It is increasingly recognised that the nature of work in New Zealand and overseas is changing.    This can create real and perceived opportunities for organisations to reduce the risks associated with employment by using inventive ways of working. Some say that the law is struggling to catch up. In the recent Employment Court case of Prasaad v LSG Sky Chefs New Zealand Limited, the Employment Court demonstrated how existing legislation and approach can be used to deal with novel ways of working.  

The facts of the case:  

In this case, the Defendant was LSG, an organisation that provided in-flight catering services to the airline industry.   They used an ‘agency’ arrangement to engage workers.  This was a triangular relationship where the host/end user (LSG) engaged its workers via an agency (Solutions Personnel Limited).  Solutions engaged the workers to be supplied as ‘independent contractors’ and not as employees of it or LSG.

The Plaintiffs were Mr Prasad and Ms Tulai, low skilled employees.  They had worked under this agency arrangement for LSG for 2 and 4 years respectively. 

The question for the Employment Court was whether the Plaintiffs where in fact employees of LSG.  

The approach of the Employment Court: 

Unsurprisingly, the Employment Court determined that the question was not to be determined solely by the written contract but by considering the ‘real nature of the relationship’ as required by the Employment Relations Act 2000.  The courts have developed a variety of legal test to assess the real nature of the relationship (see:  Employment NZ:  difference between an employee and contractor).  

In applying these tests to the facts in this case, the factors the Employment Court considered to be relevant included:

  1. The relative bargaining power between the parties. In this case, the plaintiffs were vulnerable or low skilled employees who were “ … effectively steam-rolled into signing a document which they had no real understanding of”;
  2. The poor wording of the contracts which were found to be confusing;
  3. How the arrangement operated in practice. In this case, while the agency undertook the initial screening process, it was LSG who determined whether or not take on a worker;
  4. The level of control. The Plaintiffs’ work was supervised and heavily controlled by LSG who also dealt with any performance management and disciplinary issues;
  5. The level of integration. The Plaintiff’s were integrated into LSG:   they were on the same roster; attended the same meetings; wore the same uniforms and undertook the same security clearance, as LSG’s employees;
  6. The pattern of work and duration. In this case, the Plaintiffs’ work pattern was far from temporary and had in fact continued over several years;
  7. Whether the workers were in business on their own account. In this case, it was clear that the Plaintiffs were not in business on their own account:  they were not responsible for purchasing their own work equipment, they did not have an opportunity to make a profit or a loss and they could not send a replacement.

The Employment Court held that the ‘real nature’ of the relationship between the Plaintiffs and LSG was one of employment.  The Employment Court stressed that as the inquiry into the real nature of the relationship is highly factual, each case will need to be assessed on its own facts.  It went on to say that an end user will be less likely to be found to be an employer of agency workers where:

…. the arrangement and the obligations, rights and roles of each party is well documented, understood and agreed at the outset, and the work is provided on a supplementary and temporary basis. 

And more likely to be an employer of agency workers, where:

… the documentation is non-existent or unclear; the work is of indefinite duration, is expected to be provided and is expected to be performed by the individual; a significant degree of supervision, control and direction is exercised by the hose; and performance issues are dealt with by it. 

This case is a warning for employers that the Courts are willing to scrutinise an agency agreement to determine if it is in reality shielding an employment relationship between the end user and the worker.

Disclaimer: The above information is for information purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on the information given.