Employment Update – Week 4, May

Updated: Jun 24, 2019

Our weekly update on ER issues, changes and important updates:


Bill affecting labour hire arrangements closer to becoming law

The Employment Relations (Triangular Employment) Amendment Bill passed its second reading in Parliament on 3 April 2019.

The Bill proposes to extend protections to employees employed under labour hire arrangements, otherwise known as “triangular employment relationships”. On first introduction, the Bill proposed two key changes:

  • to ensure that employees who are contracted out by one employer to work for another organisation (the host organisation) are able to be employed under a collective employment agreement, and

  • that such employees may join the host organisation as a party to any personal grievance action (such joinder requires the leave of the Authority or the Court).

The Education and Workforce Committee recommended removing the first change on the basis that it would require workers to be bound by the same collective agreement as the employees of the host organisation and in turn introduce considerable complexity to the labour hire model.

The Bill now focuses on the second proposed changes of allowing employees to join the host organisation to a grievance action.

The Education and Workforce Committee recommended that the legislation come into effect on a date appointed by the Governor-General or 12 months after the date of Royal assent, whichever is earlier.

The Bill has yet to pass through the Committee of the whole House stage and its third reading before it can become law.

The Employment Relations (Triangular Employment) Amendment Bill can be obtained at www.legislation.govt.nz.

Changes to KiwiSaver

A number of changes to KiwiSaver were legislated on 18 March 2019. Most of the changes came into effect on 1 April 2019, with some changes coming into effect on 1 July 2019.

The changes which came into effect on 1 April 2019 include the following:

  • A name change has been made to contributions holidays such that they are now called “savings suspensions”.

  • The maximum length of a savings suspension has been reduced from five years to one year.

  • Employee contribution rates are no longer restricted to the options of 3%, 4% or 8%. Employees now also have the option of also contributing 6% or 10%. Minimum employer contributions, however, remain at 3%.

From 1 July 2019, employees aged 65 years and over are no longer restricted from being eligible to opt into KiwiSaver. Such persons will have the choice of opting into KiwiSaver if they wish.

The Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019, which brought about the changes, can be obtained from www.legislation.govt.nz.

Case of Interest

Trials and tribulations: unpaid pre-employment tests

Anyone who has spent much time in New Zealand either working in or running hospitality businesses will likely know unpaid “pre-employment” trials or tests have been a common practice in assessing whether to offer someone a job. However, such tests need to be done carefully to avoid costly legal claims.

A well publicised 2013 decision of the Employment Court demonstrated the risks with pre-employment trials: The Salad Bowl Ltd v Howe-Thornley (2013) 10 NZELC ¶79-032. The Employment Court found that a pre-employment trial can in fact be the commencement of an employment relationship. The Court emphasised that whether an employment relationship is formed will depend on whether the work performed by the employee results in some sort of economic benefit to the employer’s business. Further, the person performing the pre-employment trial cannot be considered an unpaid volunteer if they are performing the activities with the expectation of some sort of award.

In two recent decisions of the Employment Relations Authority the same employer (Sfizio Ltd) was found liable to two different employees following being deemed to have employed them during a seven-hour unpaid pre-employment test. During the unpaid shifts the employees performed a range of duties normally undertaken by employees, such as the preparation and delivery of food and coffees for customers. The Authority accepted that such activities contributed to the business and provided it with an economic benefit, which was central to establishing the existence of an employment relationship in The Salad Bowl. In one of the decisions the finding that an employment relationship existed during the unpaid trial had the knock on effect that the subsequent 90-day trial period contained in the employment agreement was invalid, because the employee had already been employed by the employer during the pre-employment test: Freeborn v Sfizio Ltd [2018] NZERA Wellington 112. The Authority also considered the employee had a reasonable expectation of payment during the shift which was reinforced by Sfizio’s request for her to complete a time sheet.

The other decision involved an employee having resigned rather than being dismissed by Sfizio. She was found to have been constructively dismissed as after she was offered the job she resigned due to not being paid by Sfizio for the seven-hour shift: Mawhinney v Sfizio Ltd [2019] NZERA Wellington 49. In this decision the Authority also observed that, similar to The Salad Bowl decision, the employee had received a non-monetary “reward” for her work in the form of a free lunch. The Authority considered Sfizio’s resolute refusal to pay the employee wages for the work she performed during the shift was a breach of the fundamental terms of any employment relationship. In addition to being ordered to pay the employee for the seven hours, Sfizio was required to pay the employee another four weeks’ pay and $7,000 in compensation.

If employers wish to conduct pre-employment trials, employers would be best placed to minimise the risk of an employment relationship forming by:

  • ensuring that the employee does no work which goes towards economically benefiting the business (eg only mock tests of making coffee and delivering food — not sold to customers)

  • ensuring there is no payment or reward given nor expectation of it (eg no free lunch)

  • having a clear written agreement with the employee emphasising that it is purely a test and is no offer of employment and that there will be no payment or reward, and

  • limiting the duration of the test to avoid the risk of the individual harbouring resentment, making a legal claim more likely, and to avoid the likelihood of the person ending up doing something productive for the business.

Reproduced by permission of Wolters Kluwer NZ

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