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October 2012

THE FINDINGS OF THE REVIEW OF PART 6A OF THE EMPLOYMENT RELATIONS ACT 2000

Employment Relations Act 2000 Review of Part 6A:

Continuity of Employment

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CONTENTS

Executive summary .............................................................................................. 3 

Part 6A of the Employment Relations Act 2000 (Part 6A) ......................................... 3 

Review process ................................................................................................. 3 

Findings of the policy review of subparts 1 and 2 of Part 6A ..................................... 4 

Findings on the operation of Part 6A ..................................................................... 5 

Background ......................................................................................................... 6 

Development of the policy of providing continuity of employment protection .............. 6 

Current policy of special protections for some employees (subpart 1 of Part 6A) ......... 6 

Population groups most affected by the special protections ...................................... 7 

Current policy for all other employees (subpart 3 of Part 6A) ................................... 8 

The broad legal framework for restructuring and redundancy ................................... 9 

Summary of submissions to the 2009/10 Review ...................................................... 9 

Consultation process and timing .......................................................................... 9 

Numbers and make up of submissions .................................................................. 9 

Broad directions for change suggested by submitters ............................................ 10 

Key areas of concern and for improving the operation of Part 6A ............................ 10 

Review of the policy of subpart 1 of Part 6A ........................................................... 11 

Stage One: 2009/10 submitters views on the policy of subpart 1 of Part 6A ............. 11 

Discussion and analysis .................................................................................... 15 

Further cost-benefit analysis ................................................................................ 18 

Conclusions of the policy review ........................................................................... 19 

Review of the operation of Part 6A ........................................................................ 20 

Knowledge and awareness of the Part 6A ............................................................ 20 

The transfer of accrued entitlements .................................................................. 22 

The provision of employee cost information ......................................................... 26 

Poorly performing services ................................................................................ 30 

Schedule 1A – employees to whom subpart 1 of Part 6A applies ............................. 32 

Subpart 3 ....................................................................................................... 34 

Appendix A: Terms of reference for the review of Part 6A ......................................... 36 

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Executive summary

Part 6A of the Employment Relations Act 2000 (Part 6A)

1 The objective of Part 6A of the Employment Relations Act 2000 (the ER Act) is to provide employment protection for employees when an employer’s business undergoes restructuring and the employee(s)’ work is assigned to a new employer.1

2 Subpart 1 of Part 6A (subpart 1) provides special continuity of employment protections for a defined set of employees, listed in Schedule 1A of the ER Act. These protections include a right to transfer to the new employer on existing terms and conditions. The employees covered by subpart 1 provide cleaning, food catering, caretaking, orderly, and/or laundry services in specified industries.

3 Subpart 2 of Part 6A (subpart 2) provides the right to certain persons to request aggregated employee cost information. The information must be provided in “sufficient time” for it to be taken into account prior to the requestor making decisions about whether to be involved in a proposed restructuring, for example, when making decisions about whether or not to tender or enter into a contract.

4 Subpart 3 of Part 6A (subpart 3) provides protection for other employees not covered by subpart 1, by requiring employment agreements to contain employee protection provisions that outline processes to be followed during restructuring when this involves the sale, transfer or contracting out of a business.

5 Subpart 4 of Part 6A (subpart 4) requires the Minister of Labour to require a report to be prepared on whether the operation of Part 6A has met its specified objectives and, if not, whether any amendments are necessary or desirable. The Minister of Labour is also required to present a copy of the report to the House of Representatives.2

Review process

6 In addition to the review requirements, focused on the operation of Part 6A in the legislation (the operational review), the scope of the Review of Part 6A (the Review) included consideration of whether the policy of providing special protections for a defined set of employees was still relevant and desirable (the policy review).

7 The Review of both the operation of Part 6A and the policy it gives effect to, proceeded in two stages. These were:

Stage One (2009/10): On 30 November 2009, Cabinet approved the Terms of Reference for the Review [CAB Min (09) 42/7 and EGI Min (09) 26/7 refer]. On 15 February 2010, the Minister of Labour released a discussion paper setting out key questions for the Review and calling for submissions. The former Department of Labour (the Department) received 146 submissions. The Department also sought advice from a Sector Advisory Group. This first stage of the Review was completed in April 2010.

1 In relation to subparts 1 and 2 of Part 6A, restructuring refers to contracting out, contracting in, subsequent contracting, or the selling or transferring of an employer’s business (or part of it) to another person. 2 Subpart 4 provides that the Minister of Labour must require the report to be prepared as soon as is practicable three years after the commencement of the Employment Relations Amendment Act 2006. This Act commenced on 14 September 2006.

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8 Stage Two (2012): In 2012, the Department undertook further analysis to improve its understanding of the on-going relevance and desirability of subparts 1 and 2 and, in particular, to gain a better understanding of their costs and benefits for affected employers, employees, and industries. This included an independent cost-benefit analysis of subparts 1 and 2. This cost-benefit analysis involved interviews with a range of key stakeholders, including members of the Sector Advisory Group that contributed to the 2009/10 review, and reference to existing statistical databases.

9 The review drew on qualitative evidence that included public submissions to the initial 2009/10 review process and key stakeholder interviews undertaken as part of the 2012 cost-benefit analysis, and quantitative evidence from existing statistical databases.

Findings of the policy review of subparts 1 and 2 of Part 6A

Stage One

10 Stage One of the review found that:

a while Part 6A may appear overly complex and imposes costs on, and reduces flexibility for employers, on balance the benefits seem to outweigh the costs,

b Part 6A achieves an appropriate balance between ensuring continuity of employment protection for the defined set of employees and business performance and productivity in the affected sectors,

c despite the concern of some employers, the relevant industries had remained highly competitive, and

d there were, nevertheless, significant operational issues impacting on the affected businesses. The issues were largely concerned with the transfer of individualised employee information and accrued entitlements at the time of transfer, and problems with the disclosure of employee cost information prior to restructuring decisions.

11 The Stage One review work found that most employer submitters would prefer that Part 6A be repealed and that it is considered, overly complex and inequitable. Despite these issues, the Review findings also indicated that in practice the policy works and on balance it is worthwhile. All employee submitters wanted Part 6A retained (albeit with some improvements).

12 In Stage One it was also found that while Part 6A has been a concern to some employers, the relevant industries have remained highly competitive. Furthermore, an appropriate balance of efficiency and equity is achieved through this policy when compared with alternative approaches, such as enhanced general protections.

13 Larger employers who are dealing with the requirements of Part 6A more frequently, have found ways to make the provisions work for them. However many smaller employers, who did not deal with Part 6A frequently, face a greater level of risk in managing unknown financial liabilities they may incur in the transfer process.

14 Finally the Stage One review process concluded that overall the legislation contributes to positive social and economic outcomes in New Zealand. These findings are partly premised on the following:

a industries with low-skilled and low-paid employees can benefit when wages and employee conditions are excluded from the contest for contracts and

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competition is instead focused on management, technical innovation and investment,

b continuity of employment protection in labour-intensive industries with high employee turnover can improve workplace stability and productivity, and

c broad socio-economic benefits can be achieved through improving the job security and workplace stability of employees who lack scarce skills and who are at risk to unemployment and related negative outcomes.

15 Qualitative evidence from Stage One on the practical operation of Part 6A provided insight into how continuity of employment protections have worked in some industries. In particular, it indicated that Part 6A as it is currently configured has improved the security and continuity of employment for the identified employees. Significant operational issues mainly impacting on businesses were identified, but potential solutions were also identified.

Stage Two – independent cost-benefit analysis

16 The Department subsequently commissioned an independent cost-benefit analysis (CBA) to gain a better understanding of the economic costs and benefits at the level of the national economy of subparts 1 and 2 for affected employers, employees, and industries.

17 The CBA found that subparts 1 and 2 may impose a marginal net cost on the economy, but the results should be treated with a significant degree of caution, and should not be interpreted as a definitive “negative result”. This caveat was related to a paucity of available verifiable data, including data for modelling a key benefit of the policy, which arises from employment continuity for employees.

18 The analysis also found that both the benefits and costs of subparts 1 and 2 are small in a national economic sense. However, it also confirmed the finding from Stage One of the review that the costs Part 6A imposes on employers could be reduced, while protecting the core benefits it provides to employees.

Findings on the operation of Part 6A

19 A key driver behind this legislation was to prevent the competitive tendering process from undermining the terms and conditions of employees who were subject to frequent restructuring and who lacked the bargaining power to necessarily negotiate favourable outcomes each time their contracts of employment were renewed. The Review found that Part 6A has addressed this through achieving its primary objective of providing continuity of employment for employees when an employer’s business undergoes restructuring and the employee(s)’ work is assigned to a new employer.

20 Another driver behind the legislation was to assist the smooth transfer and efficient operation of businesses engaged in regular contracting out. The submission process in Stage One of the Review provided evidence that some employers considered that some aspects of Part 6A compromised the smooth operation of businesses. This was mainly due to a lack of clear responsibility for key aspects of the transfer process.

21 In particular, currently the liability for accrued employee entitlements, including annual holidays, alternative holidays and sick leave, is transferred from an outgoing employer to an incoming employer with no corresponding obligation to transfer individualised employee information or funds. There was strong support across all

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submitter groups to require the outgoing employer to provide individualised employee information when a transfer occurs and to provide funds that cover the accrued entitlements, to either the new employer or the transferring employee.

Background

Development of the policy - 2001 minimum standards review

22 The introduction of Part 6A in 2004 followed a Ministerial Advisory Group review of minimum employment standards in 2001, which reported that some employees were disadvantaged by the process of contracting out. The minimum standards review found evidence that employees with limited bargaining power were susceptible to having their terms and conditions of employment undermined at a time of restructuring, as employment agreements were terminated at the end of each contract for service and new agreements were entered into.

Current policy of special protections for some employees (subpart 1 of Part 6A)

Protecting continuity of employment

23 Subpart 1 of Part 6A provides protection for the continuity of employment for specified categories of employees if their work is to be performed by another person as a result of restructuring, including situations where services are contracted out, subsequent contracting, or sale/transfer situations (s69A).

