New laws for triangular employment arrangements

On 28 June 2020, the Employment Relations (Triangular Employment) Amendment Act 2019 came into force. The enactment of the legislation and subsequent change in the law has been a long time coming. In particular, it represents a fundamental shift in both New Zealand employment law and society by recognising that a growing number of New Zealanders work in triangular employment relationships, and accordingly, deserve the similar robust protections afforded to those employed in typical employment relationships.

The new amendment allows employees in triangular employment relationships to include a third party to a personal grievance they have with their employer. Employees in triangular employment situations are still able to raise a personal grievance with their employer where they have grounds to do so, but now under the new legislation, employees can apply to the Employment Relations Authority (“the Authority”) to add the third party to the personal grievance if the third party has caused or contributed to the problem. Prior to the enactment of the new amendment, joining a third party to a proceeding was a time-consuming and costly experience, requiring a number of legal tests to be met. However, with the new amendments, this will no longer be the case.

What is triangular employment?

The term “triangular employment” refers to an employment relationship involving three parties – the employer, the employee, and a third party. In such instances, the employee is employed by one employer (the agency) but works for another business or organisation that directs and/or controls the employee’s daily work (the controlling third party).

Triangular employment relationships are common in the modern New Zealand labour market, with typical examples occurring where an employee is employed by a company, such a temp agency or a labour hire company, but the employee works under the control or direction of a third party. The arrangement can be short-term, such as the provision of a temp-worker, or a long-term arrangement.

The new legislation provides a definition of “controlling third party” to mean:

• a person who has a contract or other arrangement with an employer under which an employee of the employer performs work for the benefit of the person; and
• who 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, or is entitled to exercise, in relation to the employee.

In other words, the ability to exercise control or direction over the employee, is key. 

Process and remedies

Before a controlling third party can be joined to an employee’s personal grievance proceedings, a personal grievance must be raised by the employee with their employer in relation to an action alleged to occur while they were working under the control of the third party. In addition to the grievance being raised in accordance with the standard legislative requirements, the controlling third party must also be notified within 90 days of the grievance being raised. It is also a requirement that there is an arguable case that the controlling third party’s actions caused or contributed to the personal grievance.

If proceedings are filed, the Authority may, on application by the employer or employee, join the controlling third party to the proceedings. If the Authority is satisfied that the requirements have been met (concerning notification and an arguable case, as noted above), they must grant the application. Where an application has been granted, the Authority must consider whether to direct the three parties to mediation.

The Authority or Court also retains the discretion to join a controlling third party to a personal grievance proceeding at any stage, regardless of whether it is requested by the employer or employee.

In respect of potential remedies available, the Authority or Court has the jurisdiction to apportion responsibility, liability and awards between the employer and the controlling third party. The Authority or Court may also require a controlling third party to contribute to any remedies awarded to an employee based on the extent to which they caused or contributed to the situation giving rise to the employee’s personal grievance. These remedies mirror the standard statutory remedies available for a successfully argued personal grievance – including reimbursement for lost wages, and compensation for hurt, humiliation and/or the loss of any benefit.

Implications

Given the infancy of the amendment, it is hard to predict with any certainty the effect that it will have on employment law in New Zealand going forward. However, it can be said with relative confidence that the changes will impact those agencies that fall within the definition of a controlling third party, and similarly, those employers that engage such agencies. We note that there is also a real likelihood that the new legislation will also apply to employees on secondment from their employer to another business or organisation. Though, until the new amendment is interpreted by the Authority or Court, the definition of just what a controlling third party relationship entails remains open for legal interpretation.

The introduction of the new law brings with it a host of other potential implications. Including, for example, the fact that the ability for the Authority to order a controlling third party to attend mediation with an employer and employee will very likely raise novel issues, particularly given the nature of the unfamiliar dispute resolution dynamic that it will create. Furthermore, there is a very real possibility that the amendments will place strains on the commercial relationships between employers that engage temp and labour hire agencies, given the additional legal responsibility that the controlling third party will now be susceptible to.

As a specialist employment law team, DTI Lawyers are happy to provide advice and/or guidance around any of the issues raised in this article. Should you wish to do so, please contact us on: 07 282 0174.