid employees can benefit when wages
and employee conditions are excluded from the contest for contracts and
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competition is instead focused on management, technical innovation and
investment,
15
b
continuity of employment protection in labour-intensive industries with high
employee turnover can improve workplace stability and productivity, and
c
broad socio-economic benefits can be achieved through improving the job
security and workplace stability of employees who lack scarce skills and who
are at risk to unemployment and related negative outcomes.
Qualitative evidence from Stage One on the practical operation of Part 6A provided
insight into how continuity of employment protections have worked in some
industries. In particular, it indicated that Part 6A as it is currently configured has
improved the security and continuity of employment for the identified employees.
Significant operational issues mainly impacting on businesses were identified, but
potential solutions were also identified.
Stage Two – independent cost-benefit analysis
16
The Department subsequently commissioned an independent cost-benefit analysis
(CBA) to gain a better understanding of the economic costs and benefits at the level
of the national economy of subparts 1 and 2 for affected employers, employees,
and industries.
17
The CBA found that subparts 1 and 2 may impose a marginal net cost on the
economy, but the results should be treated with a significant degree of caution, and
should not be interpreted as a definitive “negative result”. This caveat was related
to a paucity of available verifiable data, including data for modelling a key benefit of
the policy, which arises from employment continuity for employees.
18
The analysis also found that both the benefits and costs of subparts 1 and 2 are
small in a national economic sense. However, it also confirmed the finding from
Stage One of the review that the costs Part 6A imposes on employers could be
reduced, while protecting the core benefits it provides to employees.
Findings on the operation of Part 6A
19
A key driver behind this legislation was to prevent the competitive tendering
process from undermining the terms and conditions of employees who were subject
to frequent restructuring and who lacked the bargaining power to necessarily
negotiate favourable outcomes each time their contracts of employment were
renewed. The Review found that Part 6A has addressed this through achieving its
primary objective of providing continuity of employment for employees when an
employer’s business undergoes restructuring and the employee(s)’ work is assigned
to a new employer.
20
Another driver behind the legislation was to assist the smooth transfer and efficient
operation of businesses engaged in regular contracting out. The submission
process in Stage One of the Review provided evidence that some employers
considered that some aspects of Part 6A compromised the smooth operation of
businesses. This was mainly due to a lack of clear responsibility for key aspects of
the transfer process.
21
In particular, currently the liability for accrued employee entitlements, including
annual holidays, alternative holidays and sick leave, is transferred from an outgoing
employer to an incoming employer with no corresponding obligation to transfer
individualised employee information or funds. There was strong support across all
October 2012
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submitter groups to require the outgoing employer to provide individualised
employee information when a transfer occurs and to provide funds that cover the
accrued entitlements, to either the new employer or the transferring employee.
Background
Development of the policy - 2001 minimum standards review
22
The introduction of Part 6A in 2004 followed a Ministerial Advisory Group review of
minimum employment standards in 2001, which reported that some employees
were disadvantaged by the process of contracting out. The minimum standards
review found evidence that employees with limited bargaining power were
susceptible to having their terms and conditions of employment undermined at a
time of restructuring, as employment agreements were terminated at the end of
each contract for service and new agreements were entered into.
Current policy of special protections for some employees (subpart 1 of
Part 6A)
Protecting continuity of employment
23
Subpart 1 of Part 6A provides protection for the continuity of employment for
specified categories of employees if their work is to be performed by another person
as a result of restructuring, including situations where services are contracted out,
subsequent contracting, or sale/transfer situations (s69A).
Removing employee wages and conditions as a basis of competition
24
Part 6A effectively removes elements of business practice (employees’ wages and
other conditions of employment) from the competition or market for services. This
is similar to the effect of employment regulation, which sets out minimum
standards, such as minimum wage and holiday entitlements. This creates an even
playing field for employers so fair employers cannot be undercut by employers who
provide less favourable terms and conditions of employment.
Application to particular employees in particular industries
25
The policy only applies to particular employees in particular industries. This is on
the basis that the employees in these industries are particularly disadvantaged due
to an accumulation of factors. These factors include frequent restructuring in their
sectors, limited bargaining power and concentrations of relatively low-skill
occupations.
26
Schedule 1A of ER Act sets out the employees who are covered by the special
protections. Subpart 1 of Part 6A provides for coverage of employees delivering the
following services in specified sectors, facilities, or places of work (as outlined in
Schedule 1A):
a
cleaning services, food catering services, caretaking, or laundry services for
the education sector,
b
cleaning services, food catering services, orderly services, or laundry
services for the health sector,
c
cleaning services, food catering services, orderly services, or laundry
services in the age-related residential care sector,
d
cleaning services or food catering services in the public service,
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e
f
cleaning services or food catering services in relation to any airport facility or
for the aviation sector, and
cleaning services or food catering services in relation to any other place of
work (within the meaning of the Health and Safety in Employment Act 1992).
Specific rights provided in subpart 1 of Part 6A
27
The categories of employees specified in Schedule 1A:
a
may elect to transfer to a new employer on the same terms and conditions as
applied immediately prior to the transfer—s69I,
b
must be provided with a reasonable opportunity to exercise the right to elect
to transfer, including sufficient information to make an informed decision—
s69G,
c
are free to bargain an alternative arrangement with their employer (for
example to remain with their current employer) following the provision of
information. Any agreed alternative arrangements must then be recorded in
writing—s69H, and
d
have the right to negotiate redundancy arrangements with the new employer
should the new employer subsequently make them redundant for reasons
connected to transfer or circumstances relating to the transfer and if their
employment agreement is silent about redundancy entitlements in such
situations. In the event that negotiation for redundancy fails, employees may
apply to the Employment Relations Authority for an investigation and
determination— s69N and s69N.
Obligations on employers to facilitate transfers (subpart 2 of Part 6A)
28
If requested, an outgoing employer must disclose employee transfer cost
information (in an aggregated form) to a new potential employer in sufficient time
for the information to be taken into account in the tendering process. This includes
the number of employees who have a right to transfer, the wages or salary payable
in a stated period to such employees, the total number of hours such employees
spend in a stated period performing the work, the cost of service-related
entitlements of the employees, and the costs of any other entitlements of the
employees including any entitlements agreed but not due until a future date or
time—s69OB.
Processes for amending the special protections coverage
29
There is a specified process by which the Minister of Labour can add to, omit from,
or vary, the categories set out in Schedule 1A through an Order in Council. The
criteria for inclusion are that the employees are employed in a sector in which
restructuring occurs frequently, the restructuring tends to undermine the
employees’ terms and conditions of employment, and the employees have little
bargaining power (s237A).
Population groups most affected by the special protections
30
Exact numbers of employees and employers affected by subparts 1 and 2 are not
known but estimates were produced by the Department, drawing on data from a
range of sources.
Employers
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31
The Department estimated that as many as 5,500 employers could be affected by
the provisions. This includes between 600 and 700 in catering services,
approximately 3,000 in building and other industrial cleaning services, over 100
hospital employers, from 400 to 500 in other health care services, approximately
400 in other repair and maintenance, and over 600 in laundry and dry-cleaning
services.3
Employees
32
In arriving at an estimate of the numbers of employees potentially affected by
subparts 1 and 2, the Department used Business Demography (BD) employee count
data from Statistics New Zealand for the year ended 2011, and the Linked
Employer-Employee Database (LEED) data for the total number of jobs in the
Building Cleaning, Gardening and Pest Control Services category. From this data, it
is estimated that there are between 26,000 and 29,000 employees who could be
affected by subpart 1, including approximately 20,000 in the cleaning sector,
between 3,000 and 4,000 in caretaking, approximately 800 orderlies, and
approximately 2,500 in laundry.
Gender
33
The 2006 Census indicates that amongst specific occupational classes such as
cleaners and laundry employees, and food preparation assistants, women were the
majority of employees (68 percent and 64 percent respectively).
Ethnicity
34
From the ethnicity data available for specific occupational groups it is estimated that
employees covered by Schedule 1A of ER Act are 62 percent New Zealand
European, 18 percent Māori, 9 percent Pacific, 9 percent Asian, and 10 percent
other categories (Middle Eastern/Latin American/African, and other ethnicity).
Current policy for all other employees (subpart 3 of Part 6A)
35
All other employees, not specified in Schedule 1A, are covered by subpart 3 of Part
6A. This provision applies in restructuring situations resulting from the sale and
transfer of business and contracting out. Subpart 3 does not apply to contract in or
subsequent contracting situations. Furthermore, the provisions are considerably
less prescriptive than those provided in subpart 1.
36
Subpart 3 requires that every collective and individual employment agreement must
contain an employee protection provision. The purpose of such a provision is to
provide protection for the employment of employees affected by a restructuring. An
employee protection provision includes:
3
a
a process that the employer must follow in negotiating with a new employer
about restructuring to the extent that it relates to affected employees,
b
matters relating to the affected employees’ employment that the employer will
negotiate with the new employer, including whether the affected employees
will transfer to the new employer on the same terms and conditions, and
Statistics New Zealand’s Business Statistics 2009
October 2012
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c
37
the process to be followed at the time of the restructuring to determine what
entitlements, if any, are available for employees who do not transfer—s69OI.
Subpart 3 grants the affected employee the right to choose whether or not to
transfer to new employer only if there is an offer of transfer.
The broad legal framework for restructuring and redundancy
38
Restructuring is a natural part of a business life-cycle as a firm grows or shrinks and
responds to changes in market conditions or other demands. It sometimes entails
contracting services out, or in, and can involve making employees redundant.
39
In New Zealand, employment relations matters, including redundancy situations
resulting from the restructuring of workplaces, are mainly regulated by common
law. Common law accepts the right of the employer to determine the structure of
the business and, therefore, to make positions redundant, subject to any
redundancies being genuine and carried out in a fair and reasonable manner.
40
However, while not specifically defined and regulated in the ER Act, restructuring
and redundancy are subject to the general good faith principle set out in the ER Act
(s4). The duty of good faith applies, among other matters, to:
a
a proposal by an employer that might impact on the employer’s employees,
including a proposal to contract out work otherwise done by the employees or
to sell or transfer all or part of the employer’s business—s4(4)(d)
b
making employees redundant—s4(4)(e).
Summary of submissions to the 2009/10 Review
Consultation process and timing
41
The Department sought advice from a Sector Advisory Group on the terms of
reference for the Review, the content of a public discussion paper, the consultation
process and the analysis and findings of the Review set out in this report. The
composition of the Sector Advisory Group and related processes is described in the
terms of reference (Appendix A).
42
The Department also sought submissions on the Review of Part 6A from employers,
employees, their representative organisations, interested members of the public,
government agencies and Department staff with operational experience of Part 6A.
43
On 15 February 2010, the Department released the discussion paper which set out
key questions for the review of Part 6A and provided a consultation form to guide
submissions.
Numbers and make up of submissions
44
146 submissions were received including:

