Does your business provide cleaning, food catering, orderly, laundry or caretaking services?

Is it tendering for this kind of work? Or do you use contractors for this kind of work?

If so, your business may have extra employment-related obligations. These obligations have applied since 2004 when you buy and sell a business that provides the sorts of services listed above, or when these services are contracted out or brought in-house. A recent law change means they now also apply when you win and lose contracts for services, or if you let contracts for these services.   

Read this factsheet to find out if your business may be affected and what it needs to do.

Some businesses have extra employment-related obligations in particular types of restructuring situations. These obligations increase protections for a specific group of vulnerable employees who are frequently affected by restructuring.

You need to know if your business could be affected by these obligations, particularly if you are considering entering into new contracts to provide particular kinds of services. That’s because if you win a contract, you may be obliged to take on the employees who did the work for the previous contractor.

If you are affected, you should seek professional advice or contact the Department of Labour to clarify your obligations.   

Who has these extra employment obligations?

The law gives extra employment rights to the following group of employees:

• Employees who provide cleaning and food catering services in all workplaces
• Employees who provide laundry services in the health, age-related residential care or education sectors
• Employees who provide orderly services in the health or age-related residential care sectors
• Employees who provide caretakers servcies to the education sector.

When do these extra obligations apply?

The extra employment obligations apply in the following restructuring situations:

•        When a business (or part of it) is sold or transferred

• When a business loses a contract to perform services and it is granted to another business

  

  •        When work previously done in-house is contracted out
  
  

  •        When work previously contracted out is taken in-house
  
  

   

  So your business has extra obligations if it:

  1. Employs these employees in the sectors mentioned above.
  2. Will take over work currently done by these employees in the sectors listed above. (For example, if you buy a business that employs cleaners)
  3. Uses, or plans to use, contractors to provide the kind of services listed above. (For example, a school planning to contract out work done by its caretaker, or a company that uses cleaning contractors).

  The obligations extend to subcontracts. So if a big company wins a cleaning contract and subcontracts the work to a smaller company, the smaller company also has the extra employment obligations. 

  What are the extra obligations?

  If you are the business that currently does the work, but may no longer do the work after a restructuring

  Your employees have the right to choose to transfer to the business taking over the work they do or to continue working for you.

  You must give the employees enough information about the change - before it happens – so that they can make an informed choice about whether or not to transfer.

  You must give the employees a reasonable time to decide whether or not to transfer to the new employer.  

  The information you provide must include:

  • what type of restructuring is taking place (e.g. whether work is being contracted out, etc) and the scope of the restructuring (for example, whether all the employee’s work is affected, or just part of it)
  • when the restructuring will take place
  • the name of the person or company taking over the work
  • the date by which they must decide whether to transfer to the person or company taking over the work
  • how they must notify their choice to transfer to the new employer, who they notify, and how to notify it (by fax, email, etc).

  If you are in a position where you may lose a contract to perform services, the business you provide the services for must give you enough notice and information so you are able to meet these obligations.

  You cannot pay out employees for their accrued entitlements, such as holiday pay, before employees transfer to the new employer.

  These obligations may apply to you if you lose a contract to provide services to another contractor, if you sell your business, if you are contracting out work previously done in-house, or if you lose a contract to provide services because the work is being taken back in-house.

  If you are the business taking over the work

  The employees currently doing the work you will take over have the right to transfer to your business on their existing terms and conditions of employment. The employees’ existing employment agreement becomes the new agreement between you and them. Any change must be agreed to by the employees.

  Employees who transfer retain entitlements accrued with their previous employer – such as entitlements to sick leave, annual holidays and alternative holidays. If an employee leaves after transferring to your business, they are entitled to holiday pay and other accrued entitlements as if their employment hadn’t been broken. 

  If the employee is covered by a collective employment agreement, you become party to this agreement. Employees continue to have the right to be members of the union.  

  If, for reasons relating to the transfer of the employees, you are considering making these employees redundant, note that you would have provide any redundancy entitlements in their employment agreements that apply to this situation. If there is no redundancy entitlement set out in the employment agreement in this type of situation, the employee can bargain with you for redundancy.  If you cannot reach an agreement, the Employment Relations Authority can be asked to decide the entitlement. If redundancy entitlements have been specifically excluded in this type of situation, the employee does not have a right to bargain with you for redundancy entitlements. 

  These obligations may apply to you if you buy a business, win a contract for work that was previously done by another business, or if you take back in-house work that was previously contracted out.