Removing employee wages and conditions as a basis of competition

24 Part 6A effectively removes elements of business practice (employees’ wages and other conditions of employment) from the competition or market for services. This is similar to the effect of employment regulation, which sets out minimum standards, such as minimum wage and holiday entitlements. This creates an even playing field for employers so fair employers cannot be undercut by employers who provide less favourable terms and conditions of employment.

Application to particular employees in particular industries

25 The policy only applies to particular employees in particular industries. This is on the basis that the employees in these industries are particularly disadvantaged due to an accumulation of factors. These factors include frequent restructuring in their sectors, limited bargaining power and concentrations of relatively low-skill occupations.

26 Schedule 1A of ER Act sets out the employees who are covered by the special protections. Subpart 1 of Part 6A provides for coverage of employees delivering the following services in specified sectors, facilities, or places of work (as outlined in Schedule 1A):

a cleaning services, food catering services, caretaking, or laundry services for the education sector,

b cleaning services, food catering services, orderly services, or laundry services for the health sector,

c cleaning services, food catering services, orderly services, or laundry services in the age-related residential care sector,

d cleaning services or food catering services in the public service,

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e cleaning services or food catering services in relation to any airport facility or for the aviation sector, and

f cleaning services or food catering services in relation to any other place of work (within the meaning of the Health and Safety in Employment Act 1992).

Specific rights provided in subpart 1 of Part 6A

27 The categories of employees specified in Schedule 1A:

a may elect to transfer to a new employer on the same terms and conditions as applied immediately prior to the transfer—s69I,

b must be provided with a reasonable opportunity to exercise the right to elect to transfer, including sufficient information to make an informed decision—s69G,

c are free to bargain an alternative arrangement with their employer (for example to remain with their current employer) following the provision of information. Any agreed alternative arrangements must then be recorded in writing—s69H, and

d have the right to negotiate redundancy arrangements with the new employer should the new employer subsequently make them redundant for reasons connected to transfer or circumstances relating to the transfer and if their employment agreement is silent about redundancy entitlements in such situations. In the event that negotiation for redundancy fails, employees may apply to the Employment Relations Authority for an investigation and determination— s69N and s69N.

Obligations on employers to facilitate transfers (subpart 2 of Part 6A)

28 If requested, an outgoing employer must disclose employee transfer cost information (in an aggregated form) to a new potential employer in sufficient time for the information to be taken into account in the tendering process. This includes the number of employees who have a right to transfer, the wages or salary payable in a stated period to such employees, the total number of hours such employees spend in a stated period performing the work, the cost of service-related entitlements of the employees, and the costs of any other entitlements of the employees including any entitlements agreed but not due until a future date or time—s69OB.

Processes for amending the special protections coverage

29 There is a specified process by which the Minister of Labour can add to, omit from, or vary, the categories set out in Schedule 1A through an Order in Council. The criteria for inclusion are that the employees are employed in a sector in which restructuring occurs frequently, the restructuring tends to undermine the employees’ terms and conditions of employment, and the employees have little bargaining power (s237A).

Population groups most affected by the special protections

30 Exact numbers of employees and employers affected by subparts 1 and 2 are not known but estimates were produced by the Department, drawing on data from a range of sources.

Employers

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31 The Department estimated that as many as 5,500 employers could be affected by the provisions. This includes between 600 and 700 in catering services, approximately 3,000 in building and other industrial cleaning services, over 100 hospital employers, from 400 to 500 in other health care services, approximately 400 in other repair and maintenance, and over 600 in laundry and dry-cleaning services.3

Employees

32 In arriving at an estimate of the numbers of employees potentially affected by subparts 1 and 2, the Department used Business Demography (BD) employee count data from Statistics New Zealand for the year ended 2011, and the Linked Employer-Employee Database (LEED) data for the total number of jobs in the Building Cleaning, Gardening and Pest Control Services category. From this data, it is estimated that there are between 26,000 and 29,000 employees who could be affected by subpart 1, including approximately 20,000 in the cleaning sector, between 3,000 and 4,000 in caretaking, approximately 800 orderlies, and approximately 2,500 in laundry.

Gender

33 The 2006 Census indicates that amongst specific occupational classes such as cleaners and laundry employees, and food preparation assistants, women were the majority of employees (68 percent and 64 percent respectively).

Ethnicity

34 From the ethnicity data available for specific occupational groups it is estimated that employees covered by Schedule 1A of ER Act are 62 percent New Zealand European, 18 percent Māori, 9 percent Pacific, 9 percent Asian, and 10 percent other categories (Middle Eastern/Latin American/African, and other ethnicity).

Current policy for all other employees (subpart 3 of Part 6A)

35 All other employees, not specified in Schedule 1A, are covered by subpart 3 of Part 6A. This provision applies in restructuring situations resulting from the sale and transfer of business and contracting out. Subpart 3 does not apply to contract in or subsequent contracting situations. Furthermore, the provisions are considerably less prescriptive than those provided in subpart 1.

36 Subpart 3 requires that every collective and individual employment agreement must contain an employee protection provision. The purpose of such a provision is to provide protection for the employment of employees affected by a restructuring. An employee protection provision includes:

a a process that the employer must follow in negotiating with a new employer about restructuring to the extent that it relates to affected employees,

b matters relating to the affected employees’ employment that the employer will negotiate with the new employer, including whether the affected employees will transfer to the new employer on the same terms and conditions, and

3 Statistics New Zealand’s Business Statistics 2009

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c the process to be followed at the time of the restructuring to determine what entitlements, if any, are available for employees who do not transfer—s69OI.

37 Subpart 3 grants the affected employee the right to choose whether or not to transfer to new employer only if there is an offer of transfer.

The broad legal framework for restructuring and redundancy

38 Restructuring is a natural part of a business life-cycle as a firm grows or shrinks and responds to changes in market conditions or other demands. It sometimes entails contracting services out, or in, and can involve making employees redundant.

39 In New Zealand, employment relations matters, including redundancy situations resulting from the restructuring of workplaces, are mainly regulated by common law. Common law accepts the right of the employer to determine the structure of the business and, therefore, to make positions redundant, subject to any redundancies being genuine and carried out in a fair and reasonable manner.

40 However, while not specifically defined and regulated in the ER Act, restructuring and redundancy are subject to the general good faith principle set out in the ER Act (s4). The duty of good faith applies, among other matters, to:

a a proposal by an employer that might impact on the employer’s employees, including a proposal to contract out work otherwise done by the employees or to sell or transfer all or part of the employer’s business—s4(4)(d)

b making employees redundant—s4(4)(e).

Summary of submissions to the 2009/10 Review

Consultation process and timing

41 The Department sought advice from a Sector Advisory Group on the terms of reference for the Review, the content of a public discussion paper, the consultation process and the analysis and findings of the Review set out in this report. The composition of the Sector Advisory Group and related processes is described in the terms of reference (Appendix A).

42 The Department also sought submissions on the Review of Part 6A from employers, employees, their representative organisations, interested members of the public, government agencies and Department staff with operational experience of Part 6A.

43 On 15 February 2010, the Department released the discussion paper which set out key questions for the review of Part 6A and provided a consultation form to guide submissions.

Numbers and make up of submissions

44 146 submissions were received including:

8 employee representative bodies,

94 individual employees (mainly directly affected by subpart 1 of Part 6A),

12 employer representative bodies,

18 individual employers, including 10 large and 4 small enterprises,

7 legal services groups, including law firms and community law centres, and

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7 other types of groups, including healthcare providers, franchise owners, non-profit associations, the National Advisory Council on the Employment of Women and contract principals.

Broad directions for change suggested by submitters

45 As indicated in Figure 1 the submissions broadly fell into two groups regarding directions for change:

a Repeal: 29 submitters (employers, employer organisations and some legal services organisations) expressed a preference for subparts 1 and 2 of Part 6A to be repealed. Most of these submitters also suggested options for improving the operation Part 6A in the event that it is retained.

b Retain: 113 submitters (employees, employee organisations, and a few employers and legal services organisations) expressed a preference for the whole of Part 6A to be retained and/or improved. These included two submissions that proposed extending the coverage of Subpart 1 to other categories of employees.

46 A few outlying submissions suggested alternative options, such as expanding special protections to all employees or restricting them to large employers. Of the submitters that recommend repealing Part 6A, some also proposed alternative approaches for protecting disadvantaged employees, for example strengthening the good faith provisions in section 4 of the ER Act.

Figure 1: Directions for change provided by the submissions

Key areas of concern and for improving the operation of Part 6A

47 As also depicted in Figure 1 there was overlap across all submissions on specific areas of concern and related areas for improvement. Submitters with direct

Mainly suggested by employer and employee groups directly impacted

by Part 6A

a) Repeal Part 6A b) Retain Part 6A

29 submitters mainly employer groups and legal services

113 submitters mainly employee

groups, some employers, legal

services and others such as health

groups

Common areas of concern

E.g. lack of awareness of Part 6A by small businesses and non-compliance with transfer of

entitlements

Improve Part 6A

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experience of Part 6A in operation, whether for or against repeal, tended to identify options for improving Part 6A. Other submitters tended to provide more theoretical perspectives about whether the policy is effective and should be retained without much reference to how it has been working in practice over the previous six years.

Review of the policy of subpart 1 of Part 6A

Stage One: 2009/10 submitters views on the policy of subpart 1 of Part 6A

Views on the need for some special protection of continuity of employment

Some submissions indicated that they did not consider there is any disadvantage for the specified employees

48 Building Services Contractors of New Zealand Inc (BSCNZ) stated that their “members do not believe workers in the groups defined under Schedule 1A experience any more of a disadvantage during restructuring than does any other

Summary: Submissions to the 2009/10 review that supported repeal asserted at least one of the following viewpoints as to why subpart 1 of Part 6A constitutes the wrong policy approach:

it is a poorly designed law because it is overly complex, too tightly targeted (inequitable with respect to other groups of employees), and there are better ways to address issues of disadvantage (e.g. universal minimum standards)

it has negative impacts on competition, productivity and innovation and causes more problems than it solves (e.g. it may reduce employment and increase the likelihood of some employees staying in low-paid low-skilled work)

it is not desirable as there is no relative disadvantage for the specified groups compared to other groups in a restructuring situation.

