A major challenge to the use of labour hire workers in the core state sector has failed, clarifying the grounds on which employers can safely use temp agency workers as part of their day to day functions. Rebecca Macfie reports.
The Employment Court has emphatically rejected a bid by the Public Service Association to have over 1000 labour hire workers reclassified as direct employees of Inland Revenue.
The PSA took the case in the names of eight workers engaged by a labour hire company, Madison, to work as call centre staff at Inland Revenue.
The eight plaintiffs worked in various Inland Revenue offices around the country for periods ranging from seven to 15 months. They were among 1233 workers hired out to Inland Revenue by Madison from 2018.
At the time, Inland Revenue was slashing permanent staff numbers under its Business Transformation programme, a four-year $1.8 billion restructuring designed to modernise the tax system and make it easier for people to pay their taxes and get their entitlements. About 1500 jobs have been culled from the department since 2016, through redundancy and attrition.
Madison – part of the NZX-listed Accordant Group, formerly known as Allied Work Force – signed a four year ‘master service agreement’ with Inland Revenue in early 2018 to provide contingent labour. As is normal in the labour hire industry, the workers were recruited by Madison and then hired out to Inland Revenue in exchange for a fee. Madison paid the workers’ wages.
Although Inland Revenue had previously used agency workers to cover short term peaks, PSA national secretary Kerry Davies says the use of Madison labour hire workers on such a large scale was new. “We’re not against the use of temp workers for unplanned and urgent workforce needs...There has been a trend across the public service to increasing use of temp agency workers. But Inland Revenue went on steroids in how they were used as a permanent contingent workforce as opposed to filling in immediate, unplanned absences. This was about having a large group of vulnerable workers at the ready.”
The Madison workers were on inferior wages and conditions compared to permanent employees, who were covered by the PSA’s collective employment agreement with Inland Revenue. Davies says this two-tier labour force “undermined” the collective agreement.
In August 2019 the PSA filed proceedings in the Employment Court seeking a declaration that Inland Revenue was the real employer of the Madison labour hire workers. One case it relied on was a decision in late 2017 relating to two labour hire workers engaged as independent contractors and outsourced to airline catering company, LSG Sky Chefs. The court ruled in that case that, regardless of what was stated in their contracts, the workers were under the control of LSG Sky Chefs and were its employees, and were entitled to the normal protections of employment law.
Before a full bench of the Employment Court late last year, the PSA argued that when it came to the Madison workers at Inland Revenue, “form should not trump substance”. The workers were given individual employment agreements to sign, as well as declarations acknowledging that Madison, not Inland Revenue, was their employer. But the PSA argued they were under the control of Inland Revenue (which could have them fired and replaced by Madison on demand), and were integrated into the organisation.
The eight plaintiffs gave evidence that they were trained by Inland Revenue, which included listening in on calls from members of the public to permanent call centre staff. They said they did much the same work as permanent staff, and had little to do with Madison supervisors other than a catch-up every few weeks at which “wellness” tips, cakes and donuts would be shared.
There were differences in how the “Madisonians” were treated. Their starting rate in 2018 was $20 an hour, compared with $23.94 for permanent workers at the same level under the collective agreement. If the Madison workers gained “competency” they would go up to $22.50. They also worked half an hour longer every day, and unlike their permanent peers they did not receive time and a half and double time for overtime hours. Because they were on fixed term contracts – which were often rolled over multiple times – they did not get wage increases through the progressive pay scale that applied to permanent workers.
They were also treated differently when it came to certain staff events. They were allowed to attend Inland Revenue staff Christmas parties, but unlike permanent workers they had make up the time; Madison workers in Inland Revenue’s Whangarei office weren’t allowed to attend a Māori Language Week event in work time.
“The result was one of profound discrimination, in which ‘directly employed’ IRD workers had the benefit of both the collective agreement and the statutory good employer obligations [of state sector employers], while hundreds of second class workers had neither set of rights,” argued the PSA’s lawyer, Peter Cranney, in closing submissions.
The IRD contract was a large one for Madison, which billed the department about $40 million over two years. The department paid $29.25 an hour for a Madison worker who had gained competency
Inland Revenue and Madison (which was joined in the proceedings) rejected the PSA's arguments entirely, saying the Madisonians were not under Inland Revenue’s control, were not integrated into the business, and didn’t do the same work as other Inland Revenue workers. Inland Revenue had nothing to do with the individual employment contracts signed between Madison and the workers. Madison controlled recruitment and selection, maintained workers’ timesheets (which were the basis of its invoicing to Inland Revenue), and handled all leave and performance issues.
The key legal question in the case turned on Section 6 of the Employment Relations Act, which requires the court to assess the “real nature” of the relationship based on all the relevant facts, and not merely how the parties describe the relationship. It was under this provision that Lord of the Rings model-maker James Bryson was controversially ruled to be an employee, and not a self-employed contractor.
In the LSE Sky Chefs case, the Employment Court noted labour hire agreements between temp agencies and their clients were not an “impenetrable shield” to claims that the workers are really employees of the host organisation.
However the court concluded unanimously in the Inland Revenue case that the employment relationship was between the workers and Madison, and not with the department.
Judges Bruce Corkill, Joanna Holden and Katherine Beck ruled the documentation clearly showed the workers were Madison’s employees. “We find that each plaintiff intended to enter into an employment agreement with Madison. None signed an individual employment agreement on the basis that Inland Revenue would be the employer.”
The workers “were not, and could not have been in any doubt as to who in reality was the employer…It was also clear that each plaintiff was party to a labour hire arrangement”.
“Standing back, we consider the evidence establishes that… considerable efforts were devoted to respecting the difference between IR employees and Madison employees who worked at IR.”
The court found that a “careful arrangement” was set up between Madison and Inland Revenue under the master service agreement, and that the parties acted within the “agreed boundaries”.
“In our view, there was no charade. Whilst Madison needed to have regard to IR’s business needs as notified to it regularly by the organisation with regard to each plaintiff, we are satisfied that nature of the control exercised over the Madison employees was consistent with a genuine labour-hire arrangement where day-to-day tasks sit with a host organisation.”
Further, the workers were not “vulnerable employees open to abuse of the kind which features in some s6 cases. Nor do we accept the submission that the plaintiffs were deprived of all but the most basic of employment rights.”
Inland Revenue and Madison this week told Newsroom they were satisfied with the decision. Madison chief executive Simon Bennett said in a written statement the decision “confirmed the legitimacy” of organisations’ use of temporary labour hire workers. The ruling also “highlights the need for employers to have thorough systems and fair practices in place. Contingent workers play a huge role in the New Zealand economy and this labour hire model ensures workers can meet the seasonal demands or other increases in workflow for organisations in major sectors from government, major companies and the construction sector.”
This is unlikely to be the last word on the matter, however, as the PSA is considering seeking leave to appeal.
The decision adds to a growing pile of global case law in which the courts have been called on to determine the true nature of workplace relationships in an economy increasingly reliant on casual, temporary and gig work, and where labour unions are trying to preserve the security of permanent work.
Earlier this year the UK Supreme Court ruled Uber drivers were not contractors but rather workers entitled to holidays and minimum wages. And this week the online food delivery firm Deliveroo was stung with a ruling by Australia’s Fair Work Commission that a rider dismissed by the company was an employee, not a contractor, and had been unjustifiably dismissed. Deliveroo has said it will appeal the decision.
