Triangular Employment Arrangement Upheld

The Employment Relations Authority has found that labour hire employees placed on assignment with the IRD were not employees of IRD.

Eight individuals were employed by Madison Recruitment Limited(Madison), a labour hire company. Madison placed these eight employees on assignment with the Inland Revenue Department (IRD).

The employees sought a declaration from the Employment Court that the real nature of the relationship was that they were employees of IRD. The employees’ claim had union backing and was advanced as somewhat of a test case. Twenty three witnesses gave evidence, 16volumes of documents were produced, and very comprehensive submissions were filed.

Outcome – Not Employees of IRD

A full bench of the Employment Court heard the case over an 11-dayperiod. Applying the usual tests of control and integration, and after examining the intention of the parties, the Full Court of the Employment Court decided that all eight claimants were not employees of the IRD.

Helpful Guide – Reality of the Relationship

The judgment that extends to 42 pages provides a thoughtful and comprehensive application of the tests to be applied when considering whether an individual is, in reality, an employee under section 6 of the Employment Relations Act. It is a useful guide for other labour hire companies and third party principals in assessing whether there might be ‘misclassification’ risks. As with all such cases, the matter was decided on a fact specific basis, so it can only be used as a guide. A key factor in the Employment Court’s decision making was the fact that these employees had not been deprived of an employment relationship or the protections that come with that relationship. The employees’ minimum entitlements had been met, and the employees were able to pursue a personal grievance against Madison if they wished.

Where individuals have been deprived of these protections as a result of being engaged as contractors, the Employment Court has been much more willing to overturn the contractual arrangements agreed between the parties.

Triangular Employment Relations Legislation

The Court’s decision refers to the triangular relationship changes brought through the Employment Relations (Triangular Employment) Amendment Act 2019. The decision of the Court refers to the legislation in its broad form as it was not relevant to this case, as the events being litigated occurred before it was introduced. However, the Court stated that the introduction of the triangular relationship changes does have an impact on the section 6 analysis which will be undertaken by the Court going forward.

Our view is that the introduction of the concept of a ‘controlling third party’ (which in this case would have been the IRD) into the Employment Relations Act 2000 makes it more difficult for labour hire employees to argue that they are, in fact, employees of the end client. This is because the Employment Relations Act 2000 now contains two separate and distinct concepts, an employer and a controlling third party.

However, this does not mean that there will be a drop off in claims involving ‘end clients’. We expect the opposite. The triangular changes allow an employee to more easily join a controlling third party to any personal grievance they might pursue against their employer. The employee does not need to clear the higher bar of section 6 to do this; it just needs to show that the end client exercises or is entitled to exercise control or direction over the employee that is similar or substantially similar to the control or direction that an employer exercises. As the employees in this case were subject to both an IRD job description and Code of Conduct, we consider that would have been relatively easy to show.

We understand that the employees are seeking leave to appeal to the Court of Appeal.

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