Submissions that supported retention emphasised at least one of the following viewpoints as to why subpart 1 and 2 of Part 6A comprise the right policy approach:

it is a well-considered law arising from an extensive review process and international precedent and it effectively targets protection for employees most at risk of contracting practices being a vehicle for undermining terms and conditions

has positive impacts on continuity of employment and related security and health for at-risk and low-paid workers and their families and wider community

improves workplace stability and related productivity and prevents employees’ entitlements becoming a basis for business competition.

A 2012 cost-benefit analysis that attempted to quantify the costs and benefits of Part 6A to affected employers and employees found that both the benefits and costs of Part 6A are very small in a national economic sense. It also found that the costs to employers could nevertheless be reduced.

Overall, the review has found that although this legislation seems overly complex and imposes costs on, and reduces flexibility for, some employers, the benefits of having special continuity of employment protections for certain workers outweigh these costs.

It appears from the available evidence that an appropriate balance of efficiency and equity is achieved through this legislation when compared with alternative approaches.

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sector of the workforce. BSCNZ employers have provided many examples of employees who, although defined as ‘vulnerable’ in the legislation, have the necessary protections in both collective and individual employment agreements to ensure they receive substantial salaries, entitlements and redundancy compensation.”

49 In a similar vein many employers and some legal services, noted that:

a affected employees can negotiate for their jobs like other employees,

b it is mainly poorly performing employees that are not transferred,

c it is entirely unfair that one group of employees has greater protection than others solely on the basis of their trade, and

d many other employee groups are equally vulnerable, for example, other low paid employees such as retail workers.

50 Some employer and legal services submitters that did recognise some level of disadvantage for some employees did not, however, consider the trade-offs with viability and efficiency justified special protections. These views are discussed later in relation to submitters’ views on the impact of Part 6A.

Many submissions focussed on the disadvantage experienced by some employees

51 In contrast to most employer submissions, employees, employee representatives and some employers and legal services asserted that there was, and continues to be, disadvantage for employees in restructuring situations involving contracting out or the sale and transfer of business. This is because:

a employees are not able to influence whether contracting out or the sale or transfer of a business should occur, but following such a decision the consequential change in the legal identity of an employer might mean that their existing employment relationship ceased, and

b employees could be forced to agree to a reduction in their terms and conditions in order to secure on-going employment in the same job, albeit with a new employer.

52 Amongst these submitters many felt it was very important that there is special protection for particularly disadvantaged employees because:

a many of the specified employees are on low wages and particularly vulnerable to loss of any income,

b this issue affects a great deal of Māori and Pacific employees and removing Part 6A protections would create further disparities in these communities,

c before Part 6A was introduced many employees’ wages and conditions were driven down,

d stress is placed on employees if job security is subject to arbitrary commercial contracting practices beyond employees’ control and this creates health issues for employees and their communities,

e many of the affected employees have little bargaining power as the work is low skilled and often spread across many employers in separate workplaces, and

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f the practice of contracting out continues to be common place in the targeted sectors.

Range of views on categories of employees that should have special protection

53 Those submitters who did see a disadvantage for employees and a need for special treatment, held various views about who should be covered. These included:

a many employee submitters who indicated they thought the current coverage was appropriate because it had been working well so far,

b some submitters who felt the provisions should be expanded for all employees as the change of the legal identity of the employer should not ever impact on the employees’ terms and conditions,

c some submitters who suggested additional groups should be added to the current group, in particular two that recommended health care assistants should be included, and

d some submitters who felt that the current description should be tightened and clarified to ensure only vulnerable employees were covered, for example by placing a pay threshold on who was covered. (This was also noted in the review of the operation of Part 6A.)

Views on the impact of the policy to protect continuity of employment

The objective of protecting continuity of employment for specified employees is generally achieved

54 Most submissions from individuals and organisations affected by subpart 1 and 2 of Part 6A confirmed that the objective of protecting the continuity of employment for some employees has been achieved, the various technical and awareness issues identified in the operational review notwithstanding.

55 Employees have been transferred in the event of restructuring, including employees who the principal would have preferred to have removed. Part 6A as it is currently configured does appear to have improved the security and continuity of employment for the identified employees.

Some submitters also identified positive impacts from the policy for employers

56 Positive impacts identified by submitters for employers, included:

a a new contract comes with staff, although the calibre of the staff might be an issue especially if the contract was lost on service, and the need for training is reduced,

b a business cannot easily be undercut by another business on the basis of low wages, and

c the exclusion of employee terms and conditions as an element in the competition for contracts between employers, thus ensuring that improved management practices and other productivity innovations become the focus for achieving a competitive edge.

Some submitters saw a negative impact on employers and the viability and efficiency of the market

57 Some submitters felt that the policy had made it difficult to engage in some markets and stymied innovation and change because businesses:

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a have to take on badly performing staff and protected rights do not incentivise more efficient practices,

b have the administrative burden of understanding and complying with a complex and tightly targeted law and this may put some businesses off exploring potential business opportunities,

c are not able to institute technological and structural changes so swiftly because of having to undergo a redundancy process. BSCNZ noted that “the requirement to transfer all terms and conditions means that the incoming contractor is restricted in making improvements or doing anything innovative that will reduce or modify hours of the transferring employees. Any incoming employer can pay no less than their predecessor when it comes to transferring employees. Time saving machines, cleaning equipment and processes, or any other innovations that make the cleaning more effective and efficient are difficult if not impossible to implement. The transferring employee must continue to be paid their current terms, which includes their hours of employment. If the new employer can reduce the number of hours spent on the job by using a time saving product or device he is still obliged to pay the employee for the number of hours they spent on the job for the previous employer.”

Some submitters saw a negative impact on employees

58 Detrimental impacts on employees identified by some submitters included the potential for:

a there to be fewer jobs available for the specified group of employees, as some companies cannot afford to operate in this environment,

b missed opportunities for employees to benefit from improved productivity through new operators and new technologies, such as improved skills, better conditions of employment and more employment, and

c employees to become trapped in low skilled jobs rather than moving on.

Alternative approaches

59 Most submitters did not provide alternatives to the provision of special protections for some employees. They felt special protection was either necessary or it was not. However, a few submitters did propose a different approach. These included:

a one submitter who suggested New Zealand should adopt an approach closer to the regulation in the United Kingdom (Transfer of Undertakings (Protection of Employment) Regulations (TUPE)). More specifically, this meant that the category of vulnerable employees should be described rather than prescribed. This allows a much wider but more equitable approach to the protections,

b a few submitters who indicated that strengthening the provisions of subpart 3 of Part 6A and/or section 4 of the ER Act would be more equitable and ensure all employees were provided with protection,

c one submitter who suggested funding of advocacy for low-wage employees would be effective at meeting the needs of more disadvantaged employees, and

d several submitters who also suggested bringing back an awards system to address issues of disadvantage.

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Discussion and analysis

The impact of Part 6A on targeted industries

60 When Part 6A was passed in 2004 the intention was that its implementation would occur alongside industry culture and business practice development of more sustainable, higher quality and fairer sectors.

61 At least some parts of the sectors affected by subparts 1 and 2 of Part 6A appear to have evolved practices to accommodate Part 6A, particularly larger employers. These practices include systems and agreements to obtain relevant information through commercial arrangements and factoring additional costs arising from accrued entitlements into tender processes, for example as outlined in the Building Services Industry ‘Code of Practice’.

62 Further evidence of improved cooperation in some parts of the industry is provided by the set of principles agreed to by the Property Council, Building Service Contractors, Service and Food Workers Union and the Government.

63 There is no evidence that affected businesses have failed solely due to the provisions of Part 6A. Rather there are indications of growth in the relevant sectors, although this is unlikely to be attributable to the introduction of Part 6A. There is also every indication that the relevant industries have maintained a highly competitive ethos.

64 BSCNZ noted that prior to the enactment of Part 6A there was a level of self-regulation, and agreements were being developed with the union to address issues related to transferring employees. BSCNZ suggested that if Part 6A had not been introduced, fair practices that promote continuity of employment would have evolved anyway.

Grounds for repeal

65 Submitters provided two distinct grounds for repealing Part 6A. These are dealt with separately in the following discussion as they rely on different assumptions and have different implications. In essence the two grounds are:

a Part 6A is poorly designed: while there may be a need to provide some protection of continuity of employment for some employees, Part 6A is the wrong policy approach for achieving this and there are alternatives that have fewer negative impacts. This set of arguments focuses on the idea that the legislation is overly complex, too tightly targeted and inequitable with respect to other groups of employees, and there may be better ways to address issues of disadvantage, for example, universal minimum standards.

b Part 6A is unnecessary: there is no need to provide protection of continuity of employment for some employees. This is based on the idea that there is no significant disadvantage compared to other employees, or, if there is a disadvantage, it does not outweigh other considerations. This set of arguments focuses on the idea that all employees should be treated equally and that the negative impacts of Part 6A on competition, productivity and

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innovation mean the legislation may cause more problems than it solves. For example, it may reduce employment and increase the likelihood of some employees staying indefinitely in low-paid and low-skilled work.

Part 6A is poorly designed

Theory versus practice

66 On the face of it this legislation seems overly complex, too tightly targeted and inequitable. However, in practice Part 6A seems to have achieved its stated objectives of protecting the continuity of employment for specified groups of employees.

67 Moreover, while Part 6A may be problematic for many employers in the affected industries, the relevant businesses do not appear to have been significantly adversely impacted. In general, businesses appear to have managed and adapted to the introduction of Part 6A. This may be because demand for the relevant services is relatively inelastic and therefore relatively insensitive to price. This would mean any resultant additional costs due to the requirements of Part 6A could be factored into tenders and contracts and fall back on the contract principals.

