By John Ryall, former Assistant National Secretary of E tū
On 1 July this year 8000 security workers will be added to the list of “vulnerable” workers who are guaranteed protection from job loss or reduction in employment conditions during a change of contractor.
The protection is contained in Subpart 1 or Part 6A of the Employment Relations Act, with the list of applicable workers contained in Schedule 1A.
The introduction of Part 6A and its continuation through hostile governments has been a tribute to the organisation of workers covered by its provisions and their unions, predominantly E tū and its predecessor Service and Food Workers Union.
Sub-contracting represents one of the oldest forms of capitalist exploitation and socially vulnerable groups have historically been engaged in forms of insecure employment. However, in New Zealand that was moderated for nearly a century by a well-regulated labour relations system that extended the rights to minimum wages, leave, hours of work and other conditions to the whole of an occupational or industry workforce.
Businesses were not incentivised to contract out the whole or part of their workforce because any contractor would have to employ their workforce on the same minimum terms and conditions of employment as the principal business.
However, in the late 1980s there was increasing pressure from right-wing lobby groups to free employers from this sort of regulation based on a convenient theory that successful businesses should only focus on what they were good at.
According to this theory healthcare facilities should only employ doctors, nurses and other clinicians as these were the core workers. Every other healthcare worker, such as food services workers, laundry workers, cleaners, orderlies and security workers were part of the non-core workforce and their work could be more efficiently carried out by companies that specialised in delivering this service.
Through competitive tendering the healthcare business could force the price of non-core services down and maintain this downward trend during every tendering cycle.
It was great for the healthcare business but miserable for workers employed by the contracting companies.
The non-core service workers, including cleaners, experienced loss of jobs and employment conditions every time a contractor changed and even after the change constant pressure to reduce their conditions down to the statutory minimum code.
There was no legal requirement for a successful contractor to offer the current cleaners work or if they did offer them work to continue any of their employment conditions. Once contracted out under this regime they effectively became fixed-term employees.
At common law the transfer of a business or part of a business involving a change of employer meant that employment with the original employer (the transferor) came to an end, and that if the individual’s employment was to continue with the new employer (the transferee), a new employment agreement had to be concluded. The common law upheld the principle of freedom of contract, only binding parties that have voluntarily agreed to be bound by such a contract.
In the 1990s New Zealand was one of the few countries that had made no legislative inroads into this principle in respect to transfers of business.
SFWU Contract Workers Campaign
In 1996 SFWU Legal Officer Luci Highfield wrote a paper on the union’s experience of contract labour issues in preparation for a 1997 International Labour Organisation Conference discussion.
This paper set out the difficulties the union had experienced since 1991 in relation to contracting out of services in public hospitals and the subsequent changes of contract and sub-contracting in schools, tertiary institutions and airports.
The paper described the difficulties faced by workers when second or third generation contracts are entered into:
The major difficulty with this type of job contracting is that while the user enterprise sits in a position of power, influence and direct control over the contractor and the workers, there is no easily identifiable nor enforceable legal obligations arising between the user enterprise and the workers or their union. There is no employment relationship between the workers and the user enterprise, and thus no obligations of bargaining, fair dealing, information disclosure, consultation and so on, that arise.
The work that Luci Highfield had been doing and the tsunami of contracting out in cleaning and catering strengthened the ties of the Service and Food Workers Union with the large Service Employees International Union (SEIU) in the United States and their exciting Justice for Janitors campaign. Justice for Janitors was a campaign to actively organise cleaners in major US cities through forming community and political coalitions to put pressure on building owners to commit to minimum employment conditions for cleaners in their tendering processes.
SFWU National Secretary Darien Fenton had also attended the 1998 and 1999 ILO Conferences, where the attempt to get a convention or recommendation on contract labour failed.
In 1998 the SFWU analysed its own membership and potential membership and noticed a growing percentage of the union was now employed by contractors. For instance, few cleaners and catering workers in public hospitals were directly employed and the large contracting companies they worked for (such as P&O Services, Spotless and QSE) had different employment conditions depending on industry and locality.
In 1998 the SFWU launched a campaign called Contract Workers Count! whose goals were to strengthen union organisation amongst contract workers, build membership participation and leadership, raise public support and introduce legislation to protect workers during changes of contract.
