Piggy-in-the-middle with triangular employment relationships | Employment Law Update April

Managing “triangular employment relationships” poses an extra level of challenge for employers. Triangular employment relationships commonly occur in industries such as cleaning services, security services and labour hire services, where the employer allocates an employee to perform work at one client’s site for a lengthy period of time. A common problem that arises with these relationships is the client telling the employer the client no longer wants the employee at their premises. An employer can then be in a difficult situation as to what to do with the employee, particularly if there are no other suitable client sites to allocate the employee to.

A recent decision of the Employment Relations Authority demonstrates that when faced with this type of situation, the employer cannot just simply accede to the client’s demands without following a fair process and making an attempt to resolve the issues between the client and the employee.

The employee worked as a cleaner exclusively on sites operated by one of the employer’s clients. On discovering that the employee had criminal convictions, the client requested the employer to obtain a risk assessment for the employee. The employer organised a risk assessment which advised that the employee did not pose a risk to the public. Problematically, the risk assessment failed to refer to the first conviction, only the second one. On receiving this report, the client expressed its dissatisfaction at this failure. However, the employer then failed to arrange to obtain another risk assessment.

After a time-lapse of around one month, the client notified the employer of its intention to have the employee removed from its sites and requested to meet with the employer to discuss this issue. The employer then requested to meet with the employee to discuss the matter. However, before meeting with the employee, the employer met with its client and agreed, effective immediately, to the client’s demands to remove the employee from all of the client’s sites. The employer then notified the employee that he was suspended on pay and later terminated the employee’s employment on notice.

The Authority found that the employer was unable to justify its actions. Firstly, by failing to make arrangements to have the employee undertake a further risk assessment. The Authority also considered that the employer was required to do all it could reasonably do to preserve the employee’s role on the client’s worksites. The Authority found that there was no evidence that the employer sought to dissuade the client from its approach at the final meeting between the employer and its client. The Authority considered that the employer acquiesced to the client’s demand. While accepting that the employer was in a difficult situation balancing the need to satisfy its client and meet its obligations to its employee, the Authority considered that the employer had a choice in the matter, and applied a quote from an older decision of the Employment Court in G & H Trade Training Limited v Crewther [2000] 1 ERNZ 513 at [42]:

"There is almost always a choice. The third party can be made to understand that employees have statutory rights and employers have liabilities to employees and cannot simply bow to demands."

The Authority considered that the employer’s decision to defer to its client amounted to a significant breach of its employment obligations. At a minimum, the Authority considered that the employer should have refrained from making a commitment to its client to remove the employee from its sites until the employee had been given an opportunity to comment on the client’s concerns and intentions. The Authority concluded that the employee had been unjustifiably dismissed.

It is worth noting that the law in relation to triangular employment relationships is changing on 27 June 2020. From that point onwards, the client in triangular employment relationships can potentially become liable to personal grievance remedies, where the client is regarded as a “controlling third party”. Where the client party is added to personal grievance proceedings, the client and the employer can both become liable to personal grievance remedies in a way that reflects the extent to which each contributed to the situation that gave rise to the grievance. The law change will also incentivise both the employer and client to work together to resolve issues that arise with employees.

See Siale v Professional Property and Cleaning Services Ltd [2019] NZERA 586.

 Triangular employment relationsthips, labour hire rights, unjustified dismissal, ERA, employment lawyer, employment law, employment representative, unfair treatment, Auckland, Waikato, nz, nationawide

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