8 employee representative bodies,

94 individual employees (mainly directly affected by subpart 1 of Part 6A),

12 employer representative bodies,

18 individual employers, including 10 large and 4 small enterprises,

7 legal services groups, including law firms and community law centres, and
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9

7 other types of groups, including healthcare providers, franchise owners, nonprofit associations, the National Advisory Council on the Employment of
Women and contract principals.
Broad directions for change suggested by submitters
45
As indicated in Figure 1 the submissions broadly fell into two groups regarding
directions for change:
a Repeal: 29 submitters (employers, employer organisations and some legal
services organisations) expressed a preference for subparts 1 and 2 of Part 6A to
be repealed. Most of these submitters also suggested options for improving the
operation Part 6A in the event that it is retained.
b Retain: 113 submitters (employees, employee organisations, and a few
employers and legal services organisations) expressed a preference for the
whole of Part 6A to be retained and/or improved. These included two
submissions that proposed extending the coverage of Subpart 1 to other
categories of employees.
46
A few outlying submissions suggested alternative options, such as expanding
special protections to all employees or restricting them to large employers. Of the
submitters that recommend repealing Part 6A, some also proposed alternative
approaches for protecting disadvantaged employees, for example strengthening the
good faith provisions in section 4 of the ER Act.
Figure 1: Directions for change provided by the submissions
b) Retain Part 6A
a) Repeal Part 6A
113 submitters
mainly employee
groups, some
Common areas
employers, legal
of concern
services and others
such as health
E.g. lack of awareness of Part 6A by
groups
small businesses and noncompliance with transfer of
entitlements
29 submitters
mainly employer
groups and legal
services
Improve Part 6A
Mainly suggested by
employer and employee
groups directly impacted
by Part 6A
Key areas of concern and for improving the operation of Part 6A
47
As also depicted in Figure 1 there was overlap across all submissions on specific
areas of concern and related areas for improvement. Submitters with direct
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10
experience of Part 6A in operation, whether for or against repeal, tended to identify
options for improving Part 6A. Other submitters tended to provide more theoretical
perspectives about whether the policy is effective and should be retained without
much reference to how it has been working in practice over the previous six years.
Review of the policy of subpart 1 of Part 6A
Summary: Submissions to the 2009/10 review that supported repeal asserted at least one of
the following viewpoints as to why subpart 1 of Part 6A constitutes the wrong policy approach:

it is a poorly designed law because it is overly complex, too tightly targeted
(inequitable with respect to other groups of employees), and there are better ways
to address issues of disadvantage (e.g. universal minimum standards)

it has negative impacts on competition, productivity and innovation and causes more
problems than it solves (e.g. it may reduce employment and increase the likelihood
of some employees staying in low-paid low-skilled work)

it is not desirable as there is no relative disadvantage for the specified groups
compared to other groups in a restructuring situation.
Submissions that supported retention emphasised at least one of the following viewpoints as to
why subpart 1 and 2 of Part 6A comprise the right policy approach:

it is a well-considered law arising from an extensive review process and international
precedent and it effectively targets protection for employees most at risk of
contracting practices being a vehicle for undermining terms and conditions

has positive impacts on continuity of employment and related security and health for
at-risk and low-paid workers and their families and wider community