The SFWU allocated funding for a five-year campaign and employed Annie Newman as the campaign co-ordinator.
Out of the Starting Blocks
Contract Workers Count! was a significant turning point for the SFWU, which had deliberately adopted a very localised survival strategy since the 1991 Employment Contracts Act. This was the first initiative in which the union was taking a national approach, and in some ways a global approach, to organising.
There were multiple employment issues for cleaners across commercial buildings, in schools, in universities, in aged care and in public hospitals.
However, the big issue was the lack of power that the members faced through their employment by contractors or sub-contractors and the constant threats that if union members increased wage rates they would lose their jobs to a lower-priced competitor.
Contract Workers Count! was great for building the confidence of SFWU membership employed by contractors that change was possible providing they told their stories, became active and argued for that change.
The campaign featured the union taking a stronger position with the renewal of the national cleaning multi-employer agreement with pickets outside major buildings in Wellington and Auckland calling for greater job security for cleaners.
These pickets included church ministers, local and national politicians, and families of the cleaners under the banner Let Us Plan Our Lives – Justice for Cleaners.
The key union demands were for the cleaning contractors to agree to the same rate as directly employed school cleaners and the retention of cleaners’ jobs and employment conditions during contract changes. While the cleaning companies did not concede to either demand the cleaners’ action drew wider community and political support for change.
Part of the campaign was a photographic exhibition featuring the stories and lives of six cleaners, called For the Love of the People. The photographs were taken by Massey University students and the exhibition was shown in Wellington and Auckland in 1999 leading up to that year’s general election.
Featured in the exhibition were Lalopua Sanele, Paula Atatagi, Olive Harding, Hagavave Kato Amosa, Hinetemoa Kahu and Bill Herbert, all Wellington cleaning activists.
Labour and Green members of parliament were invited to each of the exhibitions, to listen to presentations from the cleaners and to commit in government to changing the law to protect the jobs and employment conditions of cleaners during contract changes.
Lalopua Sanele, one of the cleaners in the exhibition, said:
If a new company takes over the contract they want to reduce hours and give us more work. All they want from us is to make a profit. They don’t even care how hard we work or if we argue that it’s not good enough and the area can’t be cleaned – they expect us to do it.
1999 General Election Commitment
The SFWU, as a Labour Party affiliate, had been arguing for Labour to adopt a manifesto commitment for the security of employment for workers employed by contractors and with the increased activity by cleaners and other workers a policy was launched leading up to the 1999 general election.
The policy said:
Labour is of the view that where a business or parts of a business are transferred to a new owner, the original employees have a right to be employed on terms and conditions no less favourable than those applying before the transfer, and their service should be deemed to be continuous. In this situation workers should only be made redundant for the same reasons that would have applied if the business had not changed hands. The rights of employees whose work is contracted out are also adequately protected under current law and will be improved.
A Labour-Alliance Coalition Government was elected and the introduction of the Employment Relations Bill, to replace the hated Employment Contracts Act, occurred soon after this.
Clause 66 of the Employment Relations Bill, under a heading Continuity of Employment, was inserted in a muddled attempt to carry out the manifesto commitment without interfering with the common law right to contract.
Clause 66 deemed a collective agreement to contain a provision that required an employer to continue to employ an employee who is bound by that agreement and employed by the employer during the whole period the collective agreement was in force and during the period in which the collective agreement is enforceable by a union. However, clause 66 also allowed the union and employer to vary this commitment and made it clear that it did not interfere with dismissals for just cause.
Both employers and unions disagreed with this clause for different reasons. During the second reading of the bill the Green Party put forward a Supplementary Order Paper that set out a targeted provision protecting the job security and employment conditions of workers in contracting out situations, but this was not supported by Labour or the Alliance and not included in the Act.
The SFWU leadership held a last minute meeting with Alliance Leader Jim Anderton, Alliance MP Laila Harre and Alliance President Matt McCarten to resurrect something out of clause 66, but it was too late.
While Clause 66 was removed from the legislation, the Government responded by inserting in the Act Section 54(3)(a)(ii) requiring every collective agreement to contain a clause setting out the rights and obligations of the employees and the employer if the work of any of the employees were to be contracted out or the business or part of the business of the employer concerned were to be transferred or sold. It also committed to setting up an advisory group to assess whether existing provisions were adequate and to honour its 1999 manifesto undertaking by addressing the issue in its second term.
