A Ministerial Advisory Group was set up last year to comment on the protection of employees' terms and conditions of employment, in the event of sale or transfer of the business or contracting work. The advisory group released its second report this month.
In its first report of May last year, the majority of the advisory group favoured some form of legislative reform to provide a degree of security for existing employees. A smaller group was then asked to report on the various options for reform.
The law at presentThe present position in this area is governed by the mutual duty of good faith between employers and employees contained in s4 of the Employment Relations Act 2000 (the ERA) and the ERA provisions governing collective employment agreements.
The duty to act in good faith is defined in section 4 as extending to:
consultation between employers and employees about the employees' collective employment interests including effects on employees of changes to the employer's business, andany proposal by an employer that might impact on employees including contracting out of work or sale or transfer of all or part of the employer's business.Section 4 imposes no specific obligations on employers to guarantee security of employment or terms and conditions, but employers must deal with employees in good faith in this situation, the essence of which will generally be consultation with affected employees.
Under s54, collective agreements must include a clause dealing with rights of employees in the event of contracting out or sale or transfer with a view to protecting employees from disadvantage. However, the section does not define the parties' respective rights and obligations, leaving these to be negotiated.
The courts have not yet dealt with the effect of these provisions in the context of contracting out or sale or transfer. In general, there seems little in the ERA as it stands that would support the judicial imposition of specific obligations on employers in respect of employee job security or security of terms and conditions.
Advisory group suffers from lack of consensusIn its report, the advisory group recognised that this is a complex issue, made more difficult by a lack of consensus within the group as to whether any intervention by government is necessary.
The members of the group representing union interests supported a high level of intervention. They tabled a proposal that all employees, whether on individual or collective employment agreements, must be permitted to transfer and to do so on terms and conditions not less favourable than under their existing employment agreements. The union members also proposed that regulations be made to apply in the state sector setting out specific rules in relation to procurement, sale, transfer and contracting out of work in government
organisations.
The union group's argument was essentially that employers already have various options to alter employees' terms and conditions, including renegotiation of individual agreements, variation of collective agreements (or re-negotiation on expiry), and changing the nature of employees' positions through restructuring.
On this basis they thought it unfair to allow a further means of disrupting employees' continuity of employment. The view of the employer members was that the Government should wait and review the effect of the ERA before legislative amendment and that the development of 'best practice' guidelines would be an appropriate step in the meantime. They opposed legislative imposition of obligations on employers on the basis that this would be out of step with the economic reality that sale and transfer of businesses and contracting out occur regularly, across the economy, and that legislative intervention to restrict these activities would restrict growth.
Reforms likely to impose greater obligations on employersIn releasing the second report, the Minister and Associate Minister of Labour noted the lack of consensus within the group but said that the government remained committed to working towards a solution, particularly in regard to vulnerable workers in some sectors. The Prime Minister has since said that the changes will not be brought in urgently and that the advisory group has been asked to consider further issues. However, the Government's comments indicate that some legislative change to provide greater protection for workers is likely.
Whether or not the high degree of protection supported by union interests will form the basis of any reforms, or be significantly watered down prior to the production of draft legislation, remains to be seen. It is clear that the Government's approach to this issue will have significant economic consequences for employers.
In the event that the legislation is amended to provide guarantees of security for employees, employers will need to take into account their new statutory obligations when considering sale or transfer or contracting out and when negotiating the terms and conditions of new employment relationships.
Financial obligations to existing employees might also impact upon the purchase price of the employer's business.
This is a general summary only and should not be taken as a substitute for specific advice.
For further information contact Wendy Aldred, solicitor
wendy.aldred@phillipsfox.com
Web site:
Phillips Fox