improves workplace stability and related productivity and prevents employees’
entitlements becoming a basis for business competition.
A 2012 cost-benefit analysis that attempted to quantify the costs and benefits of Part 6A to
affected employers and employees found that both the benefits and costs of Part 6A are very
small in a national economic sense. It also found that the costs to employers could nevertheless
be reduced.
Overall, the review has found that although this legislation seems overly complex and imposes
costs on, and reduces flexibility for, some employers, the benefits of having special continuity of
employment protections for certain workers outweigh these costs.
It appears from the available evidence that an appropriate balance of efficiency and equity is
achieved through this legislation when compared with alternative approaches.
Stage One: 2009/10 submitters views on the policy of subpart 1 of Part
6A
Views on the need for some special protection of continuity of employment
Some submissions indicated that they did not consider there is any disadvantage for the
specified employees
48
Building Services Contractors of New Zealand Inc (BSCNZ) stated that their
“members do not believe workers in the groups defined under Schedule 1A
experience any more of a disadvantage during restructuring than does any other
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11
sector of the workforce. BSCNZ employers have provided many examples of
employees who, although defined as ‘vulnerable’ in the legislation, have the
necessary protections in both collective and individual employment agreements to
ensure they receive substantial salaries, entitlements and redundancy
compensation.”
49
50
In a similar vein many employers and some legal services, noted that:
a
affected employees can negotiate for their jobs like other employees,
b
it is mainly poorly performing employees that are not transferred,
c
it is entirely unfair that one group of employees has greater protection than
others solely on the basis of their trade, and
d
many other employee groups are equally vulnerable, for example, other low
paid employees such as retail workers.
Some employer and legal services submitters that did recognise some level of
disadvantage for some employees did not, however, consider the trade-offs with
viability and efficiency justified special protections. These views are discussed later
in relation to submitters’ views on the impact of Part 6A.
Many submissions focussed on the disadvantage experienced by some employees
51
52
In contrast to most employer submissions, employees, employee representatives
and some employers and legal services asserted that there was, and continues to
be, disadvantage for employees in restructuring situations involving contracting out
or the sale and transfer of business. This is because:
a
employees are not able to influence whether contracting out or the sale or
transfer of a business should occur, but following such a decision the
consequential change in the legal identity of an employer might mean that
their existing employment relationship ceased, and
b
employees could be forced to agree to a reduction in their terms and
conditions in order to secure on-going employment in the same job, albeit with
a new employer.
Amongst these submitters many felt it was very important that there is special
protection for particularly disadvantaged employees because:
a
many of the specified employees are on low wages and particularly vulnerable
to loss of any income,
b
this issue affects a great deal of Māori and Pacific employees and removing
Part 6A protections would create further disparities in these communities,
c
before Part 6A was introduced many employees’ wages and conditions were
driven down,
d
stress is placed on employees if job security is subject to arbitrary commercial
contracting practices beyond employees’ control and this creates health issues
for employees and their communities,
e
many of the affected employees have little bargaining power as the work is
low skilled and often spread across many employers in separate workplaces,
and
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f
the practice of contracting out continues to be common place in the targeted
sectors.
Range of views on categories of employees that should have special protection
53
Those submitters who did see a disadvantage for employees and a need for special
treatment, held various views about who should be covered. These included:
a
many employee submitters who indicated they thought the current coverage
was appropriate because it had been working well so far,
b
some submitters who felt the provisions should be expanded for all employees
as the change of the legal identity of the employer should not ever impact on
the employees’ terms and conditions,
c
some submitters who suggested additional groups should be added to the
current group, in particular two that recommended health care assistants
should be included, and
d
some submitters who felt that the current description should be tightened and
clarified to ensure only vulnerable employees were covered, for example by
placing a pay threshold on who was covered. (This was also noted in the
review of the operation of Part 6A.)
Views on the impact of the policy to protect continuity of employment
The objective of protecting continuity of employment for specified employees is generally
achieved
54
Most submissions from individuals and organisations affected by subpart 1 and 2 of
Part 6A confirmed that the objective of protecting the continuity of employment for
some employees has been achieved, the various technical and awareness issues
identified in the operational review notwithstanding.
55
Employees have been transferred in the event of restructuring, including employees
who the principal would have preferred to have removed. Part 6A as it is currently
configured does appear to have improved the security and continuity of
employment for the identified employees.
Some submitters also identified positive impacts from the policy for employers
56
Positive impacts identified by submitters for employers, included:
a
a new contract comes with staff, although the calibre of the staff might be an
issue especially if the contract was lost on service, and the need for training is
reduced,
b
a business cannot easily be undercut by another business on the basis of low
wages, and
c
the exclusion of employee terms and conditions as an element in the
competition for contracts between employers, thus ensuring that improved
management practices and other productivity innovations become the focus
for achieving a competitive edge.
Some submitters saw a negative impact on employers and the viability and efficiency of
the market
57
Some submitters felt that the policy had made it difficult to engage in some
markets and stymied innovation and change because businesses:
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13
a
have to take on badly performing staff and protected rights do not incentivise
more efficient practices,
b
have the administrative burden of understanding and complying with a
complex and tightly targeted law and this may put some businesses off
exploring potential business opportunities,
c
are not able to institute technological and structural changes so swiftly
because of having to undergo a redundancy process. BSCNZ noted that “the
requirement to transfer all terms and conditions means that the incoming
contractor is restricted in making improvements or doing anything innovative
that will reduce or modify hours of the transferring employees. Any incoming
employer can pay no less than their predecessor when it comes to transferring
employees. Time saving machines, cleaning equipment and processes, or any
other innovations that make the cleaning more effective and efficient are
difficult if not impossible to implement. The transferring employee must
continue to be paid their current terms, which includes their hours of
employment. If the new employer can reduce the number of hours spent on
the job by using a time saving product or device he is still obliged to pay the
employee for the number of hours they spent on the job for the previous
employer.”
Some submitters saw a negative impact on employees
58
Detrimental impacts on employees identified by some submitters included the
potential for:
a
there to be fewer jobs available for the specified group of employees, as some
companies cannot afford to operate in this environment,
b
missed opportunities for employees to benefit from improved productivity
through new operators and new technologies, such as improved skills, better
conditions of employment and more employment, and
c
employees to become trapped in low skilled jobs rather than moving on.
Alternative approaches
59
Most submitters did not provide alternatives to the provision of special protections
for some employees. They felt special protection was either necessary or it was
not. However, a few submitters did propose a different approach. These included:
a
one submitter who suggested New Zealand should adopt an approach closer to
the regulation in the United Kingdom (Transfer of Undertakings (Protection of
Employment) Regulations (TUPE)). More specifically, this meant that the
category of vulnerable employees should be described rather than prescribed.
This allows a much wider but more equitable approach to the protections,
b
a few submitters who indicated that strengthening the provisions of subpart 3
of Part 6A and/or section 4 of the ER Act would be more equitable and ensure
all employees were provided with protection,
c
one submitter who suggested funding of advocacy for low-wage employees
would be effective at meeting the needs of more disadvantaged employees,
and
d
several submitters who also suggested bringing back an awards system to
address issues of disadvantage.
October 2012
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Discussion and analysis
The impact of Part 6A on targeted industries
60
When Part 6A was passed in 2004 the intention was that its implementation would
occur alongside industry culture and business practice development of more
sustainable, higher quality and fairer sectors.
61
At least some parts of the sectors affected by subparts 1 and 2 of Part 6A appear to
have evolved practices to accommodate Part 6A, particularly larger employers.
These practices include systems and agreements to obtain relevant information
through commercial arrangements and factoring additional costs arising from
accrued entitlements into tender processes, for example as outlined in the Building
Services Industry ‘Code of Practice’.
62
Further evidence of improved cooperation in some parts of the industry is provided
by the set of principles agreed to by the Property Council, Building Service
Contractors, Service and Food Workers Union and the Government.
63
There is no evidence that affected businesses have failed solely due to the
provisions of Part 6A. Rather there are indications of growth in the relevant
sectors, although this is unlikely to be attributable to the introduction of Part 6A.
There is also every indication that the relevant industries have maintained a highly
competitive ethos.
64
BSCNZ noted that prior to the enactment of Part 6A there was a level of selfregulation, and agreements were being developed with the union to address issues
related to transferring employees. BSCNZ suggested that if Part 6A had not been
introduced, fair practices that promote continuity of employment would have
evolved anyway.
Grounds for repeal
65
Submitters provided two distinct grounds for repealing Part 6A. These are dealt
with separately in the following discussion as they rely on different assumptions and
have different implications. In essence the two grounds are:
a
Part 6A is poorly designed: while there may be a need to provide some
protection of continuity of employment for some employees, Part 6A is the
wrong policy approach for achieving this and there are alternatives that have
fewer negative impacts. This set of arguments focuses on the idea that the
legislation is overly complex, too tightly targeted and inequitable with respect
to other groups of employees, and there may be better ways to address issues
of disadvantage, for example, universal minimum standards.
b
Part 6A is unnecessary: there is no need to provide protection of continuity of
employment for some employees. This is based on the idea that there is no
significant disadvantage compared to other employees, or, if there is a
disadvantage, it does not outweigh other considerations. This set of
arguments focuses on the idea that all employees should be treated equally
and that the negative impacts of Part 6A on competition, productivity and
October 2012
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innovation mean the legislation may cause more problems than it solves. For
example, it may reduce employment and increase the likelihood of some
employees staying indefinitely in low-paid and low-skilled work.
Part 6A is poorly designed
Theory versus practice
66
On the face of it this legislation seems overly complex, too tightly targeted and
inequitable. However, in practice Part 6A seems to have achieved its stated
objectives of protecting the continuity of employment for specified groups of
employees.
67
Moreover, while Part 6A may be problematic for many employers in the affected
industries, the relevant businesses do not appear to have been significantly
adversely impacted. In general, businesses appear to have managed and adapted
to the introduction of Part 6A. This may be because demand for the relevant
services is relatively inelastic and therefore relatively insensitive to price. This
would mean any resultant additional costs due to the requirements of Part 6A could
be factored into tenders and contracts and fall back on the contract principals.
Alternative ways of protecting employees affected by restructuring situations
68
69
Theoretically, legislative alternatives to Part 6A could be more straightforward and