Alternative ways of protecting employees affected by restructuring situations

68 Theoretically, legislative alternatives to Part 6A could be more straightforward and equitable, for example, by providing:

a a broader more equitable protection for ‘vulnerable employees’ through describing rather than prescribing who the provisions apply to, and

b universal but reduced protection, such as minimum redundancy entitlements.

69 However, these options are likely to impact on more businesses and result in more litigation to test who is covered. These options may also be less effective for the employees currently targeted. In short, these alternatives might apply to a wider range of businesses, but they could increase levels of uncertainty, compliance costs and have less practical benefit for individual employees. In other words, this approach could increase the costs to employers at the same time as it reduces the benefits to employees.

Is there a relative disadvantage to address and is the policy relevant?

70 The following discussion outlines various assumptions and tensions related to the transfer or sale of businesses and contracting-out practices. It then draws on these assumptions to consider the relevance and desirability of special protections for some employees, and whether there is relative disadvantage for these employees.

Assumptions regarding the practice of sale, transfer or contracting out of business

a The practice is more prevalent or frequent in some service sectors than others.

b The practice allows for change, growth, retraction and innovation within service provision.

c Competition is a fundamental element of making this practice and the related market for services effective.

d The practice inherently disadvantages all employees at the time of transfer as it renders the existing employment agreement null and void.

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e Protection of continuity of employment takes an element of the business (employees and their terms and conditions) outside of the competition for contracts.

Tensions or trade-offs at the business level

71 Taking employees’ terms and conditions outside of the competition for contracts may constrain opportunities for business growth and innovation. It is critical, therefore, to ensure these constraints arise only for good reason. Long-term sustainability considerations and overall consistency with New Zealand’s broad economic and social goals are important factors that should be taken account of in any assessment of whether the constraints on businesses are there for a good reason.

72 Part 6A may reduce opportunities for innovation. However, it may also help to focus competition on performance of the business as a whole, rather than on employees’ wages. A key question to be considered in assessing the need for removing employees’ terms and conditions as a basis for competition in different sectors is, therefore, whether it is likely that this will result in unsustainable levels of downwards pressure on employees’ terms and conditions of employment. The answer to this question depends on the type of industry, and the characteristics of the workforce under discussion. For example, businesses that are competing with one another for highly skilled employees, will be unlikely to be able to drive down the price of labour as major source of competitive advantage, and are unlikely to need regulating to ensure minimum conditions of employment, including wage rates, are maintained.

73 Alternatively, in industries where employees are not highly skilled or necessarily in short supply, the market for labour will drive the price down and may also contribute to high levels of employment instability. Setting limits on the extent of this downwards pressure on the price of labour may be necessary for ensuring businesses compete with one another on a sustainable basis, that emphasises the skills of management to get the best from their employees and the technology adopted, rather than on increasingly low levels of pay for low-paid employees.

74 The trade-offs between facilitation of competition among businesses and swift innovation on one hand, and the protection of employees’ conditions of employment (and stability of employment) on the other hand, are therefore different in different industries. The level of contracting out, the kinds of employees (for example levels of required skill and pay) and the nature of the business all affect how these trade-offs can best be managed.

Tensions or trade-offs at the socio-economic level

75 It may also be desirable from a business perspective for the competition in some industries to be based on the terms and conditions of employees. However, this will have its limits, especially when the wider social and economic environment is taken into consideration along with broader, long-term economic impacts.

76 There are some categories of employees that are working in industries that are more likely to undergo restructuring, resulting in sale, transfer or contracting out of a business. These employees may also be more vulnerable to unemployment and its related social and economic impacts, with negative impacts on affected communities.

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77 The overall economic costs of these negative outcomes may well outweigh the benefits from increased competition in particular industries.

Further cost-benefit analysis 78 To gain a better understanding of the costs and benefits of subparts 1 and 2 for

affected employers, employees, and industries, the Department commissioned an external cost-benefit analysis (CBA) as part of the review of Part 6A. This CBA was completed in May 2012. Using data gained from interviews with key stakeholders, and from available statistical datasets, the CBA attempted to quantify, from a national economic perspective, the benefits and costs of subparts 1 and 2, including:

a consequential value employees are likely to receive from the protection of employment, wages, leave entitlements and hours at the time of contract transfer and rights to possible redundancy afterwards, minus the cost of these to employers,

b administration and transaction benefits and costs associated with the transfer process minus what would have been incurred in the absence of the provisions,

c uncertainty around the transfer process and costs for employers, and

d longer-term efficiency costs created by perverse incentives when employers and employees do not face the full cost of their decisions and employers have less flexibility in their hiring practices.

79 The CBA modelled these benefits and costs under three scenarios - low, medium, and high.4 The high (optimistic) scenario assumed high benefits and low costs, the low scenario low benefits and high costs, and the medium scenario effectively reflected the midpoint for costs and benefits.

80 The CBA found that subparts 1 and 2 impose a marginal net cost on the economy under the low and medium scenarios. Table B below sets out estimates of the benefits, costs, and benefit-cost ratios over a seven-year period under the CBA’s high, medium, and low scenarios.

Table B: Cost benefit scenarios

Summary results (over seven years)

Scenario

High Medium Low

Total benefits $2.420m $1.253m $0.533m

Total costs $2.378m $2.695m $3.171m

4 The interviews included most members of the SAG that provided input into the 2009/10 review. The statistical sources included Statistics New Zealand’s Household Labour Force Survey, Linked Employer-Employee Database, Quarterly Employment Survey, and Labour Cost Index.

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Summary results (over seven years)

Scenario

Net benefits $0.042m - $1.442m - $2.638m

Benefit-cost ratio 1.02 0.46 0.17

81 The results should be treated with a significant degree of caution, however, and should not be interpreted as a definitive “negative result”. This is due to a paucity of available, verifiable data, especially data that would allow for an effective modelling of the benefits to employees.

82 As the table above shows, the CBA found that both the benefits and costs of Part 6A are very small in a national economic sense. It also found that the costs to employers could nevertheless be reduced.

Conclusions of the policy review 83 For some categories of employees in some industries, there is a convergence of

susceptibility to unemployment and negative socio-economic outcomes alongside risks of restructuring and either redundancy or reduction of terms and conditions of employment. In these cases there is a trade-off to be made between efficiency and competition in the particular industries and employment protections for particular employees. This is the primary reason why New Zealand and other countries provide protective minimum standards in employment and international instruments reinforce the need for these.

84 The current policy of Part 6A provides a targeted protection. It is intended to manage the potential for disadvantage to employees arising from the renewal of employment agreements during restructuring through contracting out, contracting in, subsequent contracting or the sale or transfer of a business, while at the same time retaining the viability and efficiency of the market. Designing such legislation is a difficult task as there are always trade-offs and it is difficult to predict how well they will be balanced in different contexts, given the number of variables involved.

85 At the Select Committee stage in the development of the current law, it was predicted that it would be ignored, prove unworkable and result in litigation. However, the legislation has been in place for eight years and its impact on businesses and employees is no longer a matter for conjecture but rather something that can be assessed in the light of experience.

86 The findings of the Review indicate that, this legislation seems to be reasonably effective in meeting its objectives of protecting specified groups of employees and does not seem to have created many adverse outcomes. Most of the issues identified by employers and employees may be addressed through improvements to the operation of Part 6A, particularly around the transfer of entitlements and disclosure of information, rather than changing the policy itself.

87 The Ministry of Business, Innovation and Employment (MBIE) is not able to so easily examine the impact of changes to the coverage of the existing policy or the impact of alternative approaches. This is because MBIE would be speculating on how the various trade-offs would impact on various industries. However, MBIE can look at other jurisdictions for a sense of how some other approaches might work.

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88 Overall, the Review has found that on balance the benefits of Part 6A are likely to outweigh its costs. While the results for the CBA varied, it had found that both the benefits and costs are small in a national economic sense.

89 Given that the status quo is relatively stable, and given the balance of findings and arguments in the Review, it seems the best way forward is to maintain the current policy with improvements to its operation to reduce its costs and provide much more certainty for employer, while protecting the core benefits it provides to employees (as detailed below).

Review of the operation of Part 6A

Knowledge and awareness of the Part 6A

Submitters’ views on knowledge of Part 6A provisions

Submitters noted poor knowledge of Part 6A beyond those actively engaged in transfer processes and many called for improved information provision.

90 Submissions indicated that awareness of Part 6A is greatest where the provisions directly impact on the business. Several submissions also noted better knowledge where firms are large, connected with employer associations, and where the employees tend to be represented by unions.

91 While many submitters, including employers and employees, called for better education, particularly for small businesses, the Building Service Contractors of New Zealand (BSCNZ), Service and Food Workers Union Nga Ringa Tota (SFWU) and some other organisations outlined extensive work they had undertaken to ensure their constituencies were equipped with the information and tools to manage the transfer process. However, the BSCNZ also noted there were a large number of employers who are not represented by their association “who simply choose to ignore the law.”

92 Submitters who identified a lack of awareness expressed concern at the consequences of this. Three problem situations were highlighted. These are where:

a the principal reacts negatively to an incoming contractor retaining staff from the outgoing contract,

b an in-coming contractor resists employing transferred staff, and

c an outgoing employer resists providing necessary information to the incoming employer.

93 Submitters identified two key reasons for the lack of awareness:

a the impractical and complex nature of the current provisions, making it difficult to understand and comply

b a lack of available resources for transmitting information.

Several suggestions were made for enhancing awareness.

Summary: There appears to be a lack of knowledge of the provisions of Part 6A amongst smaller employers and their employees when they are not affiliated with any associations or related bodies. Submitters generally agreed that this issue can create unfair and negative outcomes for all parties.

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94 The range of approaches recommended included:

a development of a code of practice,

b dissemination of information through existing MBIE channels in a range of languages appropriate to the sector,

c dissemination of information by MBIE, targeting small businesses in particular through umbrella organisations, professionals involved in the purchase and sale of businesses, financial institutions, industry bodies, unions, and employer groups, and

d using Employment Relations Education Leave (ERE) and related funding as a mechanism for training groups by employee and employer organisations.

