New Zealand: NZ Employment Bulletin: Proposed Amendments to the Provisions for Protection of ‘vulnerable Workers’ in Restructuring Situations – Loophole Closed

Last Updated: 30 March 2006
Article by Rick Hargreaves and Rani Amaranathan

The Employment Relations Amendment Act (N.Z) 2004 introduced the right of ‘vulnerable workers’ to transfer to the new employer in restructuring situations. But last year the Employment Court in Gibbs and others v Crest Cleaning Ltd highlighted a loophole that meant vulnerable workers were denied transfer rights in ‘subsequent contracting’ situations. The Government has now introduced a Bill to close this loophole.

The current situation

At present, specified categories of employees (vulnerable workers) (mainly cleaning and catering staff) are given special protection in the Employment Relations Act 2000 (ERA) in a restructure situation. Basically, if an employer restructures a business that engages vulnerable workers, those workers have the right to transfer on their existing terms and conditions of employment to the new employer if the restructuring results in their redundancy. It was generally thought that this definition would include situations where a principal ends a contract with one supplier and awards it instead to a new supplier (second generation contracting). But this was held not to be the case. In the Gibbs case, a Kindergarten Association decided not renew a cleaning contract with one of its suppliers and awarded it to a new supplier. Employees of the previous supplier fell within the specified categories of vulnerable workers. But the situation was held not to fall within the ERA definition of restructuring because the original employer’s business was not being undertaken for it by another person. Instead, it was being undertaken for the Kindergarten Association by another person. The Court also questioned whether the protection would apply if the new contractor did not have employees (in that case the services were to be undertaken by franchisees).

Employment Relations Amendment Bill 2006

The Bill is specifically designed to close the loopholes in Part 6A of the ERA that the Employment Court highlighted in Crest.

The key proposed changes for vulnerable workers are:

  • The definition of ‘restructuring’ would be changed to explicitly include contracting out, contracting in, succession to contract and subsequent contracting. Each ‘restructuring’ situation would be defined.
  • The right to transfer would apply whatever the reason for the first contract ending and even if the first contract ends before the next contract is awarded.
  • The right to transfer would apply even if the new contract holder does not intend to have employees perform the services.
  • Workers with fixed term employment agreements would transfer on a permanent basis if the new work was permanent or on a fixed term basis for the same term as the term of the new supplier’s contract.
  • Workers could become employed by two employers if only part of their work is to be performed by a new employer, or if performance of their work is to be divided between more than one new employer.
  • Non complying employers/contractors could incur a penalty under the ERA.
  • Transferred employment is treated as continuous for the purposes of statutory entitlements (e.g. Holidays Act 2003, Parental Leave and Employment Protection Act 1987).

Fixed term agreements

The Bill also closes the loophole relating to fixed term vulnerable employees whose employment under their fixed term ends when the independent contractor/subcontractor is no longer contracted by the principal. This type of fixed term employee has the same rights of transfer as permanent vulnerable employees. So linking the reason for and ending of a fixed term agreement to the expiry date of a supply contract could be ineffective.

Employer compliance

The new compliance requirements relate to an employer having to give vulnerable employees notice of their right to make an election to transfer. These include: providing a reasonable opportunity to exercise that right; the date by which that right must be exercised; and providing information sufficient for the employee to make an informed decision about whether to exercise the right to transfer.

That information must include: the name of the new employer; the nature and scope of the restructuring; the date on which the restructuring is to take effect; how to make an election; the person to whom the election is to be sent; and the form in which the election is to be sent.

Who might the changes affect?

There are an elaborate set of examples in the Bill that set out what may qualify as a transfer situation. Companies who are not ‘employers’ may be caught by the proposed changes, even if they were intending to employ a subcontractor, franchisee or other type of worker to perform the contract.

The changes will be significant for tendering and contracting situations affecting vulnerable workers. If the affected employees will be surplus to the new contractor’s needs, the cost of redundancies may need to be built into the tender price. This would make the contracts more expensive for persons awarding contracts to new suppliers and for suppliers tendering for new contracts. It would give the existing contractor a price advantage.


In summary the new Bill closes the door on the loopholes exposed by the Gibbs case and fixed term employment agreements and adds the penalty regime in the ERA to the vulnerable employee provisions. There are some added compliance requirements for both the current employer of a vulnerable employee and any independent contractor/subcontractor who works for a principal. The added compliance mostly relates to the information that employers have to provide to vulnerable employees before a restructure so that they may elect whether to exercise their right to transfer or not.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.

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