equitable, for example, by providing:
a
a broader more equitable protection for ‘vulnerable employees’ through
describing rather than prescribing who the provisions apply to, and
b
universal but reduced protection, such as minimum redundancy entitlements.
However, these options are likely to impact on more businesses and result in more
litigation to test who is covered. These options may also be less effective for the
employees currently targeted. In short, these alternatives might apply to a wider
range of businesses, but they could increase levels of uncertainty, compliance costs
and have less practical benefit for individual employees. In other words, this
approach could increase the costs to employers at the same time as it reduces the
benefits to employees.
Is there a relative disadvantage to address and is the policy relevant?
70
The following discussion outlines various assumptions and tensions related to the
transfer or sale of businesses and contracting-out practices. It then draws on these
assumptions to consider the relevance and desirability of special protections for
some employees, and whether there is relative disadvantage for these employees.
Assumptions regarding the practice of sale, transfer or contracting out of business
a
The practice is more prevalent or frequent in some service sectors than others.
b
The practice allows for change, growth, retraction and innovation within
service provision.
c
Competition is a fundamental element of making this practice and the related
market for services effective.
d
The practice inherently disadvantages all employees at the time of transfer as
it renders the existing employment agreement null and void.
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e
Protection of continuity of employment takes an element of the business
(employees and their terms and conditions) outside of the competition for
contracts.
Tensions or trade-offs at the business level
71
Taking employees’ terms and conditions outside of the competition for contracts
may constrain opportunities for business growth and innovation. It is critical,
therefore, to ensure these constraints arise only for good reason. Long-term
sustainability considerations and overall consistency with New Zealand’s broad
economic and social goals are important factors that should be taken account of in
any assessment of whether the constraints on businesses are there for a good
reason.
72
Part 6A may reduce opportunities for innovation. However, it may also help to
focus competition on performance of the business as a whole, rather than on
employees’ wages. A key question to be considered in assessing the need for
removing employees’ terms and conditions as a basis for competition in different
sectors is, therefore, whether it is likely that this will result in unsustainable levels
of downwards pressure on employees’ terms and conditions of employment. The
answer to this question depends on the type of industry, and the characteristics of
the workforce under discussion. For example, businesses that are competing with
one another for highly skilled employees, will be unlikely to be able to drive down
the price of labour as major source of competitive advantage, and are unlikely to
need regulating to ensure minimum conditions of employment, including wage
rates, are maintained.
73
Alternatively, in industries where employees are not highly skilled or necessarily in
short supply, the market for labour will drive the price down and may also
contribute to high levels of employment instability. Setting limits on the extent of
this downwards pressure on the price of labour may be necessary for ensuring
businesses compete with one another on a sustainable basis, that emphasises the
skills of management to get the best from their employees and the technology
adopted, rather than on increasingly low levels of pay for low-paid employees.
74
The trade-offs between facilitation of competition among businesses and swift
innovation on one hand, and the protection of employees’ conditions of employment
(and stability of employment) on the other hand, are therefore different in different
industries. The level of contracting out, the kinds of employees (for example levels
of required skill and pay) and the nature of the business all affect how these tradeoffs can best be managed.
Tensions or trade-offs at the socio-economic level
75
It may also be desirable from a business perspective for the competition in some
industries to be based on the terms and conditions of employees. However, this will
have its limits, especially when the wider social and economic environment is taken
into consideration along with broader, long-term economic impacts.
76
There are some categories of employees that are working in industries that are
more likely to undergo restructuring, resulting in sale, transfer or contracting out of
a business. These employees may also be more vulnerable to unemployment and
its related social and economic impacts, with negative impacts on affected
communities.
October 2012
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77
The overall economic costs of these negative outcomes may well outweigh the
benefits from increased competition in particular industries.
Further cost-benefit analysis
78
To gain a better understanding of the costs and benefits of subparts 1 and 2 for
affected employers, employees, and industries, the Department commissioned an
external cost-benefit analysis (CBA) as part of the review of Part 6A. This CBA was
completed in May 2012. Using data gained from interviews with key stakeholders,
and from available statistical datasets, the CBA attempted to quantify, from a
national economic perspective, the benefits and costs of subparts 1 and 2,
including:
a
consequential value employees are likely to receive from the protection of
employment, wages, leave entitlements and hours at the time of contract
transfer and rights to possible redundancy afterwards, minus the cost of these
to employers,
b
administration and transaction benefits and costs associated with the transfer
process minus what would have been incurred in the absence of the
provisions,
c
uncertainty around the transfer process and costs for employers, and
d
longer-term efficiency costs created by perverse incentives when employers
and employees do not face the full cost of their decisions and employers have
less flexibility in their hiring practices.
79
The CBA modelled these benefits and costs under three scenarios - low, medium,
and high.4 The high (optimistic) scenario assumed high benefits and low costs, the
low scenario low benefits and high costs, and the medium scenario effectively
reflected the midpoint for costs and benefits.
80
The CBA found that subparts 1 and 2 impose a marginal net cost on the economy
under the low and medium scenarios. Table B below sets out estimates of the
benefits, costs, and benefit-cost ratios over a seven-year period under the CBA’s
high, medium, and low scenarios.
Table B: Cost benefit scenarios
Summary results
(over seven years)
Scenario
High
Medium
Low
Total benefits
$2.420m
$1.253m
$0.533m
Total costs
$2.378m
$2.695m
$3.171m
4
The interviews included most members of the SAG that provided input into the 2009/10 review.
The statistical sources included Statistics New Zealand’s Household Labour Force Survey, Linked
Employer-Employee Database, Quarterly Employment Survey, and Labour Cost Index.
October 2012
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Summary results
(over seven years)
Net benefits
Benefit-cost ratio
Scenario
$0.042m
1.02
-
$1.442m
0.46
-
$2.638m
0.17
81
The results should be treated with a significant degree of caution, however, and
should not be interpreted as a definitive “negative result”. This is due to a paucity
of available, verifiable data, especially data that would allow for an effective
modelling of the benefits to employees.
82
As the table above shows, the CBA found that both the benefits and costs of Part 6A
are very small in a national economic sense. It also found that the costs to
employers could nevertheless be reduced.
Conclusions of the policy review
83
For some categories of employees in some industries, there is a convergence of
susceptibility to unemployment and negative socio-economic outcomes alongside
risks of restructuring and either redundancy or reduction of terms and conditions of
employment. In these cases there is a trade-off to be made between efficiency and
competition in the particular industries and employment protections for particular
employees. This is the primary reason why New Zealand and other countries
provide protective minimum standards in employment and international instruments
reinforce the need for these.
84
The current policy of Part 6A provides a targeted protection. It is intended to
manage the potential for disadvantage to employees arising from the renewal of
employment agreements during restructuring through contracting out, contracting
in, subsequent contracting or the sale or transfer of a business, while at the same
time retaining the viability and efficiency of the market. Designing such legislation is
a difficult task as there are always trade-offs and it is difficult to predict how well
they will be balanced in different contexts, given the number of variables involved.
85
At the Select Committee stage in the development of the current law, it was
predicted that it would be ignored, prove unworkable and result in litigation.
However, the legislation has been in place for eight years and its impact on
businesses and employees is no longer a matter for conjecture but rather
something that can be assessed in the light of experience.
86
The findings of the Review indicate that, this legislation seems to be reasonably
effective in meeting its objectives of protecting specified groups of employees and
does not seem to have created many adverse outcomes. Most of the issues
identified by employers and employees may be addressed through improvements to
the operation of Part 6A, particularly around the transfer of entitlements and
disclosure of information, rather than changing the policy itself.
87
The Ministry of Business, Innovation and Employment (MBIE) is not able to so easily
examine the impact of changes to the coverage of the existing policy or the impact
of alternative approaches. This is because MBIE would be speculating on how the
various trade-offs would impact on various industries. However, MBIE can look at
other jurisdictions for a sense of how some other approaches might work.
October 2012
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88
Overall, the Review has found that on balance the benefits of Part 6A are likely to
outweigh its costs. While the results for the CBA varied, it had found that both the
benefits and costs are small in a national economic sense.
89
Given that the status quo is relatively stable, and given the balance of findings and
arguments in the Review, it seems the best way forward is to maintain the current
policy with improvements to its operation to reduce its costs and provide much
more certainty for employer, while protecting the core benefits it provides to
employees (as detailed below).
Review of the operation of Part 6A
Knowledge and awareness of the Part 6A
Summary: There appears to be a lack of knowledge of the provisions of Part 6A amongst
smaller employers and their employees when they are not affiliated with any associations or
related bodies. Submitters generally agreed that this issue can create unfair and negative
outcomes for all parties.
Submitters’ views on knowledge of Part 6A provisions
Submitters noted poor knowledge of Part 6A beyond those actively engaged in transfer
processes and many called for improved information provision.
90
Submissions indicated that awareness of Part 6A is greatest where the provisions
directly impact on the business. Several submissions also noted better knowledge
where firms are large, connected with employer associations, and where the
employees tend to be represented by unions.
91
While many submitters, including employers and employees, called for better
education, particularly for small businesses, the Building Service Contractors of New
Zealand (BSCNZ), Service and Food Workers Union Nga Ringa Tota (SFWU) and
some other organisations outlined extensive work they had undertaken to ensure
their constituencies were equipped with the information and tools to manage the
transfer process. However, the BSCNZ also noted there were a large number of
employers who are not represented by their association “who simply choose to
ignore the law.”
92
Submitters who identified a lack of awareness expressed concern at the
consequences of this. Three problem situations were highlighted. These are where:
93
a
the principal reacts negatively to an incoming contractor retaining staff from
the outgoing contract,
b
an in-coming contractor resists employing transferred staff, and
c
an outgoing employer resists providing necessary information to the incoming
employer.
Submitters identified two key reasons for the lack of awareness:
a
the impractical and complex nature of the current provisions, making it
difficult to understand and comply
b
a lack of available resources for transmitting information.
Several suggestions were made for enhancing awareness.
October 2012
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94
The range of approaches recommended included:
a
development of a code of practice,
b
dissemination of information through existing MBIE channels in a range of
languages appropriate to the sector,
c
dissemination of information by MBIE, targeting small businesses in particular
through umbrella organisations, professionals involved in the purchase and
sale of businesses, financial institutions, industry bodies, unions, and employer
groups, and
d
using Employment Relations Education Leave (ERE) and related funding as a
mechanism for training groups by employee and employer organisations.
Discussion and analysis
Key issues