Discussion and analysis

Key issues

Many small businesses and contract principals are unaware of Part 6A.

Part 6A is complex and difficult to understand for affected parties.

95 There is general agreement across submitters from all perspectives that lack of knowledge by key parties to a transfer situation, whether it be on the part of the principal, outgoing employer or incoming employer, can create unfair and negative outcomes for all parties. Further, the lack of clarity around the operation of some provisions is seen to act as an incentive for some parties to ignore them.

96 It is clear that the complexity of the law does not always lend itself to an intuitive understanding of the provisions by affected parties. As a result standard provision of information is insufficient. Improving knowledge and awareness could help improve the operation of Part 6A in all the areas of concern.

97 Clearer guidance material, such as a code, on the application of the law may go some way to addressing concerns that the complexity of the legislation acts as a disincentive to compliance. Clearer (perhaps more prescriptive) obligations around some provisions may also prove to be an effective way of improving both knowledge and related compliance.

Conclusions on improving knowledge and awareness

98 Overall, improved knowledge and awareness, and related compliance, will support a more even playing field in the highly competitive markets targeted by this legislation.

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The transfer of accrued entitlements

Submitters’ views on the transfer of accrued entitlements

Submitters generally advocated change to the current provisions on the transfer of entitlements on the basis that the legislation is confusing and impractical.

99 Submissions favoured greater clarity for parties around entitlements with legal recourse for non-compliance. Most submitters noted the issues in this area citing disputes over entitlements between outgoing and incoming contractors and between employers and employees. Submissions commonly referred to a reluctance of outgoing contractors to provide information relating to the cost of entitlements once they had forfeited the contract, impeding the transfer of entitlements.

100 Some employers considered the current provisions impractical in terms of achieving fair and accurate calculations in a sector characterised by non-standard employment. Examples of this included:

a irregular hours worked by many employees in the relevant sectors make assessment of the portion of leave entitlements difficult in situations of a partial transfer,

b entitlements assessed at the point of transfer may increase for the new employer following the transfer as a result of in-built, and undisclosed, increases in benefits contained within employment agreements,

c the assessment of sick leave was described as often “a pure guess” and resolving disputes became the responsibility of the incoming employer, instead of the outgoing employer, and

d funds to cover entitlements were often not transferred in time to be utilised by employees as soon as the new contract commenced.

There were opposing views on whether employees should be paid out at the point of transfer as opposed to transferring funds to the employer.

101 Most submitters shared an interest in ensuring that the ownership of the liabilities was at all times clear and enforceable. However, views varied on how this should occur. Most employers favoured the cashing up of entitlements at the end of employment. Large employers, in particular, expressed concern at the possibility of an outgoing employer defaulting on payments which could be substantial and put the survival of an incoming firm at risk.

Summary: Considerable confusion and dissatisfaction around the transfer of accrued entitlements is evident. Submitters generally agree that uncertainty around the provision of employee cost information and lack of obligations on the outgoing employer to provide individualised employee information or to transfer funds creates difficulties. These include failures to adequately take liabilities into account in tenders and disincentives to outgoing employers to transfer funds. An area of particular confusion is where there are partial transfers.

There is a shared interest in ensuring that the ownership of all liabilities is clearer and enforceable. Options for achieving this involve determining responsibility for liabilities in the legislation and simplifying the management of entitlements, including in situations of partial transfer.

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102 However, Business New Zealand also expressed concern at the risks to firms, especially small to medium sized enterprises, from the requirement to have liquidity commensurate with obligations at the point of transfer. Some of the risks identified in the submissions from employers included:

a dealing with insolvent clients or companies where employees’ entitlements are being extracted from an insolvent company or paid into an insolvent company,

b costs associated with employees who are transferred without the required funds to cover service-related benefits, such as leave, and

c compliance costs associated with administering the transfer of liabilities, including the checking and re-checking of entitlements.

103 Employees, their representative organisations and some small firms and lawyers preferred a legislative provision for the transfer of entitlements. Most employee representative organisations defined this as a supplement to current law that would place obligations on both the outgoing employer to disclose the full entitlements, and on the incoming employer to recognise the value of those entitlements. One large law firm suggested that a letter of demand for entitlements could be served on the outgoing employer, supplemented by an order for payment from the Employment Relations Authority and backed by recovery in the Courts. One employers’ organisation proposed a process by which the incoming contractor confirmed the status of entitlements and was then indemnified for the value of those entitlements.

104 Views were divided across all submitter groups about whether there should be a choice for parties about how entitlements were resolved. Most employee organisations said that choice around this issue would undermine the purpose of the legislation, which was to ensure continuity of employment. Some organisations said that the inferior bargaining power of the affected employees would compromise any statutory right to choose, while health organisations were concerned at the impact of paying out entitlements on the health of low paid employees who forfeited rights to statutory leave. Large employers and their representative organisations generally supported choice for both employers and employees. Some expressed confidence that, given the choice, most employees would cash up their entitlements.

Many submitters were untroubled by partial transfer situations.

105 Partial transfers are common in some of the sectors covered by Schedule 1A, such as commercial cleaning. Employees, representative organisations and small organisations were satisfied with the operation of Part 6A in partial transfer situations, although the SFWU recommended exemption from secondary tax for employees affected by partial transfer situations.

Employers were concerned about the fairness and practicality of partial transfers.

106 Submissions highlighted areas employers found impractical, including benefits that were no longer relevant to a partial transfer situation, such as the use of a van to travel to multiple sites. In the case of statutory leave, a submitter questioned how a public holiday entitlement would be allocated when work was spread across more than one site, and also how sick leave entitlements would be apportioned.

107 Some employers said they had difficulty calculating annual leave entitlements where employees hold more than one job. One said they had faced problems with

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the allocation of accrued public holidays: “If they only worked on one of the sites on a public holiday for 2 hours [their normal hours of work] and were given the public holiday off for the other two sites, how would the alternative day apply and be transferred and what alternative day would be transferred?”

108 Legal firms and employers recommended that the way in which leave is calculated for the purposes of partial transfers, should be addressed at least.

There was general support for legislative obligations around the management of transferred and accrued entitlements.

109 Some employers commented on the potential for outgoing employers to operate dishonestly, for example by exaggerating transferring staff entitlements to sick leave to punish the contractor who has won the tender. The range of options canvassed for improving the fairness and management of liabilities included providing for:

a paying out of statutory entitlements (with or without the transfer of sick leave),

b mandatory transfer of entitlements, with legal recourse for the incoming contractor and penalties for the outgoing contractor in the event of non-compliance,

c an obligation on the outgoing employer to confirm the status of entitlements at the point of transfer, and on the incoming contractor to recognise the value of the entitlements,

d a choice of paying out entitlements, or transferring the liabilities, with the choice resting variously with the employee or the employer,

e timeframes for disclosure of costs and transfer of funds,

f access to Department services to help determine and enforce entitlements, and

g indemnification of the incoming employer or employees against loss.

Discussion and analysis

Key issue

Failure to obligate outgoing employers to meet the cost of annual holiday and alternative holiday entitlements accrued under their employment.

110 This area appears to create the most significant issues and dissatisfaction with the operation of Part 6A, from all perspectives. This indicates a failure of the current policy intention, which is that the transfer of accrued entitlements would be considered during the commercial negotiations and allow for a greater degree of flexibility for the parties involved.

111 There is considerable confusion around the fact that there is currently no statutory obligation for an outgoing employer to transfer funds to the new employer to meet the costs of employees' accrued entitlements, such as annual holidays and alternative holidays. It is important to recognise that holiday pay cannot be paid out to employees prior to the transfer, so the incoming employer must take this into account in the contract negotiations.

112 Although not part of the policy intent, the current legislation has inadvertently created a situation where outgoing employers can neglect their obligations to

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employees around accrued entitlements. There was strong support across all submitter groups for rectifying this situation, so that the ownership of these liabilities sits with the business where the entitlements were accrued, and where the funds for such liabilities should have been routinely earmarked as non-contingent liabilities.

113 Some practical issues were raised by submitters on this but these may have been overstated. For example, there were lengthy descriptions by some submitters of difficulties for an outgoing employer attempting to determine the amount of funding they were required to transfer. It is clear, however, that most of these issues would exist whether there was protection for continuity of employment or not. If a contract changes, and an employer ceases to have an employment agreement with an employee, the outgoing employer is required to determine the entitlements and pay them to someone, whether it be to the employee or to a new employer.

114 Also the partial transfer scenario was raised. This can complicate the transfer of entitlements but the Holidays Act 2003 (s17) allows for arrangements around holiday entitlements to be made by negotiation or through a Labour Inspector determination.

115 In any event, it does appear that adequate transfer of funds is not always happening. This may be because of practical issues, or because Part 6A does not require the transfer of employee entitlements between employers. It may also be because there are minimal incentives on outgoing employers to transfer funds. Furthermore, the evidence from employers managing the calculation and transfer of entitlements in these situations indicated that the lack of prescription in legislation does cause significant confusion and the risk of disputes.

116 While not unanimous, the general consensus appears to be that there should be legislative amendments to ensure the ownership of all liabilities is clear and enforceable. Achieving this would necessarily reduce flexibility about how the accrued entitlements should be managed. However, this may be justifiable if the amendment is effective in aiming to minimise the cost of disputes, ensure employees access their entitlements and eliminate anti-competitive practices of firms that take advantage of the lack of specificity in the current law.

Conclusions regarding improving the transfer of funds to cover accrued entitlements to the new employer

117 It is clear there is a need to better clarify responsibility for service-related entitlements of transferring employees in the legislation. This is a more prescriptive approach but will simplify the management of entitlements for all parties. The trade-off for reduced flexibility in the contract negotiation process will be increased certainty about what will happen, enabling costs to more clearly and fairly be taken into account in tenders and contract negotiations. There is also a trade-off to be made between the continuity of employment outcomes and efficiency, fairness and practicability for employers.

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The provision of employee cost information

Submitters’ views on the provision of employee cost information

There are two separate areas of concern around the provision of cost information.