Advisory Groups Set Up
The first of the Government advisory groups, chaired by Nigel Haworth, was set up in December 2000 and contained representatives of the NZ Council of Trade Unions (Luci Highfield and Peter Conway), the NZ Employers Federation as well as nominees of Maori, Pasifika and the State Services Commission.
The SFWU made a powerful submission to the advisory group focussing on its cleaning and catering membership. Food service worker Fia Mika said:
I’ve been working in this hospital kitchen for 11 years and we have been contracted four times. In August 1998 Spotless took over and this place was turned into a war zone. Spotless tried hard to reduce the number of staff and reduce the hours. They expect people to work long hours with no extra pay. To work faster like machines. They tried to get rid of permanent staff and employ more casuals. They want the workplace run by casuals. They never appreciate the work we do.
The final advisory group report was presented in April 2001 and identified six options around the protection of employees’ terms and conditions of employment in the event of sale or transfer of a business or contracting of the employees’ work. They varied from taking no action through to implementing a comprehensive right for all New Zealand workers based on the European Union Acquired Rights Directive.
The advisory group, with the exception of the NZ Employers Federation, accepted the need for legislative intervention to provide protection for workers in cases of contracting out or sale or transfer of a business.
With the important exception of the employer party, the Group reached the view that there was prima facie evidence of the need to provide further protection, particularly for vulnerable members of the workforce. This view strongly supported the introduction of a comprehensive measure that would guarantee the continuation of employment and established wages and conditions of work through the processes of contracting out or the sale or transfer of a business.
The advisory group was generally supportive of a model based on the European Union Acquired Rights Directive. However, they noted that more work needed to be done on this to fit New Zealand circumstances.
Soon after receiving the advisory group report the Minister of Labour set up a smaller group to undertake technical development work on the options for change, the likely impact of each of the options and to make recommendations. The group was made up of Nigel Haworth (chair), with representatives of the NZCTU, Business NZ and lawyer Denis Clifford.
The NZCTU tabled a draft transfer clause with wide coverage applying to a range of transfer situations, requiring the employment of all workers on their existing terms and conditions of employment at the point of transfer.
This draft clause was used by the Group to consult widely around New Zealand with meetings held in all the main centres. The union and worker submissions were dominated by Service and Food Workers Union members employed as cleaners, food service workers and hospital orderlies, all of whom had lost their jobs or employment conditions during changes of contract.
Business NZ remained staunchly opposed to any legislative intervention, recommending that a further period of time should be spent monitoring the good faith outcomes in the Employment Relations Act and the development of best practice guidelines for both employers and workers.
As a result of the consideration given to the submissions the NZCTU representatives proposed a strategy that included immediate legislative intervention targeted to transfers occurring in and around the same premises and/or involving defined occupational groups as a first step. The second step would involve further technical development and research with a view to introducing a generic provision at a later date.
While this was a change in the union position, it was also accompanied by a proposal to introduce a requirement for all collective agreements to have a scale of redundancy compensation and for a regulation to apply in the state sector to set specific rules in relation to procurement, sale, transfer and contracting out of work.
This strategy was included in the Group’s November 2001 Report along with draft legislation.
The SFWU continued to maintain dialogue with the Minister of Labour Margaret Wilson during the remainder of 2001 and in 2002 about the urgency of acting on legislation.
SFWU members visited nearly every Labour MP to explain the urgency of acting on legislative change.
In July 2002 the union wrote to Margaret Wilson outlining the ongoing problems for SFWU members associated with changes of contract at Christchurch Hospital, Northland Health and Press House in Wellington. In all these situations SFWU members had either lost their jobs, had their hours reduced or lost employment conditions as a result of the changes of contract.
The union also wrote to other cabinet ministers detailing cleaning contracts that were being tendered in government departments that contained no requirement to transfer the cleaners’ jobs or employment conditions.
Labour’s 2002 Election manifesto continued its commitment to a comprehensive solution despite the debate shifting to a more specific immediate legislative intervention:
As a matter of priority, introduce a comprehensive measure (based on the work of the Ministerial Advisory Group) including legislative intervention to ensure there is a protection of employment conditions and continuity of employment in the event of the sale of business, transfer of undertakings, or contracting out.