Many small businesses and contract principals are unaware of Part 6A.

Part 6A is complex and difficult to understand for affected parties.
95
There is general agreement across submitters from all perspectives that lack of
knowledge by key parties to a transfer situation, whether it be on the part of the
principal, outgoing employer or incoming employer, can create unfair and negative
outcomes for all parties. Further, the lack of clarity around the operation of some
provisions is seen to act as an incentive for some parties to ignore them.
96
It is clear that the complexity of the law does not always lend itself to an intuitive
understanding of the provisions by affected parties. As a result standard provision
of information is insufficient. Improving knowledge and awareness could help
improve the operation of Part 6A in all the areas of concern.
97
Clearer guidance material, such as a code, on the application of the law may go
some way to addressing concerns that the complexity of the legislation acts as a
disincentive to compliance. Clearer (perhaps more prescriptive) obligations around
some provisions may also prove to be an effective way of improving both
knowledge and related compliance.
Conclusions on improving knowledge and awareness
98
Overall, improved knowledge and awareness, and related compliance, will support a
more even playing field in the highly competitive markets targeted by this
legislation.
October 2012
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The transfer of accrued entitlements
Summary: Considerable confusion and dissatisfaction around the transfer of accrued
entitlements is evident. Submitters generally agree that uncertainty around the provision of
employee cost information and lack of obligations on the outgoing employer to provide
individualised employee information or to transfer funds creates difficulties. These include
failures to adequately take liabilities into account in tenders and disincentives to outgoing
employers to transfer funds. An area of particular confusion is where there are partial transfers.
There is a shared interest in ensuring that the ownership of all liabilities is clearer and
enforceable. Options for achieving this involve determining responsibility for liabilities in the
legislation and simplifying the management of entitlements, including in situations of partial
transfer.
Submitters’ views on the transfer of accrued entitlements
Submitters generally advocated change to the current provisions on the transfer of
entitlements on the basis that the legislation is confusing and impractical.
99
Submissions favoured greater clarity for parties around entitlements with legal
recourse for non-compliance. Most submitters noted the issues in this area citing
disputes over entitlements between outgoing and incoming contractors and
between employers and employees. Submissions commonly referred to a
reluctance of outgoing contractors to provide information relating to the cost of
entitlements once they had forfeited the contract, impeding the transfer of
entitlements.
100 Some employers considered the current provisions impractical in terms of achieving
fair and accurate calculations in a sector characterised by non-standard
employment. Examples of this included:
a
irregular hours worked by many employees in the relevant sectors make
assessment of the portion of leave entitlements difficult in situations of a
partial transfer,
b
entitlements assessed at the point of transfer may increase for the new
employer following the transfer as a result of in-built, and undisclosed,
increases in benefits contained within employment agreements,
c
the assessment of sick leave was described as often “a pure guess” and
resolving disputes became the responsibility of the incoming employer, instead
of the outgoing employer, and
d
funds to cover entitlements were often not transferred in time to be utilised by
employees as soon as the new contract commenced.
There were opposing views on whether employees should be paid out at the point of
transfer as opposed to transferring funds to the employer.
101 Most submitters shared an interest in ensuring that the ownership of the liabilities
was at all times clear and enforceable. However, views varied on how this should
occur. Most employers favoured the cashing up of entitlements at the end of
employment. Large employers, in particular, expressed concern at the possibility of
an outgoing employer defaulting on payments which could be substantial and put
the survival of an incoming firm at risk.
October 2012
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102 However, Business New Zealand also expressed concern at the risks to firms,
especially small to medium sized enterprises, from the requirement to have liquidity
commensurate with obligations at the point of transfer. Some of the risks identified
in the submissions from employers included:
a
dealing with insolvent clients or companies where employees’ entitlements are
being extracted from an insolvent company or paid into an insolvent company,
b
costs associated with employees who are transferred without the required
funds to cover service-related benefits, such as leave, and
c
compliance costs associated with administering the transfer of liabilities,
including the checking and re-checking of entitlements.
103 Employees, their representative organisations and some small firms and lawyers
preferred a legislative provision for the transfer of entitlements. Most employee
representative organisations defined this as a supplement to current law that would
place obligations on both the outgoing employer to disclose the full entitlements,
and on the incoming employer to recognise the value of those entitlements. One
large law firm suggested that a letter of demand for entitlements could be served
on the outgoing employer, supplemented by an order for payment from the
Employment Relations Authority and backed by recovery in the Courts. One
employers’ organisation proposed a process by which the incoming contractor
confirmed the status of entitlements and was then indemnified for the value of
those entitlements.
104 Views were divided across all submitter groups about whether there should be a
choice for parties about how entitlements were resolved. Most employee
organisations said that choice around this issue would undermine the purpose of the
legislation, which was to ensure continuity of employment. Some organisations
said that the inferior bargaining power of the affected employees would compromise
any statutory right to choose, while health organisations were concerned at the
impact of paying out entitlements on the health of low paid employees who forfeited
rights to statutory leave. Large employers and their representative organisations
generally supported choice for both employers and employees. Some expressed
confidence that, given the choice, most employees would cash up their
entitlements.
Many submitters were untroubled by partial transfer situations.
105 Partial transfers are common in some of the sectors covered by Schedule 1A, such
as commercial cleaning. Employees, representative organisations and small
organisations were satisfied with the operation of Part 6A in partial transfer
situations, although the SFWU recommended exemption from secondary tax for
employees affected by partial transfer situations.
Employers were concerned about the fairness and practicality of partial transfers.
106 Submissions highlighted areas employers found impractical, including benefits that
were no longer relevant to a partial transfer situation, such as the use of a van to
travel to multiple sites. In the case of statutory leave, a submitter questioned how
a public holiday entitlement would be allocated when work was spread across more
than one site, and also how sick leave entitlements would be apportioned.
107 Some employers said they had difficulty calculating annual leave entitlements
where employees hold more than one job. One said they had faced problems with
October 2012
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the allocation of accrued public holidays: “If they only worked on one of the sites on
a public holiday for 2 hours [their normal hours of work] and were given the public
holiday off for the other two sites, how would the alternative day apply and be
transferred and what alternative day would be transferred?”
108 Legal firms and employers recommended that the way in which leave is calculated
for the purposes of partial transfers, should be addressed at least.
There was general support for legislative obligations around the management of
transferred and accrued entitlements.
109 Some employers commented on the potential for outgoing employers to operate
dishonestly, for example by exaggerating transferring staff entitlements to sick
leave to punish the contractor who has won the tender. The range of options
canvassed for improving the fairness and management of liabilities included
providing for:
a
paying out of statutory entitlements (with or without the transfer of sick
leave),
b
mandatory transfer of entitlements, with legal recourse for the incoming
contractor and penalties for the outgoing contractor in the event of noncompliance,
c
an obligation on the outgoing employer to confirm the status of entitlements
at the point of transfer, and on the incoming contractor to recognise the value
of the entitlements,
d
a choice of paying out entitlements, or transferring the liabilities, with the
choice resting variously with the employee or the employer,
e
timeframes for disclosure of costs and transfer of funds,
f
access to Department services to help determine and enforce entitlements,
and
g
indemnification of the incoming employer or employees against loss.
Discussion and analysis
Key issue

Failure to obligate outgoing employers to meet the cost of annual holiday and
alternative holiday entitlements accrued under their employment.
110 This area appears to create the most significant issues and dissatisfaction with the
operation of Part 6A, from all perspectives. This indicates a failure of the current
policy intention, which is that the transfer of accrued entitlements would be
considered during the commercial negotiations and allow for a greater degree of
flexibility for the parties involved.
111 There is considerable confusion around the fact that there is currently no statutory
obligation for an outgoing employer to transfer funds to the new employer to meet
the costs of employees' accrued entitlements, such as annual holidays and
alternative holidays. It is important to recognise that holiday pay cannot be paid
out to employees prior to the transfer, so the incoming employer must take this into
account in the contract negotiations.
112 Although not part of the policy intent, the current legislation has inadvertently
created a situation where outgoing employers can neglect their obligations to
October 2012
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employees around accrued entitlements. There was strong support across all
submitter groups for rectifying this situation, so that the ownership of these
liabilities sits with the business where the entitlements were accrued, and where the
funds for such liabilities should have been routinely earmarked as non-contingent
liabilities.
113 Some practical issues were raised by submitters on this but these may have been
overstated. For example, there were lengthy descriptions by some submitters of
difficulties for an outgoing employer attempting to determine the amount of funding
they were required to transfer. It is clear, however, that most of these issues
would exist whether there was protection for continuity of employment or not. If a
contract changes, and an employer ceases to have an employment agreement with
an employee, the outgoing employer is required to determine the entitlements and
pay them to someone, whether it be to the employee or to a new employer.
114 Also the partial transfer scenario was raised. This can complicate the transfer of
entitlements but the Holidays Act 2003 (s17) allows for arrangements around
holiday entitlements to be made by negotiation or through a Labour Inspector
determination.
115 In any event, it does appear that adequate transfer of funds is not always
happening. This may be because of practical issues, or because Part 6A does not
require the transfer of employee entitlements between employers. It may also be
because there are minimal incentives on outgoing employers to transfer funds.
Furthermore, the evidence from employers managing the calculation and transfer of
entitlements in these situations indicated that the lack of prescription in legislation
does cause significant confusion and the risk of disputes.
116 While not unanimous, the general consensus appears to be that there should be
legislative amendments to ensure the ownership of all liabilities is clear and
enforceable. Achieving this would necessarily reduce flexibility about how the
accrued entitlements should be managed. However, this may be justifiable if the
amendment is effective in aiming to minimise the cost of disputes, ensure
employees access their entitlements and eliminate anti-competitive practices of
firms that take advantage of the lack of specificity in the current law.
Conclusions regarding improving the transfer of funds to cover accrued
entitlements to the new employer
117 It is clear there is a need to better clarify responsibility for service-related
entitlements of transferring employees in the legislation. This is a more prescriptive
approach but will simplify the management of entitlements for all parties. The
trade-off for reduced flexibility in the contract negotiation process will be increased
certainty about what will happen, enabling costs to more clearly and fairly be taken
into account in tenders and contract negotiations. There is also a trade-off to be
made between the continuity of employment outcomes and efficiency, fairness and
practicability for employers.
October 2012
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The provision of employee cost information
Summary: There was general support for greater certainty, transparency and timeliness in the
information provision at the point of transfer. However, many employer submitters objected to the
requirement to disclose information at the pre-tender stage. Submitters cited commercial sensitivity
as grounds for current non-compliance.
The current policy relies on the provision of employee cost information to inform the tender process
and related negotiations. The quality and timeliness of this information is fundamental to the
fairness and effectiveness of the process, so that the costs can be properly considered during the
commercial negotiations. This is because there is no current requirement for outgoing employers to
pay funds to cover accrued entitlements, either to the employee or the incoming employer, and also
no requirement to provide individualised employee information at the point of transfer. If these two
matters were to be addressed as suggested in the previous section, then the need for pre-tender
information is reduced.
However, while subpart 2 is a concern to some employers, it reduces the risk to businesses (and
transferring employees) of “tendering blind” without good information on the costs and liabilities
they will be taking on. This can include the risk of transferring employees being made redundant or
at least of reducing their terms and conditions, because the incoming employer is unable to meet
the higher-than-expected costs associated with these employees within the price negotiated for the
work.
Subpart 2 also reduces the risk of situations where an outgoing employer increases the pay rates of
transferring employees just before restructuring takes effect.
Submitters’ views on the provision of employee cost information
There are two separate areas of concern around the provision of cost information.
118 Views varied significantly around the best approach for ensuring the provision of:
a
meaningful information in sufficient time to be taken into account in the tender
process, and
b
accurate information for the implementation of the new contract after the new
tender is awarded.
Submitters noted that the required provision of information at the time of tendering was
not always forthcoming.
119 Compliance with current obligations was presented as challenging by employer
submitters. Large employers highlighted problems for outgoing contractors
associated with pre-tender information requests. They also noted issues for
prospective employers associated with the receipt of timely information for the
purposes of submitting a tender. OCS Limited, for instance, indicated that creating
aggregate data of individualised information was time consuming, with responses to
most requests for information taking longer than a month. Given the tight tender
timeframes, this could compromise compliance with the information request
provisions. Some employers also commented on situations where resistant
outgoing employers purposefully delayed information and jeopardised a smooth
transfer or sale process.
120 The nature of the commercial transactions in the relevant sectors underpinned
much of the employer concern about the practicality of information transfer. One
large employer said the timeframes for a contract change were tight and due
October 2012
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diligence did not take place in the target sectors. Employers generally advocated
that the “normal” contractual processes should apply, without reference to
employee obligations associated with continuity of employment. Business New
Zealand for example, was opposed to obligations being imposed on employers over
and above the requirements of normal commercial practice.
121 Conversely, employee representatives, small organisations and some law firms
advocated greater transparency. It was noted that employers should have
information readily available on all entitlements in the event of any contract
change, whether the employees transfer or not, and that the claims in relation to
compliance costs were therefore “unnecessarily, and unfairly emphasised”.
Opposing views were expressed about whether employee cost information is
commercially sensitive.
122 A number of employers and legal services maintained that employee cost
information is commercially sensitive and should not have to be disclosed to
competitors. One employer representative organisation noted that there was a
“gentleman’s agreement” not to request cost information because it was anticompetitive, but this applied only to the larger firms.
123 Business New Zealand noted that “the requirement to provide financial information
is at odds with the normal process involved in a commercial sale or contract, which
depends on the purchaser undertaking due diligence and seeking to satisfy
themselves that all is in order. Subpart 2 of Part 6A creates obligations over and
above normal commercial practice…Nowhere in commercial law is there a
requirement that an existing holder of a contract provide information to someone
where that information may result in the loss of the contract. The requirement to
provide information in subpart 2 is also inconsistent with section 34 of the ER Act
which at least allows for an independent reviewer to decide whether information
requested in collective bargaining should or should not be treated as confidential.”
124 Conversely many employees and their representatives submitted that the notion of
commercial sensitivity is used as an excuse or “a smokescreen” for employers to
avoid their obligations. The New Zealand Council of Trade Unions (NZCTU) stated
that “employee transfer cost information cannot be deemed commercially
sensitive... rather than protecting any innovation or intellectual property,
employers’ claims of commercial sensitivity are an attempt to obscure and weaken
the understanding of the rights and benefits that workers have negotiated and
promote cuts to workers’ rights and incomes.”
125 Some employers also submitted that some commercial enterprises use the excuse
of commercial sensitivity to reduce transparency and openness in such processes
and to make sure that they are not underbid by another company. The incentives
for this are obvious when it is recognised that most of a cleaning contract’s costs
are labour costs.
126 However, one legal service submitter that acknowledged the need for limits to the
requirement to disclose employee cost information, also suggested that disclosure
can serve the interests of the incumbent employer because it ensures competing
tenders reflect accurate estimations of employee costs.
Common concerns about delayed and inadequate post-transfer information provision.
127 Delays in information provision were the subject of a number of submissions, both
in relation to pre-tender information and post-transfer details about employees.
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One employer said delays meant they had to operate without the requisite
information about employees. Spotless Services Limited provided an example of
taking over a contract where information was not transferred for six months during
a period when employees wished to take summer leave and they were unable to act
upon their requests. This was matched by concerns from unions, community-based
organisations and employees, who referred to incorrect payments and delays in the
recognition of entitlements. One employee alluded to this, saying it was “extremely
difficult to get my employers to give any form of written acceptance of them taking
on my entitlements”.
Views varied on whether to have an obligation to disclose information but there was
considerable support for greater detail and timeliness in the information, if required.
128 Many submissions indicated that there was a need for more specific requirements in
relation to the transfer of information in two phases of the restructuring process.
The first was when the tender was being developed and submitted. The current
provision relates to total hours in a stated period of time, but does not include
current vacant hours, which some submitters thought should be included. Nor does
the current provision include a timeframe, which created logistical difficulties in the
development of tenders. The second phase of the process, where current
provisions for disclosure of information needed to be more specific was during the
transfer of employees. In particular, the individualised information, which is
necessary once the successful tender is confirmed so that individual entitlements
can be acknowledged and provided for by the new employer, must be made
available by the outgoing employer but the Part 6A does not include this. One
submission recommended this occur with employee agreement to overcome privacy
concerns. Suggestions for individualised information transfers included:
a
the full personnel file,
b
relevant employment agreements, to include additional contingent liabilities,
and
c
time and wages records.
129 Timeframes were recommended from all groups for the two phases of the transfer
process, first in time for tender proposals to reflect the value of entitlements;
second, for more detailed and individualised information at the point of transfer.
Many submissions acknowledged the importance of deadlines that reflected the
variety of tender processes, both in complexity and urgency.
Submitters proposed legal changes to address issues with information disclosure
130 A common view was that in the absence of legal recourse for non-compliance
against the outgoing contractor, current information provisions were unhelpful. One
contractor noted that there was little value in advising the client that information
was inaccurate after the new contract was awarded. The contractor who failed to
secure a bid just had “to wear it”. Potential changes to improve this area included:
a
a requirement that the full value of the accrued entitlement is disclosed in the
transfer costs information within a specified time (for example, within one
month of transfer),
b
the right for the principal/client to initiate information provision,
c
penalties for non-compliance, and
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d
guidelines for post-transfer management of information and costs.
Discussion and analysis
Key issues



