New bill affects employee transfers after business sales

March 2004

By the Employment Team

When is someone else's employee your responsibility? When you purchase or take over that someone's business. This is just one of the many sweeping changes set to be introduced by the Employment Relations Law Reform Bill, currently before select committee.

As well as providing special protections to specified categories of employees, the Bill also requires that every employer in New Zealand sets in concrete a process that will deal with their employees on the off-chance they might sell their business in the future.

Although the concept of protecting continuity of employment is not new (and has been in place throughout Europe for many years) the proposal remains highly controversial.

The Bill affords certain categories of 'vulnerable' employees substantial protection in the event that their employer's business is restructured. Employees providing laundry or care-taking services in the education sector, laundry and orderly services in the health and residential care sector, or food and cleaning services nationwide will have a number of options when faced with losing their job.

Where an employer's business is restructured or the employer no longer needs its employees and the new employer intends to employ other people to perform essentially the same tasks, the new employer may well find that its hands are tied.

The Bill will not only apply when an employer sells or transfers its business, but even when it loses a contract to provide services that its employees perform. Employees need only have part of their work transferred before they can take advantage of these provisions - although we will wait with bated breath for the courts to determine what 'part' actually means.

The most chilling proposal, however, is the new right of employees to transfer to the employ of the new boss - who will not only have to deal with its own employees, but also those of the business it has taken over. This proposal will be particularly worrying to those who run contracting companies in the cleaning and food industries, as they could find themselves forced to take on a number of employees that they cannot afford.

Two aspects of this new right for vulnerable employees are particularly concerning. First, if the employee was a party to a collective employment agreement at his or her old place of work, the new employer will find him or herself a party to that agreement, and forced to negotiate, in good faith, with the employee's union - even if that union has had no previous dealings with the new workplace.

Of greater concern, however, are the provisions for redundancy. Although an employee can negotiate an exit package with his or her current employer which will preclude the employee from transferring to the new employer, the new employer is not so lucky if the employee elects to transfer to their employ.

If the new employer has no need for the new employee, and seeks to make him or her redundant, the employer is required to negotiate a payout. If no agreement can be reached, the Employment Relations Authority can force the new employer to pay compensation. This will greatly complicate negotiations for the sale of a business, and may reduce its value to a prospective purchaser.

The Bill also allows the Governor-General, on the advice of the Minister of Labour, to amend the categories of protected employees- without following parliamentary processes. Not only is the constitutionality of such a provision in question, one cannot help but feel that this power could be exploited for political gain - either in favour of other groups, or in favour of employers, should a slightly less left-leaning party come to power in the future.

The Bill also covers workers outside the "vulnerable category. Every employer in New Zealand will be required to plan for the eventual sale or transfer of their business, although thankfully, this general protection will not apply where someone changes service providers.

The Bill requires all employment agreements to include employment protection provisions, which are activated in similar circumstances to those outlined above.

However, the consequences of these provisions may be significant, and they hardly represent the height of efficiency. Employers will have to plan months, perhaps years, in advance, how presently mythical negotiations for the sale of their business are to proceed, and what the parties will negotiate about.

One can only begin to imagine what an encumbrance this might turn out to be, particularly where limited time frames are involved.

Even more frustrating is the fact that such negotiations could be entirely in vain. While an employer can be forced to negotiate the transfer of her employees to a new owner, (a process likely to be particularly arduous) the employee does not have to accept any arrangement - even if the parties could magically come to some arrangement - rendering the previous negotiations utterly pointless.

There may be hope on the horizon. Paul Swain, the recently appointed Labour Minister, has previously expressed concern over these aspects of the Bill. It will be interesting to see if the Bill changes form before it leaves the desk of Mark Gosche, whose Transport and Industrial Relations Select Committee is currently scheduled to release its verdict on 10 June. Until then, employers nationwide will be holding their breath.

First published in the New Zealand Herald, 30 March 2004