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Employment Relations Law cumbersome and confusing

By Catriona MacLennan, published in LawNews (Auckland District Law Society) 5 March 2010
Scott Wilson, Employment Partner comments

The provisions were inserted into the law in 2004 and amended in 2006 with a requirement that the Department of Labour review the law after three years.

The sections provide for continuity of employment in industries such as cleaning, food and laundry services, in which work is often contracted and changes of contracts can result in restructurings or redundancies. Labour Minister Kate Wilkinson last month released a discussion document prepared by the Department of Labour entitled Review of Part 6A: Continuity of Employment.

Ms Wilkinson said that the paper offered employers and employees in affected industries an opportunity to provide feedback on whether or not Part 6A was working.

"If there is a need for improvement or aspects of the provisions are not relevant in the current environment I will be happy to look at suitable amendments."

The document states that the review comprises two parts:
- consideration of whether Part 6A has met its objectives and, if not, whether amendments are required, and
- examination of subpart 1 of Part 6A to determine the relevance and desirability of the policy of providing special protections for a defined set of workers.

The paper suggests that the Government could adopt a range of responses to the current law, ranging from retaining the present provisions to improving their practical operation, expanding or narrowing their coverage, or repealing them. The document seeks submissions on 29 questions relating to the fi rst part of the review and a further three relating to the second part.

Duncan Cotterill Partner, Scott Wilson, told Law News that he welcomed the review of Part 6A. Mr Wilson described the law as cumbersome and confusing, both for employers and for employees.
"The effect of Part 6A is to provide protection for a defined category of 'vulnerable employees' while leaving other, potentially equally vulnerable, staff with little or none.

"This creates a two-tier ranking of employees, often within the same organisation which appears arbitrary. Despite a lengthy and cumbersome definition of 'vulnerable employee' in the act, it can be diffi cult to identify in practice whether an employee is 'vulnerable' or not. Many positions do not fall completely within the definition and will encompass duties that fall both within and outside the definition."

Mr Wilson said that uncertainty and confusion about the law could lead to problems with staff morale, employment relationship problems and compliance costs for both incoming and outgoing employers.

Buddle Findlay Partner, Sherridan Cook, also said that many people still found the provisions difficult and very technical to apply. He said that one issue was the scope of the coverage, due to perceived
inconsistencies in how the provisions applied.

"The other key issue is how well these provisions work in practice, and whether they are easily understood (by employers and employees alike). Undoubtedly, there are aspects of the provisions that are diffi cult to understand and apply, and that do not refl ect the commercial reality of an acquisition process.

"Of particular diffi culty is the transfer of entitlements such as annual holidays and which party should bear liability for these costs."

Swarbrick Beck Mackinnon Partner Don MacKinnon and Senior Associate Richard Upton said the review was timely as few practitioners considered that the provisions were fulfilling their aims.

"Even after several amendments, this part of the act is still very complicated and many employers remain completely unaware of its requirements. In fact, in our experience, a number of legal and
financial advisers appear to know little, if anything, about the requirements of this part and it is often ignored entirely when businesses are sold."

Mr Mackinnon and Mr Upton said that the list of vulnerable workers was too vague and appeared to lack logic.

"And for other workers, recent case law has established that a failure to have the clauses, that Part 6A requires in an employee's employment agreement, may have little consequence."

Ms Wilkinson has also said the Government will this year consider changes to the rules relating to personal grievances and that Cabinet would shortly consider the issue.

Prime Minister John Key in his 2010 Statement to Parliament said that the Government had been looking carefully at areas in which overly-restrictive regulation might be getting in the way of doing business.

"The Government will continue to look at whether labour laws are imposing excessive costs on the country and holding back opportunities to create jobs ... [The Government] shares concerns from
many quarters about the fairness and consistency of personal grievance decisions.

"We will be releasing a discussion document this year on ways to improve their fairness and certainty and, if necessary, will introduce amending legislation."

Mr Cook said that there was a perception among employers that, in cases in which they appeared to be perfectly justified in taking action against employees, there was still a significant risk of the
employer facing a personal grievance.

This meant that employers were compelled to engage in the process, incurring legal fees and spending management time in defending claims, in addition to any monies paid to the employee.

"As a result, responding to a PG [personal grievance] often comes down to a commercial decision for the employer, rather than reflecting a true assessment of the chances of success.

"One area that has been recommended for potential change is the number of employees represented by advocates on a no win/no fee basis. These arrangements often lead an employee to believe they have 'nothing to lose' in bringing a claim, regardless of the substantive merits."

Mr Cook said that, while the informality of the current model had undoubted benefi ts, including reduced costs and accessibility, it sometimes resulted in claims of questionable substance being pursued without a proper assessment of value or risk.

"Ways of addressing these problems could include making contingency fee arrangements unlawful, or increasing the [Employment Relations] Authority's ability to award costs against an employee. Such measures would be designed to achieve a higher level of accountability from employees (and advocates) and prompt employees to turn their minds to the costs and risks involved at an early
stage before formally pursuing a PG. They would, however, need to be balanced against access to justice considerations."

Mr Cook said that another option would be to introduce separate rules for low-level claims, using a similar model to the Disputes Tribunal, which did not allow lawyers or advocates to be present during
the investigation meeting.

"This would be in line with the authority's objectives of providing an informal, low-cost institution where the member is responsible for running the investigation into the PG."

Mr Mackinnon and Mr Upton said that it was their view that the personal grievance process generally worked quite well and that the law in this area was well understood by most employers.

The Employment Relations Authority had become far more consistent in its approach to personal grievance claims. Although there were still some authority determinations which seemed to place too great an emphasis on "process" over the substance of claims, the numbers of those cases appeared to be decreasing.

"Rather than the law of personal grievances, the area of most frustration, in our opinion, is the authority's approach to awarding legal costs to the successful party in litigation. The authority usually
awards costs based on a daily 'tariff ', meaning that an award of $2500-$3000 is normally made to the successful party for a one day fixture.

"That award often bears no resemblance to the actual costs that have been incurred, meaning that the successful party is left well out of pocket in nearly all cases, whether employer or employee."

Mr MacKinnon and Mr Upton said that this tariff approach meant that there was no real deterrent to completely unmeritorious claims.

"That, in turn, creates a 'have a go' culture among some lawyers and advocates in which the main goal is to secure a quick settlement. Most of these claims are brought by ex-employees and their
former employer has to decide whether to defend the claim on principle or, regardless of the merit, settle the claim in order to keep costs down."

Mr Wilson said that there had been a great deal of tinkering with the personal grievance process during the previous Labour Government's tenure and, until relatively recently, there had been a high
degree of uncertainty relating to the application of the law.

"There is a perception among employers that the personal grievance provisions are tipped in favour of employees, with form over substance emphasised and employers held to a high standard. I have some sympathy with this, although statistics show that outcomes from the Employment Relations Authority proceedings are fairly balanced between employers and employees."

- By Catriona MacLennan