Non-compliance by some outgoing employers in providing timely and useful
information for the tendering process.
Inadequate information provision at the point of transfer.
Perceptions of commercial sensitivity.
131 Despite being lengthy and complex, the provisions requiring information disclosure
are vague and not particularly comprehensive. There are no prescriptive guidelines
or rules about the management of information before or following the award of a
successful tender, except to say that transfer costs information must be “in
sufficient time for the person who made the request to take the information into
account for the purpose for which it was requested” (section 69OC(5)). This lack of
specificity, lack of timeframes and related inability to enforce current measures,
contributes to non-compliance and has associated costs.
132 Inconsistent, inaccurate or untimely information provision can seriously undermine
fair bidding processes for employers and fair outcomes for employees. It can also
place unexpected financial burdens on incoming employers in the highly competitive
affected sectors. There was support for greater certainty and transparency in
information provision across all submitter groups. Objections largely focussed on
concerns about commercial sensitivity.
133 Perceptions around commercial sensitivity do seem to create problems for
compliance with the requirement to provide employee transfer cost information.
For example, a client may refuse to request employee cost information from the
incumbent contractor due to the confidential and commercially sensitive nature of
the tender process itself. Businesses stated that they did not want to disclose
information as they would be giving away their competitive advantage.
134 The information that can be requested and provided is for a specific purpose and
only provided to specified people. It is not required to be disclosed to the New
Zealand Stock Exchange or the public. Furthermore, the information is restricted to
aggregate employee costs not wider aspects of business finances, such as those
subject to due diligence requirements or requests for information relating to
collective bargaining claims (section 34). Also the argument made by one
submitter that the disclosure of employee cost information can help ensure a fair
competition with accurate estimations of employee cost has merit. No options were
proposed to address issues of commercial sensitivity beyond repealing the whole
Subpart 2.
Conclusions regarding improving disclosure of information
135 A more prescriptive or enforceable approach may be required to provide greater
certainty and clarity for employers how Subpart 2 should work and facilitate
compliance. Particularly in relation to transfer of detailed employee information at
the point of transfer.
136 It seems that the benefit from Subpart 2 is primarily for business and yet the
relevant employers have indicated they do not use, nor wish to use this provision.
However, repealing Subpart 2 will increase risk to businesses and transferring
employees in businesses “tendering blind” without good information on the
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employee costs and liabilities they will be taking on. This could include the risk of
transferring employees being made redundant or having their terms and conditions
reduced, because the incoming employer is unable to meet the higher-thanexpected costs associated with these employees within the price negotiated for the
work.
Poorly performing services
Summary: A central tension in the submissions is the different assumptions about the cause of,
and solutions to, poor performance. Employers tended to identify poor performance of workers
as a key reason for the loss of a commercial contract. They also note the cost and disruption to
business in dealing with poor performing employees acquired as a result of a transfer and
negative reactions from principals discovering that particular employees were retained.
In contrast, employees tend to identify management capability and capital investment as behind
contract failure. The majority of submissions identified the competitive tendering process as the
driver of poorly performing services. A low tender price, the structure of the business and the
way workers were deployed, were identified as defining factors in the quality of the service.
No new options were provided to improve performance related issues. Legal services and
unions referred to the availability of robust performance management systems, a disciplinary
and dismissal process in Part 9 of the ER Act and the right to restructure the business following
the transfer of a contract. It was also suggested that consistent with the spirit of continuity of
employment it would be appropriate to transfer individualised information about the transferring
employee’s performance alongside information about their terms and conditions.
Submitters’ views on poor performance
Lack of awareness of Part 6A can fuel negative reactions to the continuity of
employment.
137 Some submissions described adverse reactions from surprised principals or clients
discovering that employees were retained by an incoming contractor. The BSCNZ
referred to “angry, threatening and abusive phone calls” and requests that
employees are “banned, lock[ed] out, served with a trespass order to stay away
from their premises” forcing contractors into redundancies or alternative
employment options for unpopular employees.
Opposing views and assumptions expressed on the cause of a loss of a contract.
138 Employer submissions tended to emphasise poorly performing employees as a
cause for the loss of a commercial contract. For example, the Employers' and
Manufacturers' Association Northern Inc noted that the practice of transferring
poorly performing workers fostered mediocrity and stifled innovation in a new
contract for service. They commented that the responsibility for a poorly
performing service should be shared by employees and employers alike.
139
Conversely employee submissions and some smaller firms described the
competitive tendering process as the driver of poorly performing services, in
particular noting a low tender price, the structure of the business, management
capability, poor capital investment and the way employees were deployed as
defining factors in the quality of the service. The NZCTU said “the absence of
investment in workforce development is accepted as the norm”. These submitters
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identified the fault with the service, as opposed to the individuals performing the
service.
Several employer submissions outlined costs and disruption to business associated with
the transfer of poorly performing employees.
140 One employer said there was an incentive to retain good performers and transfer
poor performers for an incoming contractor to manage. Another employer identified
that where a worker was undergoing performance management prior to transfer,
that process would need to recommence both out of a requirement for fair process
and because the contractor would not have a personnel file. Finally, one submission
suggested that the provision could act as a disincentive to investing in staff because
the staff would be lost to a new employer with the subsequent loss of a contract.
Alternative performance management avenues were noted.
141 Submitters from all groups referred to the availability of options, other than
contracting out, for managing worker performance. These included robust
performance management systems and the right to restructure the business
following the transfer of a contract, including the option to make employees
redundant.
Discussion and analysis
Key issues