118 Views varied significantly around the best approach for ensuring the provision of:

a meaningful information in sufficient time to be taken into account in the tender process, and

b accurate information for the implementation of the new contract after the new tender is awarded.

Submitters noted that the required provision of information at the time of tendering was not always forthcoming.

119 Compliance with current obligations was presented as challenging by employer submitters. Large employers highlighted problems for outgoing contractors associated with pre-tender information requests. They also noted issues for prospective employers associated with the receipt of timely information for the purposes of submitting a tender. OCS Limited, for instance, indicated that creating aggregate data of individualised information was time consuming, with responses to most requests for information taking longer than a month. Given the tight tender timeframes, this could compromise compliance with the information request provisions. Some employers also commented on situations where resistant outgoing employers purposefully delayed information and jeopardised a smooth transfer or sale process.

120 The nature of the commercial transactions in the relevant sectors underpinned much of the employer concern about the practicality of information transfer. One large employer said the timeframes for a contract change were tight and due

Summary: There was general support for greater certainty, transparency and timeliness in the information provision at the point of transfer. However, many employer submitters objected to the requirement to disclose information at the pre-tender stage. Submitters cited commercial sensitivity as grounds for current non-compliance.

The current policy relies on the provision of employee cost information to inform the tender process and related negotiations. The quality and timeliness of this information is fundamental to the fairness and effectiveness of the process, so that the costs can be properly considered during the commercial negotiations. This is because there is no current requirement for outgoing employers to pay funds to cover accrued entitlements, either to the employee or the incoming employer, and also no requirement to provide individualised employee information at the point of transfer. If these two matters were to be addressed as suggested in the previous section, then the need for pre-tender information is reduced.

However, while subpart 2 is a concern to some employers, it reduces the risk to businesses (and transferring employees) of “tendering blind” without good information on the costs and liabilities they will be taking on. This can include the risk of transferring employees being made redundant or at least of reducing their terms and conditions, because the incoming employer is unable to meet the higher-than-expected costs associated with these employees within the price negotiated for the work.

Subpart 2 also reduces the risk of situations where an outgoing employer increases the pay rates of transferring employees just before restructuring takes effect.

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diligence did not take place in the target sectors. Employers generally advocated that the “normal” contractual processes should apply, without reference to employee obligations associated with continuity of employment. Business New Zealand for example, was opposed to obligations being imposed on employers over and above the requirements of normal commercial practice.

121 Conversely, employee representatives, small organisations and some law firms advocated greater transparency. It was noted that employers should have information readily available on all entitlements in the event of any contract change, whether the employees transfer or not, and that the claims in relation to compliance costs were therefore “unnecessarily, and unfairly emphasised”.

Opposing views were expressed about whether employee cost information is commercially sensitive.

122 A number of employers and legal services maintained that employee cost information is commercially sensitive and should not have to be disclosed to competitors. One employer representative organisation noted that there was a “gentleman’s agreement” not to request cost information because it was anti-competitive, but this applied only to the larger firms.

123 Business New Zealand noted that “the requirement to provide financial information is at odds with the normal process involved in a commercial sale or contract, which depends on the purchaser undertaking due diligence and seeking to satisfy themselves that all is in order. Subpart 2 of Part 6A creates obligations over and above normal commercial practice…Nowhere in commercial law is there a requirement that an existing holder of a contract provide information to someone where that information may result in the loss of the contract. The requirement to provide information in subpart 2 is also inconsistent with section 34 of the ER Act which at least allows for an independent reviewer to decide whether information requested in collective bargaining should or should not be treated as confidential.”

124 Conversely many employees and their representatives submitted that the notion of commercial sensitivity is used as an excuse or “a smokescreen” for employers to avoid their obligations. The New Zealand Council of Trade Unions (NZCTU) stated that “employee transfer cost information cannot be deemed commercially sensitive... rather than protecting any innovation or intellectual property, employers’ claims of commercial sensitivity are an attempt to obscure and weaken the understanding of the rights and benefits that workers have negotiated and promote cuts to workers’ rights and incomes.”

125 Some employers also submitted that some commercial enterprises use the excuse of commercial sensitivity to reduce transparency and openness in such processes and to make sure that they are not underbid by another company. The incentives for this are obvious when it is recognised that most of a cleaning contract’s costs are labour costs.

126 However, one legal service submitter that acknowledged the need for limits to the requirement to disclose employee cost information, also suggested that disclosure can serve the interests of the incumbent employer because it ensures competing tenders reflect accurate estimations of employee costs.

Common concerns about delayed and inadequate post-transfer information provision.

127 Delays in information provision were the subject of a number of submissions, both in relation to pre-tender information and post-transfer details about employees.

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One employer said delays meant they had to operate without the requisite information about employees. Spotless Services Limited provided an example of taking over a contract where information was not transferred for six months during a period when employees wished to take summer leave and they were unable to act upon their requests. This was matched by concerns from unions, community-based organisations and employees, who referred to incorrect payments and delays in the recognition of entitlements. One employee alluded to this, saying it was “extremely difficult to get my employers to give any form of written acceptance of them taking on my entitlements”.

Views varied on whether to have an obligation to disclose information but there was considerable support for greater detail and timeliness in the information, if required.

128 Many submissions indicated that there was a need for more specific requirements in relation to the transfer of information in two phases of the restructuring process. The first was when the tender was being developed and submitted. The current provision relates to total hours in a stated period of time, but does not include current vacant hours, which some submitters thought should be included. Nor does the current provision include a timeframe, which created logistical difficulties in the development of tenders. The second phase of the process, where current provisions for disclosure of information needed to be more specific was during the transfer of employees. In particular, the individualised information, which is necessary once the successful tender is confirmed so that individual entitlements can be acknowledged and provided for by the new employer, must be made available by the outgoing employer but the Part 6A does not include this. One submission recommended this occur with employee agreement to overcome privacy concerns. Suggestions for individualised information transfers included:

a the full personnel file,

b relevant employment agreements, to include additional contingent liabilities, and

c time and wages records.

129 Timeframes were recommended from all groups for the two phases of the transfer process, first in time for tender proposals to reflect the value of entitlements; second, for more detailed and individualised information at the point of transfer. Many submissions acknowledged the importance of deadlines that reflected the variety of tender processes, both in complexity and urgency.

Submitters proposed legal changes to address issues with information disclosure

130 A common view was that in the absence of legal recourse for non-compliance against the outgoing contractor, current information provisions were unhelpful. One contractor noted that there was little value in advising the client that information was inaccurate after the new contract was awarded. The contractor who failed to secure a bid just had “to wear it”. Potential changes to improve this area included:

a a requirement that the full value of the accrued entitlement is disclosed in the transfer costs information within a specified time (for example, within one month of transfer),

b the right for the principal/client to initiate information provision,

c penalties for non-compliance, and

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d guidelines for post-transfer management of information and costs.

Discussion and analysis

Key issues

Non-compliance by some outgoing employers in providing timely and useful information for the tendering process.

Inadequate information provision at the point of transfer. Perceptions of commercial sensitivity.

131 Despite being lengthy and complex, the provisions requiring information disclosure are vague and not particularly comprehensive. There are no prescriptive guidelines or rules about the management of information before or following the award of a successful tender, except to say that transfer costs information must be “in sufficient time for the person who made the request to take the information into account for the purpose for which it was requested” (section 69OC(5)). This lack of specificity, lack of timeframes and related inability to enforce current measures, contributes to non-compliance and has associated costs.

132 Inconsistent, inaccurate or untimely information provision can seriously undermine fair bidding processes for employers and fair outcomes for employees. It can also place unexpected financial burdens on incoming employers in the highly competitive affected sectors. There was support for greater certainty and transparency in information provision across all submitter groups. Objections largely focussed on concerns about commercial sensitivity.

133 Perceptions around commercial sensitivity do seem to create problems for compliance with the requirement to provide employee transfer cost information. For example, a client may refuse to request employee cost information from the incumbent contractor due to the confidential and commercially sensitive nature of the tender process itself. Businesses stated that they did not want to disclose information as they would be giving away their competitive advantage.

134 The information that can be requested and provided is for a specific purpose and only provided to specified people. It is not required to be disclosed to the New Zealand Stock Exchange or the public. Furthermore, the information is restricted to aggregate employee costs not wider aspects of business finances, such as those subject to due diligence requirements or requests for information relating to collective bargaining claims (section 34). Also the argument made by one submitter that the disclosure of employee cost information can help ensure a fair competition with accurate estimations of employee cost has merit. No options were proposed to address issues of commercial sensitivity beyond repealing the whole Subpart 2.

Conclusions regarding improving disclosure of information

135 A more prescriptive or enforceable approach may be required to provide greater certainty and clarity for employers how Subpart 2 should work and facilitate compliance. Particularly in relation to transfer of detailed employee information at the point of transfer.

136 It seems that the benefit from Subpart 2 is primarily for business and yet the relevant employers have indicated they do not use, nor wish to use this provision. However, repealing Subpart 2 will increase risk to businesses and transferring employees in businesses “tendering blind” without good information on the

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employee costs and liabilities they will be taking on. This could include the risk of transferring employees being made redundant or having their terms and conditions reduced, because the incoming employer is unable to meet the higher-than-expected costs associated with these employees within the price negotiated for the work.

Poorly performing services

Submitters’ views on poor performance

Lack of awareness of Part 6A can fuel negative reactions to the continuity of employment.

137 Some submissions described adverse reactions from surprised principals or clients discovering that employees were retained by an incoming contractor. The BSCNZ referred to “angry, threatening and abusive phone calls” and requests that employees are “banned, lock[ed] out, served with a trespass order to stay away from their premises” forcing contractors into redundancies or alternative employment options for unpopular employees.

Opposing views and assumptions expressed on the cause of a loss of a contract.

138 Employer submissions tended to emphasise poorly performing employees as a cause for the loss of a commercial contract. For example, the Employers' and Manufacturers' Association Northern Inc noted that the practice of transferring poorly performing workers fostered mediocrity and stifled innovation in a new contract for service. They commented that the responsibility for a poorly performing service should be shared by employees and employers alike.