  If you are a business that uses, or plans to use, this kind of contractor

  The current contractor or subcontractor who is the employer of the employees who do the work affected must:

  • give their employees a chance and a reasonable timeframe in which to choose to transfer,
  • tell their employees the date they have to choose by,
  • give their employees enough information to make an informed decision about whether to transfer.

  You must provide enough notice of, and information about, the restructuring to your current contractor (or a subcontractor) so that they can provide the affected employees with the information described above.  This information must be provided in sufficient time for the employees to decide whether to transfer to the business taking over the work.

  You can be ordered to pay a penalty if you don’t provide the information necessary for an employer to meet their obligation to inform their employees

  Disclosure of employee transfer costs information

  A recent law change requires that the labour costs of employees who would have the right to transfer if a proposed restructuring goes ahead must be provided to potential new employers when requested.  This information can be sought for the purposes of deciding to restructure, negotiating for a new contract, entering into an agreement or tendering for a new contract. 

  The disclosure requirements come into force in December 2006. 

  What are food catering service employees?

  There is no legal definition of this term. Who is considered to be a food catering service employee (and entitled to the extra employment protection) will depend on the facts of each individual situation.

  The intent is to provide protection to employees whose employment conditions are particularly at risk of being undermined when contracts change hands as a result of restructurings.

  For example, an employee of a food catering company who prepares the food for an airport cafeteria is likely to be covered.  This means that if the airport decides to change the provider that runs its cafeteria, employees of the provider whose work is affected should have the right to choose to transfer.
  
  For more information on who is a food catering service employee contact the Department of Labour via our website www.dol.govt.nz or call 0800 20 90 20 during business hours.

  What happens if the employee chooses not to transfer?

  You and your employee and any unions should discuss, in good faith, the options for an employee who chooses not to transfer to the new employer.  Options for dealing with the situation may be to agree to an employee picking up other work or shifting to a new work area. It is possible, in some situations, that a redundancy situation may arise.  If this is the case, you will need to ensure that you follow a fair process and comply with the general legal requirements when deciding whether to make a job redundant.

  Any redundancy entitlements in the existing employment agreement that cover this specific type of situation will continue to apply.

  What happens if the employee wants to transfer to my business but I don’t have a job for him or her?

  You must take the employee on, on his or her existing terms and conditions of employment. If, as a result of the transfer you need to make the position redundant, you must follow a fair process. This includes consulting with the employee about alternatives to redundancy. The employee is entitled to any applicable redundancy payment in their existing employment agreement, calculated as if they had always worked for you. If there isn’t a redundancy clause in the agreement that deals with this situation, you are required to negotiate with the employee about redundancy entitlements. If you and the employee can’t reach an agreement, either one of you can apply to the Employment Relations Authority for a determination on redundancy entitlements.

  What if an employee works for two or more of my customers, but I’ve only lost the contract for one of those customers?

  Your employee can choose to transfer to the new contractor for part of his or her work. Their remaining work with you continues unchanged. They will end up with two employers. Neither you, nor the new employer, can require them to stop working for the other employer.

  What if an employee has a fixed-term agreement?

  If the fixed-term agreement is linked to a restructuring or was included in contemplation of a restructuring, the employee may still have the right to transfer to the business taking over the work. This happens if the reason for the employment agreement being for a fixed-term is linked to the end of a contract or an anticipated restructuring. If the employee transfers, the fixed term of their agreement mirrors the length of the new contract awarded to the business taking over the work.  If the restructuring is a situation where work is taken in-house, or is a sale or transfer, the agreement becomes a permanent one.

  If the reason for the fixed term isn’t linked to the contract or restructuring – for example, it was to cover another employee on leave – the employee may still to choose to transfer, however, the fixed term will end on the date or at the occurrence of the event described in the fixed–term agreement.

  What if I plan to do the work myself? Do I still have to take on the affected employees?

  Yes.  The affected employees have the right to choose to transfer regardless of whether the new contractor intended to be an employer or not.

  What if I also employ other kinds of employees?

  These obligations only apply to employees in the sectors and restructuring situations listed above.

  For other employees there must be a clause in their employment agreement covering restructuring situations that involve contracting out, or the sale or transfer of a business. This clause should be agreed by you and your employee, and must be for the purpose of providing protection for the employment of employees affected by restructuring. As a minimum, it should spell out:

  • How you will negotiate with the business taking over the work about the future of affected employees
  • Topics that will be covered in these negotiations
  • The process to be used to decide what entitlements, if any, are available to employees who don’t transfer to the new business.

   

  Where to get more help

  • Contact a lawyer or other professional advisor
  • Contact your local employers’ or industry organisation
  • Contact the Department of Labour via our website www.dol.govt.nz or call 0800 90 20 90 during business hours