Lack of awareness that contracting or sale or transfer of a business cannot be
a mechanism for managing performance of employees listed in Schedule 1A
142 The ER Act provides a framework, including procedures and employment institutions
designed to support employers and employees to resolve employment relationship
problems, and where possible, preserve employment relationships. The ER Act also
provides a framework for undertaking restructuring exercises that may result in
redundancy. This framework applies to all employment relationships, including
those that have been transferred. Part 6A is explicitly designed to prevent
principals from being able to contract out of the ER Act requirements when the
employees in question are listed in Schedule 1A.
143 However, an issue raised by the Sector Advisory Group is how to ensure genuine
continuity of employment in relation to performance matters. The United Kingdom
TUPE legislation provides for the transfer of information about performance where
there are on-going issues and performance management processes are underway.
It was suggested that, consistent with the spirit of continuity of employment, it
would be appropriate to transfer individualised information about the transferring
employee’s performance, along with information about the terms and conditions.
Conclusion
144 There is value in incoming employers knowing where performance issues have
arisen in relation to employees in the past. For example, it may help guide the
incoming employer in monitoring and managing the employee’s on-going
performance. However some employers do not necessarily have formal
performance management systems that cover all staff. There is a risk that the new
employer will rely on information that is poorly documented, incomplete, or based
on an unfair perception, and move prematurely and potentially unfairly to
commencing disciplinary procedures. This raises the risk of unjustifiable dismissal.
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Schedule 1A – employees to whom Subpart 1 of Part 6A applies
Views on “vulnerable workers” and coverage of Schedule 1A
The understanding of the term “vulnerable workers” differs.
145 Many submitters understood the term “vulnerable workers” to refer to the
employees covered by Schedule 1A. Some submitters, mainly employee
organisations and community groups, further clarified that they see the term as
referring to low-paid employees who are subject to constant restructuring and do
not have a great deal of bargaining power. Some of these submitters regarded the
group of employees that are vulnerable as wider than those currently covered in
Schedule 1A.
146 In contrast, some employers and lawyers submitted that the term is colloquial and
the current coverage arbitrary. Some also considered it is discriminatory.
Opposing views on the coverage of Schedule 1A.
147 Most employees and their representatives were happy with the current Schedule
and wanted it to stay as it is. Two submitters suggested extending the Schedule to
cover an additional group of employees, health care assistants. One submitter
suggested it should be expanded to all employees.
148 Some employers expressed frustration about the ambiguity and inconsistency of the
list in schedule 1A. For example, it was asserted that some of the employees on
the list may be highly paid (such as a head chef). Furthermore, it was noted that
employees in other industry sectors may be equally vulnerable but not included.
149 Some employers submitted that the extent of “cleaning and food catering services”
is unclear. In particular, it was noted that the phrase “any other place of work” in
Schedule 1A (f) contradicted restrictions implicit in Schedule 1A (c) and (d).
Another issue was whether cleaning duties performed by general staff, such as
flight attendants, were included in Schedule 1A and, if so, would it give such
employees a right to transfer this part of their job?
150 Clarification of the list was sought by some submitters. One lawyer suggested that
if Schedule 1A is intended to be confined to those employees who are truly
vulnerable in a contracting-out or sale situation, then an amendment to Schedule
1A may be required to ensure this is the case. For example, it was suggested it
could be explicitly confined to low paid employees.
Few strong views were expressed on the process for amending Schedule 1A.
151 Employee submissions indicated they were generally happy with the current
arrangement as there have been no problems. There have been very few attempts
to seek amendment. Most employers and their organisations, opposed any
extension of the list, and submitted any amendment should be left to Parliamentary
processes.
Discussion and analysis
Key issues


Ambiguity around some aspects of who is covered by Schedule 1A.
Impractical and inappropriate process for amending Schedule 1A.
152 Many of the issues raised regarding Schedule 1A, such as whether the categories
covered are equitable when other similarly affected employees are considered, are
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more appropriately dealt with in the policy review. This is because these matters
profoundly impact on the policy intent of Part 6A, rather than on how it is
implemented. However, there are relatively minor amendments that could improve
the clarity of the existing policy intent regarding who should be covered.
153 It was not the policy intent that directors of cleaning companies paid high salaries
were to be transferred. This intent was tested at the Employment Relations
Authority (Hughes v Upper Hutt Cosmopolitan Club Inc 17/9/08, unreported, G
Wood, 17 September 2008, WA 120/08). While the Authority found that the types
of work performed by the house manager and executive chef were within the
definition of “food catering services”, the case was unsuccessful because the
workers were found to not be “employees” for the purposes of the ER Act. The
Authority also stated that they “…do not accept that there is any necessity for
employees covered in the Schedule to be ‘vulnerable’ employees...”
154 A second issue is the ambiguity provided by Schedule 1A (f), which refers to
cleaning services or food caterers in “any other place of work”. This appears to
render earlier parts of the Schedule, which specify places of work for cleaners and
food caterers that are covered by the Schedule, unnecessary. However, amending
this would narrow current coverage and exclude some categories of employees who
were probably intended to be covered.
155 It was noted that the criteria set out in section 237A(4) help to elucidate the
rationale for the current categories of employees listed in Schedule 1A. These
criteria could therefore help reduce ambiguity on the policy intent regarding which
categories of employees are to be covered by the Schedule.
156 The MBIE has experience of applying the process for amending Schedule 1A. It
found that the prescribed criteria for considering, adding to or removing categories
from the Schedule are difficult to objectively measure and are ultimately subject to
a political decision. It is MBIE’s contention that the current process is neither
effective nor appropriate. In particular, it has the potential to occupy significant
resources of both applicants and MBIE with no surety of outcome. Moreover, any
resultant amendment by Order in Council could s change the coverage of Part 6A in
a way that might not have been anticipated by Parliament.
Conclusions regarding ambiguity in Schedule 1A and ensuring appropriate
processes
157 Minor amendments to the Schedule may decrease ambiguity and improve clarity of
who is intended to be covered by Schedule 1A. Using the process currently
provided in the ER Act to make amendments to Schedule 1A could potentially be
very contentious and resource intensive. The repeal of section 237A(4) of the ER
Act would address this, but the criteria currently provided could usefully be included
in the legislation, for the Minister to have regard to, as a general description of the
policy intent.
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Subpart 3
Summary: There were divergent views on the value of subpart 3 in enhancing continuity of
employment. Most submitters considered this provision undemanding for employers. The lack
of clarity on the powers of the Employment Court to enforce the provision has caused disruption
for some employers and employees. Several submissions agreed with conclusions of the
Employment Court in the Norske Skog case where the Court commented on a lack of clarity and
suggested the Government reconsider the powers provided to the Court in this area. However,
the Court cases may have already provided enough guidance on the application of this provision
and it may be best left as is.
Views on Subpart 3 of Part 6A and whether it has achieved its objective
Most submitters indicated Subpart 3 of Part 6A was not overly onerous but many felt the
provisions have little practical effect.
158 Many submissions indicated the requirement to include employment protection
provisions (EPPs) in their employment agreements, was generally complied with
and considered undemanding. Despite this, a few submissions indicated the
provision should be removed. It was noted that all it adds is ‘process’ to the good
faith provisions under section 4 of the ER Act and some suggested that this addition
just serves to complicate the process of organisational change.
159 Conversely, many submissions stated that the provisions provide useful guidelines
for employers and expectations for employees in the event of a restructure and that
this offers some level of security. Furthermore, many submitters who felt Subpart 1
should be repealed, felt Subpart 3 should be retained as it would address any needs
for continuity of employment protection. Most submitters did not think the
requirement should be restricted to a narrower category of business, as there
should be consistent and uniform application of the law.
There is a lack of clarity about the enforceability of Subpart 3.
160 Some submissions noted the lack of an express sanction for a failure to comply with
subpart 3 and indicated this should be addressed. Suggestions included:
a
employer education and/or a code of practice,
b
normal dispute resolution procedures, which should be sufficient to address
non-compliance, and
c
amending the legislation in light of the recent Employment Court decision, to
confer a power on the Court to make an order in the absence of an EPP.
Discussion and analysis
Key issue