139 Conversely employee submissions and some smaller firms described the competitive tendering process as the driver of poorly performing services, in particular noting a low tender price, the structure of the business, management capability, poor capital investment and the way employees were deployed as defining factors in the quality of the service. The NZCTU said “the absence of investment in workforce development is accepted as the norm”. These submitters

Summary: A central tension in the submissions is the different assumptions about the cause of, and solutions to, poor performance. Employers tended to identify poor performance of workers as a key reason for the loss of a commercial contract. They also note the cost and disruption to business in dealing with poor performing employees acquired as a result of a transfer and negative reactions from principals discovering that particular employees were retained.

In contrast, employees tend to identify management capability and capital investment as behind contract failure. The majority of submissions identified the competitive tendering process as the driver of poorly performing services. A low tender price, the structure of the business and the way workers were deployed, were identified as defining factors in the quality of the service.

No new options were provided to improve performance related issues. Legal services and unions referred to the availability of robust performance management systems, a disciplinary and dismissal process in Part 9 of the ER Act and the right to restructure the business following the transfer of a contract. It was also suggested that consistent with the spirit of continuity of employment it would be appropriate to transfer individualised information about the transferring employee’s performance alongside information about their terms and conditions.

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identified the fault with the service, as opposed to the individuals performing the service.

Several employer submissions outlined costs and disruption to business associated with the transfer of poorly performing employees.

140 One employer said there was an incentive to retain good performers and transfer poor performers for an incoming contractor to manage. Another employer identified that where a worker was undergoing performance management prior to transfer, that process would need to recommence both out of a requirement for fair process and because the contractor would not have a personnel file. Finally, one submission suggested that the provision could act as a disincentive to investing in staff because the staff would be lost to a new employer with the subsequent loss of a contract.

Alternative performance management avenues were noted.

141 Submitters from all groups referred to the availability of options, other than contracting out, for managing worker performance. These included robust performance management systems and the right to restructure the business following the transfer of a contract, including the option to make employees redundant.

Discussion and analysis

Key issues

Lack of awareness that contracting or sale or transfer of a business cannot be a mechanism for managing performance of employees listed in Schedule 1A

142 The ER Act provides a framework, including procedures and employment institutions designed to support employers and employees to resolve employment relationship problems, and where possible, preserve employment relationships. The ER Act also provides a framework for undertaking restructuring exercises that may result in redundancy. This framework applies to all employment relationships, including those that have been transferred. Part 6A is explicitly designed to prevent principals from being able to contract out of the ER Act requirements when the employees in question are listed in Schedule 1A.

143 However, an issue raised by the Sector Advisory Group is how to ensure genuine continuity of employment in relation to performance matters. The United Kingdom TUPE legislation provides for the transfer of information about performance where there are on-going issues and performance management processes are underway. It was suggested that, consistent with the spirit of continuity of employment, it would be appropriate to transfer individualised information about the transferring employee’s performance, along with information about the terms and conditions.

Conclusion

144 There is value in incoming employers knowing where performance issues have arisen in relation to employees in the past. For example, it may help guide the incoming employer in monitoring and managing the employee’s on-going performance. However some employers do not necessarily have formal performance management systems that cover all staff. There is a risk that the new employer will rely on information that is poorly documented, incomplete, or based on an unfair perception, and move prematurely and potentially unfairly to commencing disciplinary procedures. This raises the risk of unjustifiable dismissal.

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Schedule 1A – employees to whom Subpart 1 of Part 6A applies

Views on “vulnerable workers” and coverage of Schedule 1A

The understanding of the term “vulnerable workers” differs.

145 Many submitters understood the term “vulnerable workers” to refer to the employees covered by Schedule 1A. Some submitters, mainly employee organisations and community groups, further clarified that they see the term as referring to low-paid employees who are subject to constant restructuring and do not have a great deal of bargaining power. Some of these submitters regarded the group of employees that are vulnerable as wider than those currently covered in Schedule 1A.

146 In contrast, some employers and lawyers submitted that the term is colloquial and the current coverage arbitrary. Some also considered it is discriminatory.

Opposing views on the coverage of Schedule 1A.

147 Most employees and their representatives were happy with the current Schedule and wanted it to stay as it is. Two submitters suggested extending the Schedule to cover an additional group of employees, health care assistants. One submitter suggested it should be expanded to all employees.

148 Some employers expressed frustration about the ambiguity and inconsistency of the list in schedule 1A. For example, it was asserted that some of the employees on the list may be highly paid (such as a head chef). Furthermore, it was noted that employees in other industry sectors may be equally vulnerable but not included.

149 Some employers submitted that the extent of “cleaning and food catering services” is unclear. In particular, it was noted that the phrase “any other place of work” in Schedule 1A (f) contradicted restrictions implicit in Schedule 1A (c) and (d). Another issue was whether cleaning duties performed by general staff, such as flight attendants, were included in Schedule 1A and, if so, would it give such employees a right to transfer this part of their job?

150 Clarification of the list was sought by some submitters. One lawyer suggested that if Schedule 1A is intended to be confined to those employees who are truly vulnerable in a contracting-out or sale situation, then an amendment to Schedule 1A may be required to ensure this is the case. For example, it was suggested it could be explicitly confined to low paid employees.

Few strong views were expressed on the process for amending Schedule 1A.

151 Employee submissions indicated they were generally happy with the current arrangement as there have been no problems. There have been very few attempts to seek amendment. Most employers and their organisations, opposed any extension of the list, and submitted any amendment should be left to Parliamentary processes.

Discussion and analysis

Key issues

Ambiguity around some aspects of who is covered by Schedule 1A. Impractical and inappropriate process for amending Schedule 1A.

152 Many of the issues raised regarding Schedule 1A, such as whether the categories covered are equitable when other similarly affected employees are considered, are

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more appropriately dealt with in the policy review. This is because these matters profoundly impact on the policy intent of Part 6A, rather than on how it is implemented. However, there are relatively minor amendments that could improve the clarity of the existing policy intent regarding who should be covered.

153 It was not the policy intent that directors of cleaning companies paid high salaries were to be transferred. This intent was tested at the Employment Relations Authority (Hughes v Upper Hutt Cosmopolitan Club Inc 17/9/08, unreported, G Wood, 17 September 2008, WA 120/08). While the Authority found that the types of work performed by the house manager and executive chef were within the definition of “food catering services”, the case was unsuccessful because the workers were found to not be “employees” for the purposes of the ER Act. The Authority also stated that they “…do not accept that there is any necessity for employees covered in the Schedule to be ‘vulnerable’ employees...”

154 A second issue is the ambiguity provided by Schedule 1A (f), which refers to cleaning services or food caterers in “any other place of work”. This appears to render earlier parts of the Schedule, which specify places of work for cleaners and food caterers that are covered by the Schedule, unnecessary. However, amending this would narrow current coverage and exclude some categories of employees who were probably intended to be covered.

155 It was noted that the criteria set out in section 237A(4) help to elucidate the rationale for the current categories of employees listed in Schedule 1A. These criteria could therefore help reduce ambiguity on the policy intent regarding which categories of employees are to be covered by the Schedule.

156 The MBIE has experience of applying the process for amending Schedule 1A. It found that the prescribed criteria for considering, adding to or removing categories from the Schedule are difficult to objectively measure and are ultimately subject to a political decision. It is MBIE’s contention that the current process is neither effective nor appropriate. In particular, it has the potential to occupy significant resources of both applicants and MBIE with no surety of outcome. Moreover, any resultant amendment by Order in Council could s change the coverage of Part 6A in a way that might not have been anticipated by Parliament.

Conclusions regarding ambiguity in Schedule 1A and ensuring appropriate processes

157 Minor amendments to the Schedule may decrease ambiguity and improve clarity of who is intended to be covered by Schedule 1A. Using the process currently provided in the ER Act to make amendments to Schedule 1A could potentially be very contentious and resource intensive. The repeal of section 237A(4) of the ER Act would address this, but the criteria currently provided could usefully be included in the legislation, for the Minister to have regard to, as a general description of the policy intent.

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Subpart 3

Views on Subpart 3 of Part 6A and whether it has achieved its objective

Most submitters indicated Subpart 3 of Part 6A was not overly onerous but many felt the provisions have little practical effect.

158 Many submissions indicated the requirement to include employment protection provisions (EPPs) in their employment agreements, was generally complied with and considered undemanding. Despite this, a few submissions indicated the provision should be removed. It was noted that all it adds is ‘process’ to the good faith provisions under section 4 of the ER Act and some suggested that this addition just serves to complicate the process of organisational change.

159 Conversely, many submissions stated that the provisions provide useful guidelines for employers and expectations for employees in the event of a restructure and that this offers some level of security. Furthermore, many submitters who felt Subpart 1 should be repealed, felt Subpart 3 should be retained as it would address any needs for continuity of employment protection. Most submitters did not think the requirement should be restricted to a narrower category of business, as there should be consistent and uniform application of the law.

There is a lack of clarity about the enforceability of Subpart 3.

160 Some submissions noted the lack of an express sanction for a failure to comply with subpart 3 and indicated this should be addressed. Suggestions included:

a employer education and/or a code of practice,

b normal dispute resolution procedures, which should be sufficient to address non-compliance, and

c amending the legislation in light of the recent Employment Court decision, to confer a power on the Court to make an order in the absence of an EPP.

Discussion and analysis

Key issue

Lack of enforceability

161 It seems Subpart 3 has been reasonably well received and implemented. There is evidence that EPPs are widely used in collective and individual agreements. There have only been two cases concerning the operation of subpart 3 since its implementation in 2004. Both these cases clarified aspects of the provision.

Summary: There were divergent views on the value of subpart 3 in enhancing continuity of employment. Most submitters considered this provision undemanding for employers. The lack of clarity on the powers of the Employment Court to enforce the provision has caused disruption for some employers and employees. Several submissions agreed with conclusions of the Employment Court in the Norske Skog case where the Court commented on a lack of clarity and suggested the Government reconsider the powers provided to the Court in this area. However, the Court cases may have already provided enough guidance on the application of this provision and it may be best left as is.