On 5 September 2002 the NZCTU and SFWU representatives met with the Minister of Labour and her departmental advisers to discuss progress. The debate between the generic provision and various targeted provisions (including a new one that would only apply to employers in receipt of public funds) was still ongoing and there did not seem to be any end in sight.
The union objective was a comprehensive provision, but union representatives were prepared to deal with the most vulnerable groups first, given that most of the running on this legislation had been done by the SFWU and its active groups of cleaners and catering workers.
The meetings between the NZCTU, the SFWU, the Minister of Labour and departmental officials continued through the last few months of 2002 mainly focussed on the “unforeseen consequences” of a generic comprehensive provision.
In November 2002 the Minister of Health Annette King, in her letter of expectations to District Health Boards, tried to address the issues of contracting:
DHBs when contracting out services will ensure that all staff that wish to be transferred to the contractor are transferred and are appropriately protected. That is, staff transferring to the new employer will retain, for a defined period, the same terms and conditions of employment, including continuity of service, as those prevailing immediately prior to the transfer.
At the beginning of 2003 further problems emerged between the union expectations and those of the Labour Department officials.
The NZCTU was advised by the Labour Department that there were technical issues with including “succession to contract” (when one contractor replaces another) provisions in the new law. The Department’s argument was that there was no legal transaction directly between the contracting employer who loses the contract and the employer that wins the contract. They also indicated that the Government was reluctant to interfere with the competitive tendering process across the whole economy.
The NZCTU and the SFWU proposed that “succession to contract” become a targeted provision in circumstances where there is a change of employer providing cleaning, catering, caretaking, laundry and security work and where that work continues to be performed on or around the premises.
The SFWU, which had been driving the campaign around legislative change, was particularly incensed about excluding “succession to contract” situations, as in the cleaning and catering sectors this was the most common change that occurred.
The SFWU knew, from experience, that if successor contracts were excluded then there would be no effective protection for its membership. The union argued with departmental officials that including successor contractors would not spell the end of competitive tendering, which had regularly occurred even under the national awards system in the 1980s. It was simply a protection for the lowest paid workers, whose lives were thrown upside down every time a contract changed.
The SFWU continued to send the Minister of Labour examples of business restructuring and contract change. One of these was the sale of Taranaki’s Heatherlea Rest Home. The rest home workers, including cleaners, laundry workers, catering workers and caregivers, were all given notice and told that if they wanted to continue to be employed by the new owner they would need to apply for their jobs and accept lesser conditions.
The Labour Department officials had explored an option of succession to contract protections being done by administrative procedures rather than legislation, pointing to the letter of expectations from the Minister of Health to DHBs.
The SFWU rejected this approach pointing out that many DHBs had ignored the Minister’s direction or argued that they could not fulfil the direction because they had no control over what a contractor did with their employees or potential employees.
The SFWU took a test case to the Employment Court in 2003 to ascertain the obligations required under section 54(3)(a)(ii) of the Employment Relations Act, which had been inserted in 2000 as part of the answer to protecting workers in the case of contracting.
In its September 2003 decision the full bench of the Employment Court found that even though the Act required a provision in each employment agreement to protect workers in the case of contracting out this provision did not require there to be a guarantee of transfer or the retention of existing terms and conditions of employment.
The Court had established what the SFWU already knew – there needed to be stronger provisions for workers vulnerable to contracting out and regular changes of contract.
In October 2003 further large cleaning contract changes took place at Auckland University and Hutt Valley’s Weltech that saw nearly 100 cleaners lose employment conditions and in the case of the two Weltech union delegates Keri Lauina and Sharon Herekiuha, lose their jobs.
Legislative Change at Last
The pressure was on for legislative change and in November 2003 Cabinet approved legislation to be developed that focussed on strong provisions for “vulnerable” workers and lesser provisions for other workers.
Vulnerable workers were those who worked in labour-intensive lower paid work with little bargaining power, where change of employer situations was commonplace in their sector and where this led to the undermining of employment conditions.
Vulnerable workers would be included in a schedule, which could be added to by Order-in-Council.
The cabinet decision was a tribute to the SFWU and its Contract Labour Campaign. All of the listed vulnerable workers, such as cleaners, catering workers, orderlies, caretakers and laundry workers, were workers the SFWU organised.
