Triangular Employment – Amendment Act

6 Jul 20

The Employment Relations (Triangular Employment) Amendment Act 2019 comes into force on 27 June 2020.  The legislative changes will have an immediate impact on triangular employment relationships.  Businesses will need to understand the potential consequences of being joined to a personal grievance, how best to protect themselves against claims and what strategies they could adopt if joined. 

Post COVID-19 we anticipate that there will be more employers entering into Triangular employment relationships to cover short-term demand particularly if employers have adopted a robust restructuring during COVID-19 and now find themselves short of staff.

A Triangular relationship is one where an employee is formally employed by one party (the employer) but works under the control and direction of another business (called the Controlling Third Party “CTP”). Traditionally these relationships cover labour hire arrangements, contingent labour, but will also include secondments. This legislation allows the employer on the receiving end of a personal grievance to join the CTP.

The control or direction needs to be similar, or substantially similar, to the control or direction that the employer exercises, but that term has not been defined. It is likely the threshold will be high; the CTP will effectively need to step into the shoes of the employer.

CTPs will still be able to end temporary arrangements easily, but the employer will now need to ensure they meet their good faith obligations to their employee to avoid claims of unjustified dismissal.

The employee can also notify a grievance against the CTP provided a personal grievance has been raised against the employer and the employee has applied to the Employment Relations Authority to resolve that grievance.

The grievance needs to relate to something that occurred while the employee was working under the control or direction of the controlling third-party business.

The Authority must grant an employee’s application if the employee has notified a grievance against the CTP within 90 days and the Authority finds that there is an arguable case that the third-party business is indeed a CTP business and its actions have caused or contributed to the personal grievance.  The Authority can also, of its own motion, join a CTP to proceedings at any stage.

The remedies available to the Employment Relations Authority include reimbursement of lost wages and compensation for humiliation, loss of dignity and injury to feelings, and loss of any benefit (whether or not of a monetary kind).

The Authority will need to decide the extent to which the CTP caused, or contributed to, the situation.  The Authority can then award remedies based on each parties’ respective liability.

What this means it that both the employer and the CTP will potentially be liable. Therefore, CTPs will need to treat any temporary employees engaged under labour hire arrangements as they would their own. They will need to ensure that any action, decision does not affect the employee in a way that could give rise to a grievance. Their actions and decision will be scrutinised against the justification test – were the actions the actions that a fair and reasonable employer could have done in all the circumstances. Most businesses, whether employers or CTPs, will treat the people working for them fairly, regardless of their legal status.  However moving forward, the arrangements between employer and CTP businesses are likely to focus on their respective responsibilities and the risk associated with employees working in their business.

A CTP will be well advised to protect itself by agreeing contractual terms at the outset with the employer, which clearly record who is responsible. The labour hire employer should be involved in all employment matters and should address any performance issues or potential disciplinary matters.

Indemnities will be an important part of any contractual negotiations between an employer and CTP. Unlike the health and safety legislation, the parties to a triangular relationship (at least the employer and CTP) will be able to agree and set liability between themselves for any costs, awards, lost wages ordered by the Authority. The wording in the indemnity will be critical.

An employer on the receiving end of a grievance will often agree, voluntarily, to attend mediation.  A CTP might also want to join mediation before becoming embroiled in an Authority hearing.  On the other hand, if they want to ‘chance their arm’, they can argue that they do not exercise sufficient control or direction over the employee and let the employer do the running. The CTP can only be forced to attend mediation by the Authority. The CTP might also consider sitting in the background and providing some financial assistance to settle the grievance. The employee may not appreciate that there are two pockets contributing to the settlement, which could be advantageous to both employer and CTP.


Want to know more?

If you have any questions about Employment Relations (Triangular Employment) Amendment Act, please contact our specialist Employment Team.

This article along with many others were included in the June edition of our Employment Newsletter.

For more information contact:

Malcolm Couling