Summary
A recent Employment Court decision has potentially significant implications for companies that use workers from labour hire companies.
In Prasad and Tulai v LSG Sky Chefs New Zealand Limited two plaintiff workers were engaged by Solutions Personal Limited, who then contracted the workers out to LSG Sky Chefs.
Both worked almost exclusively for LSG for several years. The Court found LSG did little to check that Solutions was complying with its legal obligations to its workers, and generally accepted Solutions’ assurances that it was doing so.
Eventually the workers’ engagements with LSG were ended. The workers then brought a claim against LSG, saying that LSG was in fact their employer.
The workers won, which will almost certainly leave LSG with a very large bill (the Court was not asked to decide exactly how much each worker was owed).
Detail
In reaching its decision the Court was untroubled by LSG’s argument that it could not be the employer because there was no contract (or nothing resembling an offer and acceptance) between LSG and the workers. The Court instead looked at the real nature of the relationship, as required under section 6 of the Employment Relations Act 2000.
The Court found that once the workers began working for LSG, Solutions had little ongoing involvement, other than receiving payment from LSG for the workers’ services and in turn making (smaller) payments to the workers.
LSG essentially treated the workers in the same way it treated its own employees. It arranged the rostering, supervised the workers and told them what to do. LSG contacted workers directly if it needed them for extra work, rather than going through Solutions. Time off and wage rates were similarly discussed and agreed between the workers and LSG. LSG also directly managed performance issues.
The workers clearly weren’t independent contractors. Therefore the Court said they were LSG’s employees.
Interestingly no one in the case argued that the workers were employed both by LSG and Solutions (this is known as ‘joint employment’). The Court therefore didn’t decide that point. However comments in the judgment suggest that it may well have held that the workers were employed by both LSG and Solutions, if it had been asked to do so.
Implications
The workers can now bring claims against LSG for arrears in various employment entitlements (annual holidays, holiday pay, public holidays, sick leave, etc).
The outcome of this case is partly a result of the less than ideal approach taken by both Solutions and LSG. LSG exercised a high degree of control over the workers for a prolonged period of time. Further, the written agreements between Solutions and the workers were described by the Court as being confusing and of limited assistance.
However the case does provide some useful guidance and warnings for labour hire companies and for companies which use their services:
For further information about labour hire arrangements or to discuss your specific situation, please don’t hesitate to contact Gallaway Cook Allan’s employment law team.
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