The legislative amendments were part of an Employment Relations Amendment Bill, that went through the parliamentary process and was opposed by most employers and supported by affected workers and their unions.
The provision was contained in a new Part 6A – Continuity of Employment if Employers Business Restructured of the Employment Relations Act and came into effect on 1 December 2004 along with a similar provision covering all workers in the Public Health Sector.
Part 6A changed the lives of thousands of cleaners and other vulnerable workers in guaranteeing their jobs and employment conditions during contract changes.
Part 6A was amended in 2006 following the Employment Court finding that the wording of the statute did not protect workers involved in contract succession situations. The amendment, for the first time, set out examples of business restructuring to make it clear how the law would be applied in each situation. It also committed, at the insistence of NZ First, to a review of Part A after three years to assess whether it was meeting its purpose.
Cementing in the Gains
While contractors were opposed to Part 6A the large ones quickly adapted to the new rights that the workers had been given and tried to work with the legislation.
Issues arose when tenders for some buildings were split in half cutting the cleaners’ jobs between two contractors but given that many cleaners had more than one part-time job, these issues were soon sorted.
Franchising companies bidding for small cleaning contracts were a headache for the union as they usually handed these on to tiny family-based franchisees, who then found out that in addition to a fat fee to be paid to the franchise company they were required to pick up the employment of one or two existing cleaners.
The SFWU had also moved to cement in the Part 6A gains through working with the Labour Coalition Government, the Property Council and the cleaning industry employers’ body (Building Service Contractors of NZ) to adopt a regime for minimum standards in the cleaning industry.
In April 2008 all the parties signed up to the Principles for a Sustainable Property Services Industry, which was later incorporated as a minimum document for government procurement of cleaning services. It committed all cleaning companies bidding for government contracts to pay rates in line with the national cleaning multi-employer collective agreement, to promote collective bargaining, to recognise the union and to be a member of the BSCNZ.
The election of a National-led Government in 2008 did not immediately lead to any changes to Part 6A but during its first term a lobby started to develop led by Crest Cleaning, a cleaning franchise company that was starting to make inroads into school cleaning.
Reviewing Part 6A
The Minister of Labour Kate Wilkinson in 2009 set up a Ministerial Review Committee to carry out the statutory review of Part 6A as required by the 2006 legislative amendments. The Review Committee received 146 written submissions and concluded that the legislation was working as intended although identified some problems with the transfer of costs for annual and long-service leave between employers during transfers. The employer representatives on the review committee agreed with the findings and felt that the legislation had provided more stability in the cleaning sector, where most contract changes occurred.
The Ministerial Review Committee also made the following important points:
- Industries with low-skilled and low-paid employees can benefit when wages and employee conditions are excluded from the contest for contracts and competition is instead focused on management, technical innovation and investment,
- Continuity of employment protection in labour-intensive industries with high employee turnover can improve workplace stability and productivity, and
- Broad socio-economic benefits can be achieved through improving the job security and workplace stability of employees who lack scarce skills and who are at risk to unemployment and related negative outcomes
The Minister of Labour Kate Wilkinson received the Labour Department Review Report without comment and in May 2011 told me in a discussion at the ILO Conference, that she had no intention of making any amendments to Part 6A that would undermine the workforce.
However, in late 2011 she ordered another report by the Sapere Research Group, a consulting agency that had links to ex-Treasury Secretary and ACT candidate Graham Scott. Her instructions were for Sapere to undertake a cost benefit analysis of the provisions of Subpart 1 of Part 6A to provide guidance on possible amendments.
While the appointment of the Sapere Group review was welcomed by Crest Cleaning its report, delivered in April 2012, largely came to the same conclusion as the Ministerial Review. Sapere concluded that in a national sense both the Part 6A benefits and costs were small, although for the vulnerable workers affected the key benefit of providing greater employment certainty was huge.
The Sapere Report examined whether Subpart 1 of Part 6A should be restricted just to large employers and concluded:
In light of what we have heard from interviews and found in our subsequent analysis, it seems likely that restricting the special protections to only large employers would be counter-productive and lead to even more perverse outcomes than the current arrangements. This is because it would result in transfer situations where one party had to be compliant and the other did not, leading in all likelihood to a breakdown in the exercising of the provisions at all.
