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First case to test new employment protection

EMA - 19 July 2005

Gibbs and ors v Crest Commercial Cleaning Limited (CRC 8/05 CC 10/05)

The first case to test new employment protection provisions for vulnerable workers has revealed a loophole in the law.

The full Employment Court has held that cleaning workers employed by outgoing contractors are not covered by the new vulnerable worker provisions if the work they are doing is awarded to a new contractor. The judgement in Gibbs and ors v Crest Commercial Cleaning Limited was announced in Auckland late yesterday.

“This is a particularly important case, because it is the first to test the employment protection provisions for ‘vulnerable workers’ which came into effect in December 2004,” says EMA Legal spokesperson, Susan-Jane Davies.

EMA Legal appeared for Business New Zealand as an intervenor in the case, because of its significance.

“This case has a very wide application because ‘vulnerable workers’ under the new legislation includes food catering, laundry services as well as cleaners across the hospitals, residential care, aviation, local government and education sectors,” she said.

“A lot of outsourcing situations previously thought to be covered by the new legislation are not covered. The case shows how important it is for all the commercial parties to understand their obligations in an outsourcing or business sale or transfer situation, and how difficult that is with these new provisions,” she said.

Susan-Jane Davies said that there are other uncertainties which, for the moment, employers will have to fill by good legal drafting in their tender documents, outsourcing agreements and business sale agreements.

“If the parties want certainty and to apportion the commercial risks under these new employment protection provisions, then they will need careful and precise drafting in their commercial agreements”, says EMA Legal spokesperson Susan-Jane Davies.


The Gibbs case involved what is known as a “second generation outsourcing contract:” or a “succession to contract situation”. Mr Gibbs and his colleagues were employed as cleaners by Southern Cleaning Services Limited who had a contract to clean kindergartens in the Dunedin area. When Southern’s cleaning contract came to an end, Dunedin Kindergarten Association didn’t renew with Southern. Instead, it awarded the new cleaning contract to a competitor, Crest Commercial Cleaning Limited. Crest had a long standing business practice of engaging franchisees to perform the cleaning work, not directly employing its own employees. Crest didn’t need Mr Gibbs and his colleagues unless they wanted to become franchisees, which they refused to become.

Relying on the new vulnerable worker rights under Part 6A ERA Mr Gibbs and his colleagues elected (erroneously as it turned out) to transfer their employment to Crest on the same terms and conditions as they enjoyed with Southern. Crest rejected the election saying they didn’t qualify for this new statutory right because this situation wasn’t a “restructuring” as defined in the legislation.

The full Employment Court agreed.

Last minute changes to the definition of “restructuring” in the vulnerable workers section of the ERA made this argument correct. After extensive legal analysis on the rules of statutory interpretation in both New Zealand and the United Kingdom, the Chief Judge, Colgan J said that he wasn’t prepared to fill in the gap left by Parliamentary draftsman to include this sort of business transfer into the statutory definition of restructuring in section 69B. In his decision, “ The rules of statutory interpretation do not permit us to speculate on Parliament’s intention in altering as it did s69B(a) (iii) except to the extent that it purported to include…. contracting in…”

He went on to say that the Court was not satisfied that second generation outsourcing situations were intended to be included in the definition of “restructuring” after the wording change “we cannot be confident that Parliament, when enacting the legislation after it had been significantly altered upon recommendation of the Select Committee… itself intended such restructurings to be included. To attribute that intention to Parliament…. would be to adopt a tortured, fragile and untenable meaning that they cannot reasonably bear….”

The relevant legislation is Part 6A of Employment Relations Act 2000 (ERA), which was introduced as part of the Employment Relations Amendment Act 2004.


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