On 1 July 2020 the Employment Relations (Triangular Employment) Amendment Bill became law. This amendment addresses a specific gap in New Zealand employment law, extending mechanisms to enforce protections to certain workers, and increasing accountability and liability for certain employers.

The Bill targets the labour-hire industry, and the gap in employment law is a critical one. However, the Bill also applies to environments such as where an independent contractor, with its own employees, is working on a client’s site where the contractor’s employees might, for some reason, be under the direction of the client company.

In this article, we’ll be taking a look at the Bill and how it might affect your business.

Some background:

Driven by economic need, the labour-hire relationship is one of convenience and (up to now) low risk to employers of labour-hire workers. It capitalises on the temporary need for additional labour that many industries and businesses face. A labour-hire company (LHC) will employ people themselves, and then “hire” their people’s skills or availability out to employers who have a short-term need. The “employer”, is in fact, the LHC, and the actual business that those employees end up working for is not the employer at all, but rather a client of the LHC. This business is referred to in the amendment as a “controlling third party” For ease of reference, they will be called a CTP.

So what’s the issue?

The critical issue in employment law, as it currently stands, is the difference between an “employer” and a “client”. An employer (the LHC) is subject to employment laws, and a client (the CTP) – concerning that specific employee – is not. This means that the protections and remedies that exist to assist an employee in a normal workplace do not currently exist to assist or protect a labour-hire employee in the same workplace. This is because where the labour-hire employee is employed, they do not actually work, and where they work, they’re not actually employed.

How does this affect a worker?

As the law stood, pre 1 July 2020, this lack of protection for labour-hire workers could lead to very serious breaches of labour law without a remedy available to the labour-hire employee. For example, if a labour-hire employee is bullied in the place where they are hired out to work, how will they address this? Ordinarily, a bullied employee would make a complaint to their employer, and an investigation will take place, but:

  • The employee cannot make a complaint to their actual employer, or if they do, the actual employer cannot hold an investigation. Why? Because their actual employer (the LHC) has no accountability for, or ability to control or direct the actions of, a person who is not their employee (the bully at the CTP), and no authority to conduct such an investigation or to impose any sanctions or remedies.
  • The employee can make a complaint to the CTP, but the CTP has no legal obligation to receive or act on that complaint under employment law. This is because the CTP is not actually the employer and the law provides no way currently, for the employee or the LHC, to hold a CTP (non-employer) liable for their own employees’ actions. Also, a labour-hire employee may personally find it very difficult, given the tenuous nature of their assignment, to raise such an issue.

In principle, there’s one remedy that already exists to an LHC, and that’s to refuse to supply a workplace that permits its employees to treat labour-hire employees badly. However, this is high risk.

The economic damage to the LHC through refusing to service a client might be significant, and the LHC may simply be forced to ignore principle in favour of economic survival. So, while that “penalty” is there, it’s effectively neutralised by the fact that most of the impact of implementing it would fall on the LHC itself, and its own employees, without any real impact on the CTP. The CTP can simply move on and hire other workers from a different LHC, without addressing the actual issue in any way.

The Employment Relations (Triangular Employment) Amendment Bill addresses this significant flaw by amending the Employment Relations Act specifically to join the LHC and the CTP together as BOTH being responsible for the conditions in the actual workplace of the labour-hire employee, making them legally liable for dealing with the issue, and for any consequences of NOT dealing properly with the issue. This applies equally to the employees of any independent contractor, as mentioned previously.

So what changes were made to achieve this:

  • The definition of “controlling third party” (CTP) was inserted to mean the business that will hire in, and benefit from, the work of an employee of a labour-hire company.
  • This CTP is then included in the meaning of “employer” where an employee is given the right to bring a personal grievance against an employer.
  • A CTP can be joined to a personal grievance by the Authority by any other party and must be notified of that within 90 days of the matter arising.
  • Any remedy awarded can be apportioned between both the employer (LHC) and the CTP in accordance with their involvement in the issue.
  • “Employment relationships” in mediation matters are now defined to include a CTP – this means they could now be included at mediation level too, although that would need to be consensual.

What does this mean for employers who use labour-hire employees?

It means an LHC employee working on your sites can raise a grievance with their employer (not you, necessarily) about any issue that affects them on your site. That employer then has a legitimate basis, with potentially some legal and financial consequences behind it, to address the matter with you.

It also means that an LHC employee working on your site can raise an issue with you directly about any issue that affects them on your site. You will have the responsibility to act expeditiously and in good faith to resolve this as, if the problem gets worse, you could be creating additional liability for yourself under the apportionment rule!

Any party can apply to the Authority to join any other party to the proceedings. This can be a nasty surprise if it happens after mediation that you as a CTP knew nothing about. Joining the other party in any proceedings is an important step so that if any fault is found, and remedies applied, the fault and the cost of those remedies will be shared, in proportion to blame, by all the parties. If this doesn’t happen, one party could be facing the full cost of remedies when in fact they may have had very little to do with the issue. Joining the parties also motivates everyone to work together to resolve the issue as opposed to blame-shifting and avoidance.


What does this mean for the practice of just requesting an LHC to remove a labour-hire employee from site and requesting that they send another one?

  • If you’re removing an employee because of their own issues (e.g. timekeeping, misconduct), then be aware that you should report this matter fully to the LHC so that they can address the issue or justify the removal. They may still receive a personal grievance from an unhappy employee (especially where they have lost income as a result), which will need to be dealt with and that may involve you in some way.
  • If you’re removing an employee to avoid dealing with an issue that originates on your site, this will absolutely no longer solve the issue (e.g. bullying, sexual harassment, or a complaint about unsafe working conditions). If the employee is disadvantaged, or aggrieved, and maybe also without pay as a result, they can legitimately say that your actions to avoid dealing with an issue have cost them money as well as the harm caused by the original issue.

What does this mean when I don’t pay a client’s invoice for some reason and the LHC doesn’t or can’t pay its employee?

  • The non-payment of an invoice is a purely commercial matter not usually related to employment law, but the two issues may become conflated where the LHC cannot, or does not, pay the employee as a direct result, and the employee registers a personal grievance that includes you.
  • Solving employment law-related issues correctly using employment law processes is very important when it’s the right way to solve that issue. Using non-payment of an invoice to solve a problem that should be solved another way could ricochet badly if it results in an unfair process and unfair disadvantage to an employee as a result.
  • Your risk may be less if the LHC can pay the employee but chooses not to, as opposed to where the LHC cannot pay the employee without receiving your payment.

What does “apportioning blame” and “apportioning damages” mean?

An example under the new laws:

  • You as a CTP ignore a bullying or sexual harassment complaint against your favourite top salesperson, for example, and “solve” the problem by sending the labour-hire employee away.
  • The employee pursues a personal grievance.
  • You and your favourite top salesperson spend your days in mediation or court because it happened at your offices. The LHC was nowhere near at the time and could not have been. You carry 100% of that disruption and cost to your business.
  • The employee settles for, or wins, $20,000 in damages for unfair disadvantage and hurt and humiliation. Both you, as CTP, and the LHC will now share the cost of this penalty. The judge might say that you were 75 per cent responsible both for your method of “solving” the problem and your failure to address bullying in your workplace, and the LHC only 25 per cent responsible. That would mean that you will have to pay $15,000 of the total.

We hope this article provides some clarity around the new Bill. Please feel free to contact enableHRwith any further questions.