Lack of enforceability
161 It seems Subpart 3 has been reasonably well received and implemented. There is
evidence that EPPs are widely used in collective and individual agreements. There
have only been two cases concerning the operation of subpart 3 since its
implementation in 2004. Both these cases clarified aspects of the provision.
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However, the Norske Skog case highlighted an issue with enforceability that may
warrant further attention.5 This case involved a proposed restructuring, where the
relevant employment agreements did not contain an EPP as required by section
69OJ of the Act.
162 The Court concluded that the nub of this case was the question of whether the
employer could be constrained from restructuring by compliance order, until the
parties settle an EPP. The majority of the Court found that the Act did not allow a
compliance order of this type to be made. However, the majority determined that a
compliance order could be made in respect of the substantive requirement to have
an EPP as required by section 69OJ.
Conclusions regarding Subpart 3
163 The decision that there is no Court power to prevent restructuring taking place in
the absence of an EPP, renders Subpart 3 relatively ineffective. The Government
could take steps to develop an amendment that clarifies that the Authority and the
Court have the jurisdiction to make a compliance order of this nature if there is no
EPP in place. Many submitters however, considered that the cases already decided
by the Employment Court have adequately clarified the current law and suggested
that no amendment is required.
5
Norske Skog Tasman Ltd v Manufacturing & Construction Workers Union Inc and Anor (Colgan CJ,
Travis J, Couch J, 9 December 2009, Ac 49/09)
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Appendix A: Terms of reference for the review of Part 6A
Objectives
To prepare a report for the Minister of Labour on:
a
whether the operation of Part 6A of the Employment Relations Act 2000 (the
Act) has met its objectives, and
b
if not, whether any amendments to Part 6A are necessary or desirable to meet
those objectives.
To consider the relevance and desirability of the current policy of providing special
protections for a defined set of employees (as set out in Subpart 1 of Part 6A).
To enable well informed decisions on how to improve Part 6A both in its operation and
objectives.
Background
Part 6A of the Employment Relations Act 2000 (Part 6A)
Part 6A has been in force since December 2004 following the enactment of the
Employment Relations Amendment Act (No 2) 2004. Amendments to address gaps in
Part 6A came into force in September 2006 following the enactment of the Employment
Relations Amendment Act 2006.
Part 6A provides a framework for continuity of employment where an employer’s
business undergoes restructuring6 and the employee(s)’ work is assigned to a new
employer. In these situations:
a
Subpart 1 of Part 6A provides a higher level of protection to the categories of
employees specified in Schedule 1A of the Act. These employees have the
right to elect to transfer to the new employer on their current terms and
conditions of employment.
b
Subpart 2 of Part 6A provides for the disclosure of employee transfer costs,
from the outgoing employer to the new employer, where Subpart 1 applies.
c
Subpart 3 of Part 6A provides that all other employees must have employee
protection provisions in their employment agreements that set out the
processes the employer must follow when restructuring.
Statutory review of the operation of Part 6A after three years
Subpart 4 of Part 6A (Section 69OL of the Act) requires the Minister of Labour, as soon
as practicable after 13 September 2009, to require a report to be prepared on whether
the operation of Part 6A has met the objectives specified in sections 69A and 69OH and,
if not, whether any amendments are necessary or desirable.
The Minister must also ensure that the persons and organisations (including
representatives of employees and employers), that the Minister thinks appropriate, are
consulted in the preparation of the report.
The Minister must present a copy of the report to the House of Representatives.
6
The concept of restructuring has two meanings in Part 6A. The provisions of Subpart 1 apply to
contracting out, contracting in, subsequent contracting, or sale/transfer situations. However,
Subpart 3 only applies to contracting out or sale/transfer situations.
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Objectives of Part 6A
The object of Subpart 1 of Part 6A, as set out in section 69A, is to “…provide protection
to specified categories of employees if, as a result of a proposed restructuring, their work
is to be performed by another person and, to this end, to give—
(a) the employees a right to elect to transfer to the other person as employees on the
same terms and conditions of employment; and
(b) the employees who have transferred a right,—
(i) subject to their employment agreements, to bargain for redundancy entitlements
from the other person if made redundant by the other person for reasons relating to
the transfer of the employees or to the circumstances arising from the transfer of the
employees; and
(ii) if redundancy entitlements cannot be agreed with the other person, to have the
redundancy entitlements determined by the Authority.”
The specified categories of employees are those listed in Schedule 1A. These employees
have experienced a high level of restructuring and related undermining of their
employment security and terms and conditions. They comprise employees that provide or
undertake:
o cleaning or food catering services in any workplace
o
laundry work for hospitals, rest homes or educational institutions
o
orderly work for hospitals and rest homes
o
caretaking work for educational institutions.
The object of Subpart 2 of Part 6A, as set out in section 69OA is to “…provide for the
disclosure of employee transfer costs information if—
(a) disclosure is sought for the purpose of—
(i) deciding whether to terminate an agreement or let it expire; or
(ii) negotiating an agreement; or
(iii) deciding whether to enter into an agreement; or
(iv) tendering for an agreement; and
(b) a restructuring would result if the agreement were to be—
(i) terminated or to expire; or
(ii) concluded; or
(iii) entered into; or
(iv) awarded.
The object of Subpart 3 of Part 6A, as set out in section 69OH, is to “…provide protection
to employees to whom Subpart 1 does not apply if, as a result of a restructuring, their
work is to be performed by or on behalf of another person and, to this end, to require
their employment agreements to contain employee protection provisions relating to
negotiations between the employer and the other person about the transfer of affected
employees to the other person.”
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The scope of the review
In scope
The review of Part 6A will:
(a) Consider the policy of providing special protections for a defined set of workers as
set out in Subparts 1 and 2 of Part 6A. In particular, it will consider whether this
policy is still relevant and desirable.
(b) Consider whether the objectives of Part 6A are being achieved through the
application of Part 6A in practice. Legislation requires that the review consider
the objectives set out in section 69A (Subpart 1 of Part 6A) of the Act, on
protections for specified groups of workers and section 69OH (Subpart 3 of Part
6A) of the Act on protections for all other workers.
The objectives set out in section 69OA (Subpart 2 of Part 6A) of the Act, which
relates to the disclosure of employee transfer costs information, are necessary to
achieve the smooth operation of Subpart 1 and therefore will also fall within the
scope of the review.
(c) Identify issues with the operation of Part 6A that impact on the effectiveness of
the legislation in achieving its objectives.
(d) Consider whether the legislatively prescribed framework for adding, removing or
changing the categories of employees listed in Schedule 1A, as provided in section
237A of the Act, is appropriate and effective.
(e) Identify options for addressing any established issues and make
recommendations about an ongoing process for implementing these options. The
options for addressing issues may include:
-
improving awareness of, and compliance with, the current provisions:
through, for example, developing guidance notes or codes of practice
-
improving the application of the legislation through, for example, clarifying
policy intent and/or amending provisions
-
repealing all or parts of Part 6A.
Out of scope
The review of Part 6A will not canvass the wider set of regulation and employment policy
related to restructuring and redundancy for all workers.
Methods and process
The review will be led by the Department of Labour with advice from a sector advisory
group.
The sector advisory group will meet with Department of Labour officials working on the
review, on two occasions. It will also provide feedback and comment on material as
required.
The Department in consultation with the sector advisory group will:
(a) collect relevant information from Department databases and other existing
sources (including about international approaches to similar matters)
(b) identify key stakeholders for consultation
(c) prepare a discussion document for public consultation. The discussion document
will outline:
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i.
background about Part 6A
ii.
discussion around the continued relevance of Subparts 1 and 2 of Part 6A
iii.
early identification of possible issues with the operation of Part 6A
iv.
schematic options for addressing these issues
v.
key questions about the operation of Part 6A in practice, continued
relevance of Subparts 1 of Part 6A and options for improving Part 6A
(d) seek submissions from identified key stakeholders both directly and through
publicly publishing the discussion document online
(e) analyse the submissions and information collected, define the problems and
assess options for addressing these problems
(f) develop a report to the Minister of Labour that provides options for addressing the
issues identified, for submission to the House of Representatives.
Consultation
Consultation will be carried out with stakeholders directly impacted by Part 6A in practice
and others who are otherwise interested in its application.
The most significant impact of Part 6A is in the building service (e.g. cleaning) and food
service contracting sectors. Part 6A was designed to contain sufficient flexibility to enable
these sectors to evolve their business practices towards a more sustainable, higher
quality and fairer mode of operation. The review will need to consider these effects
through relatively close engagement with representatives of these sectors.
The sector advisory group of key stakeholders will be convened by the Department of
Labour, with the agreement of the Minister of Labour, and will include representatives
from:
(a) Business New Zealand
(b) the New Zealand Council of Trade Unions
(c) the Service and Food Workers Union
(d) the Building Service Contractors of New Zealand Inc.
(e) the Property Council of New Zealand
(f) the New Zealand Law Society (including both the ‘Employment Law’ Committee
and ‘Commercial and Business Law’ Committee)
(g) the State Services Commission
(h) Māori and Pacific Peoples
In addition to members of the Sector Advisory Group, key stakeholders to be targeted for
consultation include:
(a) the Small Business Advisory Group
(b) unions representing employees who provide the services listed in Schedule 1A of
the Act (including seeking various ethnic groups’ perspectives)
(c) businesses in the public and private sectors who require services that are listed in
Schedule 1A of the Act
(d) businesses who contract to perform services listed in Schedule 1A of the Act
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(e) any other organisation or person the sector advisory group considers to be a
stakeholder or to have relevant expertise in the area
(f) any organisation or person the Minister of labour considers should be consulted.
The review will be publicly notified and the discussion paper will be publicly available.
Deliverables
The report of the review will identify:
(a) key stakeholders and the impact of Part 6A in their respective sectors, including
the degree to which the objectives of Part 6A have been achieved
(b) issues with the operation of Part 6A and related matters, such as the process for
adding, removing or changing the categories of employees listed in Schedule 1A
of the Act; or when a compliant employee protection provision cannot be agreed
(c) options for addressing any identified issues and likely implications of
implementing the various options (costs, benefits and risks)
(d) whether the provisions of special protections for specified workers are still
relevant and desirable
(e) if necessary, recommendations for improving Part 6A taking into consideration the
Government’s broader social and economic objectives and international trends.
Resources
All costs for this review will be met within the Department of Labour’s baseline funding. It
will draw on the knowledge resources and expertise contained within the Department and
members of the sector advisory group.
The Department will meet the sector advisory group’s expenses in travelling to and
attending meetings with Department of Labour officials.
October 2012
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