The Labour Department agreed with this conclusion:
The Department concurs with this analysis…. Applying Part 6A of the Act to all businesses would provide more scope for improvement. Applying Part 6A of the Act to all businesses would ensure that all contractors were competing on an equal footing during a tendering situation.
Despite the departmental advice a nasty ongoing campaign by Crest Cleaning and the Whaleoil blog site was moving the Minister of Labour to insist that small contractors be exempt from the transfer provisions of Part 6A.
Amendments to Part 6A
When the amendments to Part 6A, to allow exemptions for employers of under 20 employees, were introduced in 2013 the bill came with a Regulatory Impact Statement noting that one of the detrimental effects of exempting small employers from certain parts of Part 6A was “a gradual reduction in overall level of employee entitlements, as work shifts from a big employer to a small employer, who is able to reduce entitlements, then to a big employer who upholds the reduction.
The SFWU fought hard against the amendment bill and won support from newspaper editorials, from faith-based organisations and even from the Building Service Contractors of New Zealand.
The BSCNZ submitted to the Parliamentary Transport and Industrial Relations Select Committee considering the bill:
We submit that if Part 6A is to remain, then the “exempt employer” regime ought to be deleted, preserving the level playing field that exists now. To exempt small to medium sized incoming employer contractors from this regime, on the basis of what appears to be an arbitrary number (20 employees), would completely undermine the purpose of Part 6A, and would substantially impact on the rights and obligations of all other participants
Despite the opposition the amendments to Part 6A were passed. The new regime included exemptions from transfer obligations for small employers although these were heavily prescribed with an “associated persons” test to prevent large franchise companies arguing that because they only employed (other than through their franchisees) less than 19 cleaners that they were exempt.
The amendments also set up a stronger regime of legal warranties between incoming and outgoing contractors so that the costs of transferred annual leave and other matters could be resolved between the parties. The SFWU supported these changes.
The 2013 amendments also changed the way by which new groups of vulnerable workers could be added to the list in Schedule 1A from an Order-in-Council process to a legislative amendment in parliament. The SFWU at the time supported this because of the difficulties this would pose for a National Government deciding to get rid of any groups in the list.
Security Officers on the Agenda
The exemption regime lasted until the election of a Labour Coalition Government in 2017, when the 2013 exemptions were repealed and the processes for adding new groups of vulnerable workers to the Schedule 1A list resorted to Order-in-Council.
Soon after the legislation was passed E tū (having been formed from the SFWU in 2015) began work on adding security officers to the Schedule 1A list.
In the 14 years since Part 6A was introduced into the Employment Relations Act there had been only one other group that had attempted to be added to Schedule 1A. This group was workers who worked for the Wellington Regional Council water services, who were rejected after a long and complicated process.
The union application for security officers to be covered followed the criteria set out in the Employment Relations Act as to who was a vulnerable worker, but also had to contend with the opposition from some security employers and concern from others that the definition of security officers might stretch too wide.
Coupled with the difficulties of getting through any worker-friendly measures in the 2017-20 Coalition Government and the Covid-19 pandemic, it took nearly two years before it was finally announced in March 2021.
Part 6A certainly changed the lives and extended the rights of thousands of workers who between 1991 and 2004, in the words of E tū Kenepuru Hospital food services delegate Maria Churms, “were thrown around like clothes in a washing machine during contract changes”.
Part 6A has survived because it targeted workers that carried out hard invisible work, but when they stepped forward and told their stories, most New Zealanders were sympathetic to their issues.
I was told by one ex-Minister of Labour that he likes to fight for legislation that is going to resolve a problem or injustice that is real and not just imagined. He reminded me of a visit I had arranged with him to meet a group of cleaners. Listening to their heart wrenching personal stories about contract changes had stuck forever in his mind. He was committed to Part 6A as a real measure that was going to address a real problem for real people.
The aim of the union movement with the 1999 Labour-Alliance Government was to get a broad European-type right for job transfer for all workers whether low paid or highly paid.
However, with only the SFWU visibly campaigning for change when the pressure came on a targeted provision succeeded where the general provision failed.
That it has survived for 17 years through both Labour and National coalition governments is a tribute to its broad based support and the ongoing activity and visibility of the workers who are affected.
The addition of security officers is another step towards widening the coverage and including another group of workers, who in the last five years have found their voice.