Labour hire “contractors” held to be employees

General / 25 December 2017
Labour hire “contractors” held to be employees

The Employment Court has just released a full bench judgment ruling that two labour hire workers were actually employed by host company LSG Sky Chefs New Zealand Limited (LSG), after they sought a declaration of the same, in order to be entitled to minimum employment protections.

The employees were engaged by Solutions Personnel Limited (Solutions) as independent contractors, and LSG, which provides catering services to airlines, entered into an arrangement with Solutions whereby it provided labour for hire.

The real nature of the relationship
The Court looked at the “real nature of the relationship”, considering first the terms of the agreement between LSG and the workers, examining written documentation governing the arrangement between the three parties.  There was no written agreement between LSG and the workers, but the arrangement between LSG and Solutions was documented.

The written agreements between the workers and Solutions were deemed to be deficient on the basis that neither worker understood what they had entered into, the agreements were poorly worded and Solutions had failed to explain the working arrangements, effectively “steam rolling” them into signing the agreements.  The Court commented that the workers were particularly vulnerable as they had no real business experience, spoke English as a second language and had no understanding of the differing legal obligations towards employees and non-employees.

The Court then looked at how the relationship operated in practice.  Solutions had little to do with the workers other than to take them through a screening process and to pay them wages for the work they carried out for LSG. The Court found that a number of factors firmly pointed towards an employment relationship given the level of control which was exerted over the workers by the host organisation.

In particular, LSG:

required the workers to comply with LSG’s policies and procedures;
required the workers to carry out tasks allocated by LSG employees, in the same way as its employees;
heavily supervised the workers;
set the roster without Solution’s input;
dealt with performance issues;
required that the workers wear LSG uniforms;
had the workers working almost exclusively for it; and
did not allow the workers to delegate their work, employ others, issue invoices, keep records or pay taxes.
What does this mean for you?
This case demonstrates that labour hire workers can be considered employees of the host organisation, which means that host organisations can be responsible for their minimum employment entitlements (including, for example, holidays and leave).

The Court emphasised that it is less likely that a labour hire worker will be considered an employee of the host organisation if the work is supplementary or temporary and the obligations and roles of each party are clearly documented, understood, and agreed.

Conversely, where documentation is not clear, and the work continues for a long period, with the workers being heavily supervised and controlled by the host organisation, then this is likely to point towards an employment relationship.

We anticipate that this decision will impact a number of businesses that rely on labour hire arrangements. Contact our team of specialists for advice and guidance.

Disclaimer: We remind you that while this article provides commentary on employment law and health and safety topics, it should not be used as a substitute for legal or professional advice for specific situations. Please seek legal advice from your lawyer for any questions specific to your workplace.

December 2017

Back to News and Publications