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However, the Norske Skog case highlighted an issue with enforceability that may warrant further attention.5 This case involved a proposed restructuring, where the relevant employment agreements did not contain an EPP as required by section 69OJ of the Act.

162 The Court concluded that the nub of this case was the question of whether the employer could be constrained from restructuring by compliance order, until the parties settle an EPP. The majority of the Court found that the Act did not allow a compliance order of this type to be made. However, the majority determined that a compliance order could be made in respect of the substantive requirement to have an EPP as required by section 69OJ.

Conclusions regarding Subpart 3

163 The decision that there is no Court power to prevent restructuring taking place in the absence of an EPP, renders Subpart 3 relatively ineffective. The Government could take steps to develop an amendment that clarifies that the Authority and the Court have the jurisdiction to make a compliance order of this nature if there is no EPP in place. Many submitters however, considered that the cases already decided by the Employment Court have adequately clarified the current law and suggested that no amendment is required.

5 Norske Skog Tasman Ltd v Manufacturing & Construction Workers Union Inc and Anor (Colgan CJ, Travis J, Couch J, 9 December 2009, Ac 49/09)

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Appendix A: Terms of reference for the review of Part 6A

Objectives To prepare a report for the Minister of Labour on:

a whether the operation of Part 6A of the Employment Relations Act 2000 (the Act) has met its objectives, and

b if not, whether any amendments to Part 6A are necessary or desirable to meet those objectives.

To consider the relevance and desirability of the current policy of providing special protections for a defined set of employees (as set out in Subpart 1 of Part 6A).

To enable well informed decisions on how to improve Part 6A both in its operation and objectives.

Background

Part 6A of the Employment Relations Act 2000 (Part 6A)

Part 6A has been in force since December 2004 following the enactment of the Employment Relations Amendment Act (No 2) 2004. Amendments to address gaps in Part 6A came into force in September 2006 following the enactment of the Employment Relations Amendment Act 2006.

Part 6A provides a framework for continuity of employment where an employer’s business undergoes restructuring6 and the employee(s)’ work is assigned to a new employer. In these situations:

a Subpart 1 of Part 6A provides a higher level of protection to the categories of employees specified in Schedule 1A of the Act. These employees have the right to elect to transfer to the new employer on their current terms and conditions of employment.

b Subpart 2 of Part 6A provides for the disclosure of employee transfer costs, from the outgoing employer to the new employer, where Subpart 1 applies.

c Subpart 3 of Part 6A provides that all other employees must have employee protection provisions in their employment agreements that set out the processes the employer must follow when restructuring.

Statutory review of the operation of Part 6A after three years

Subpart 4 of Part 6A (Section 69OL of the Act) requires the Minister of Labour, as soon as practicable after 13 September 2009, to require a report to be prepared on whether the operation of Part 6A has met the objectives specified in sections 69A and 69OH and, if not, whether any amendments are necessary or desirable.

The Minister must also ensure that the persons and organisations (including representatives of employees and employers), that the Minister thinks appropriate, are consulted in the preparation of the report.

The Minister must present a copy of the report to the House of Representatives.

6 The concept of restructuring has two meanings in Part 6A. The provisions of Subpart 1 apply to contracting out, contracting in, subsequent contracting, or sale/transfer situations. However, Subpart 3 only applies to contracting out or sale/transfer situations.

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Objectives of Part 6A

The object of Subpart 1 of Part 6A, as set out in section 69A, is to “…provide protection to specified categories of employees if, as a result of a proposed restructuring, their work is to be performed by another person and, to this end, to give—

(a) the employees a right to elect to transfer to the other person as employees on the same terms and conditions of employment; and

(b) the employees who have transferred a right,—

(i) subject to their employment agreements, to bargain for redundancy entitlements from the other person if made redundant by the other person for reasons relating to the transfer of the employees or to the circumstances arising from the transfer of the employees; and

(ii) if redundancy entitlements cannot be agreed with the other person, to have the redundancy entitlements determined by the Authority.”

The specified categories of employees are those listed in Schedule 1A. These employees have experienced a high level of restructuring and related undermining of their employment security and terms and conditions. They comprise employees that provide or undertake:

o cleaning or food catering services in any workplace

o laundry work for hospitals, rest homes or educational institutions

o orderly work for hospitals and rest homes

o caretaking work for educational institutions.

The object of Subpart 2 of Part 6A, as set out in section 69OA is to “…provide for the disclosure of employee transfer costs information if—

(a) disclosure is sought for the purpose of—

(i) deciding whether to terminate an agreement or let it expire; or

(ii) negotiating an agreement; or

(iii) deciding whether to enter into an agreement; or

(iv) tendering for an agreement; and

(b) a restructuring would result if the agreement were to be—

(i) terminated or to expire; or

(ii) concluded; or

(iii) entered into; or

(iv) awarded.

The object of Subpart 3 of Part 6A, as set out in section 69OH, is to “…provide protection to employees to whom Subpart 1 does not apply if, as a result of a restructuring, their work is to be performed by or on behalf of another person and, to this end, to require their employment agreements to contain employee protection provisions relating to negotiations between the employer and the other person about the transfer of affected employees to the other person.”

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The scope of the review

In scope

The review of Part 6A will:

(a) Consider the policy of providing special protections for a defined set of workers as set out in Subparts 1 and 2 of Part 6A. In particular, it will consider whether this policy is still relevant and desirable.

(b) Consider whether the objectives of Part 6A are being achieved through the application of Part 6A in practice. Legislation requires that the review consider the objectives set out in section 69A (Subpart 1 of Part 6A) of the Act, on protections for specified groups of workers and section 69OH (Subpart 3 of Part 6A) of the Act on protections for all other workers.

The objectives set out in section 69OA (Subpart 2 of Part 6A) of the Act, which relates to the disclosure of employee transfer costs information, are necessary to achieve the smooth operation of Subpart 1 and therefore will also fall within the scope of the review.

(c) Identify issues with the operation of Part 6A that impact on the effectiveness of the legislation in achieving its objectives.

(d) Consider whether the legislatively prescribed framework for adding, removing or changing the categories of employees listed in Schedule 1A, as provided in section 237A of the Act, is appropriate and effective.

(e) Identify options for addressing any established issues and make recommendations about an ongoing process for implementing these options. The options for addressing issues may include:

- improving awareness of, and compliance with, the current provisions: through, for example, developing guidance notes or codes of practice

- improving the application of the legislation through, for example, clarifying policy intent and/or amending provisions

- repealing all or parts of Part 6A.

Out of scope

The review of Part 6A will not canvass the wider set of regulation and employment policy related to restructuring and redundancy for all workers.

Methods and process

The review will be led by the Department of Labour with advice from a sector advisory group.

The sector advisory group will meet with Department of Labour officials working on the review, on two occasions. It will also provide feedback and comment on material as required.

The Department in consultation with the sector advisory group will:

(a) collect relevant information from Department databases and other existing sources (including about international approaches to similar matters)

(b) identify key stakeholders for consultation

(c) prepare a discussion document for public consultation. The discussion document will outline:

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i. background about Part 6A ii. discussion around the continued relevance of Subparts 1 and 2 of Part 6A iii. early identification of possible issues with the operation of Part 6A iv. schematic options for addressing these issues

v. key questions about the operation of Part 6A in practice, continued relevance of Subparts 1 of Part 6A and options for improving Part 6A

(d) seek submissions from identified key stakeholders both directly and through publicly publishing the discussion document online

(e) analyse the submissions and information collected, define the problems and assess options for addressing these problems

(f) develop a report to the Minister of Labour that provides options for addressing the issues identified, for submission to the House of Representatives.

Consultation

Consultation will be carried out with stakeholders directly impacted by Part 6A in practice and others who are otherwise interested in its application.

The most significant impact of Part 6A is in the building service (e.g. cleaning) and food service contracting sectors. Part 6A was designed to contain sufficient flexibility to enable these sectors to evolve their business practices towards a more sustainable, higher quality and fairer mode of operation. The review will need to consider these effects through relatively close engagement with representatives of these sectors.

The sector advisory group of key stakeholders will be convened by the Department of Labour, with the agreement of the Minister of Labour, and will include representatives from:

(a) Business New Zealand

(b) the New Zealand Council of Trade Unions

(c) the Service and Food Workers Union

(d) the Building Service Contractors of New Zealand Inc.

(e) the Property Council of New Zealand

(f) the New Zealand Law Society (including both the ‘Employment Law’ Committee and ‘Commercial and Business Law’ Committee)

(g) the State Services Commission

(h) Māori and Pacific Peoples

In addition to members of the Sector Advisory Group, key stakeholders to be targeted for consultation include:

(a) the Small Business Advisory Group

(b) unions representing employees who provide the services listed in Schedule 1A of the Act (including seeking various ethnic groups’ perspectives)

(c) businesses in the public and private sectors who require services that are listed in Schedule 1A of the Act

(d) businesses who contract to perform services listed in Schedule 1A of the Act

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(e) any other organisation or person the sector advisory group considers to be a stakeholder or to have relevant expertise in the area

(f) any organisation or person the Minister of labour considers should be consulted.

The review will be publicly notified and the discussion paper will be publicly available.

Deliverables

The report of the review will identify:

(a) key stakeholders and the impact of Part 6A in their respective sectors, including the degree to which the objectives of Part 6A have been achieved

(b) issues with the operation of Part 6A and related matters, such as the process for adding, removing or changing the categories of employees listed in Schedule 1A of the Act; or when a compliant employee protection provision cannot be agreed

(c) options for addressing any identified issues and likely implications of implementing the various options (costs, benefits and risks)

(d) whether the provisions of special protections for specified workers are still relevant and desirable

(e) if necessary, recommendations for improving Part 6A taking into consideration the Government’s broader social and economic objectives and international trends.

Resources

All costs for this review will be met within the Department of Labour’s baseline funding. It will draw on the knowledge resources and expertise contained within the Department and members of the sector advisory group.

The Department will meet the sector advisory group’s expenses in travelling to and attending meetings with Department of Labour officials.