ACCRUED EMPLOYEE ENTITLEMENTS – is the old employer liable to the new employer for payment?

General / 25 September 2016
ACCRUED EMPLOYEE ENTITLEMENTS – is the old employer liable to the new employer for payment?

The Court of Appeal says NO.

In light of the Court of Appeal’s decision in Pacific Flight Catering Ltd v LSG Sky Chefs New Zealand Ltd [2013] NZCA 386 businesses who either purchase a business or win a contract that involves the statutory requirement to take on vulnerable employees will need to ensure that the cost of paying their entitlements is included in the purchase price of the company/contract or else it will now be coming out of their own pocket.


LSG Sky Chefs New Zealand won a flight catering contract, previously held by Pacific Flight Catering Limited.  This triggered an obligation under Part 6A of the Employment Relations Act 2000 for LSG to take on vulnerable employees of Pacific. LSG was required to recognise employees accrued entitlements not taken or exchanged for payment before the date of transfer. LSG argued though it is entitled to be reimbursed by Pacific under the common law action of compulsion of law.  The High Court upheld LSG’s claim ordering Pacific to reimburse the cost of the entitlements. Pacific appealed the decision.


Nothing  in Part 6A states that the old employer remains liable to its transferring employees for their pre-transfer entitlements  nor are they liable to reimburse the new employer when the new employer pays the transferring employees their pre-transfer entitlements.
There is no reason to believe that Parliament intended that the old employer maintained some on-going responsibility to the transferring employee to the extent that the employee could then look to the old employer for payment  in the event of a failure to pay by the new employer.
There is a Bill before Parliament presently that would provide the default position that, if the parties do not agree otherwise, the old employer will be required to pay an amount to the new employer to reflect the obligation taken on by the new employer for certain pre-transfer entitlements of transferring employees. The fact that Parliament is now addressing the issue supports the proposition that the current legislation fails to do so.

HELD:  Under Part 6A an old employer does not have any obligation to pay for pre-transfer  entitlements that have accrued to its former employees who have transferred to a new  employer.  LSG must pay for the cost associated with entitlements owed to Pacific’s  former vulnerable employees that were transferred to it when it won the contract.

EFFECT: All incoming employers must pay for the accrued entitlements of vulnerable employees  that  transfer to them. The price of the business/contract should be negotiated with an  increase in value to reflect this.

Disclaimer: We remind you that while this article provides commentary on employment law topics, it should not be used as a substitute for legal or professional advice for specific situations. We recommend that you obtain legal advice specific to your situation before proceeding and would be happy to help in this regard.

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