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Labour-hire exploitation under scrutiny

13 December 2017


In current times, businesses are engaging workers in increasingly different ways.

Some industries have moved away from traditional bi-lateral employment relationships while labour-hire arrangements and other forms of triangular employment have become increasing popular.

Businesses enjoy these arrangements as they do not have the obligations of an employment relationship. However, the Employment Court has issued a judgment on a labour hire situation where two companies did not end up with all the benefits they would want.

A labour hire company called Solutions Personnel provided LSG Sky Chefs New Zealand with workers. LSG provides catering services to airlines and has several hundred people working for it.

Kamlesh Prasad and Liutofaga Tulai were vulnerable migrants with little knowledge of New Zealand employment law and English as their second language.

Tulai was young at the time, had a child, and was under considerable financial pressure. She signed up with Solutions in 2009 and was given a document which purported to be an independent contractor agreement.

For four years Tulai consistently worked up to 62.75 hours per week at LSG. Tulai once worked 34 full days continuously without a break.

Prasad signed up with Solutions in 2013 and worked at LSG for two years, averaging 45 hours per week.

Neither Tulai nor Prasad had the 'contractor' agreement or working arrangement explained to them before signing and Solutions and LSG did not encourage them to seek legal advice.

Both Tulai and Prasad were desperate for work and simply signed what was put in front of them.

This case raises two issues of concern. First, organisations using labour-hire rather than directly employing their workers, often to try sidestep employment obligations.

Secondly, labelling people 'contractors' when they are legally employees.

Often when these two things happen, disempowered employees such as Prasad and Tulai are open to exploitation.

Tulai and Prasad worked alongside LSG employees doing precisely the same work, the only difference being that Tulai and Prasad were paid less. LSG exercised significant control over both individuals and they had no real autonomy of their own.

LSG was pleased with the arrangement. It didn't have the usual responsibilities associated with employment relationships. Also, if LSG didn't like the workers that were provided, it just contacted the labour hire company and the workers simply disappeared – no personal grievances, no disputes.

Interestingly in 2012 LSG feared it might face legal risk and sought guarantees from the labour hire company that it would carry any such liability. In 2013 LSG began to worry about the same people working for it for so long and asked Solutions to replace the longest serving workers, including Tulai, and move them on.

Tulai and Prasad made an application to the Employment Court for a declaration that they were really employees of LSG.

The court considered the purpose of the Employment Relations Act, which is partly to "stop some employers labelling individuals as 'contractors' to avoid responsibility for employee rights such as holiday pay and minimum wages".

Tulai and Prasad were successful. The court found they were both legally employees of LSG. The court stated: "A labour-hire agreement does not represent an impenetrable shield to a claim that the 'host' is engaging the worker under a contract of service [as an employee]".

In contrast to this case, there are many situations where independent contractors are competent professionals who want an independent contractual relationship with their host company. Often they enjoy tax benefits and they like the independence of being their own boss and running their own business.

Some labour-hire companies provide highly qualified professional staff such as junior doctors who prefer flexibility rather than direct employment with a particular DHB.

Young doctors may come from the United Kingdom, for example, and want to work in different parts of New Zealand and a labour hire company can make that happen.

One successful example of this is MedRecruit which provides medical staff to hospitals in Australia, New Zealand.

Dr Sam Hazledine, who created MedRecruit was partly motivated by the burnout many young doctors suffer from and was concerned that 25 per cent of doctors were leaving the profession within three years of graduating.

His company aims to provide the flexibility for doctors to live exceptional lives because that helps them practice better medicine, which benefits everyone.

MedRecruit is essentially a labour-hire company yet it is difficult to imagine those doctors involved needing protection from exploitation.

There is another type of triangular employment that is frequently used, particularly in Wellington – the secondment. Secondments are especially common in the public service.

An employee is seconded from their job into another one, usually in the same department or organisation but sometimes even in another agency. The new job may be quite different to the old.

Secondments have an uneasy place in employment law; essentially sitting in a gap in the legal framework. They allow an individual to act in a different or higher role for a fixed time without requiring any formal change to the individual's substantive role.

Secondments can certainly be beneficial; however issues may arise when secondments are too freely used, particularly in the case of secondments between organisations.

What happens to them if their original role is restructured out? Or the role they are seconded into is advertised and a permanent appointment is sought?

In the latter case they would normally go back to their old job, assuming it is still there.

Sometimes people who have been on a secondment for a lengthy period of time, particularly where the secondment has been repeatedly extended, seek to be appointed permanently to the role they are seconded to.

This can cause problems in the state sector where there is an obligation to publicly notify positions and appoint the best candidate.

The new Government is looking at some of these novel work relationships, particularly those situations where those with little power can be exploited.

Independent contractors, labour-hire workers and, to a lesser extent, secondees, will all be of interest when the Government reviews the law.



Cullen - The Employment Law Firm was one of the first eleven law firms in New Zealand approved to provide employment law services to Government and the public sector.

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