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Crest Cleaning Refuses to Transfer Vulnerable Employees

Written by Alison Maelzer & Ashley Ayton on October 26th, 2012.

Either Crest Commercial Cleaning (“Crest”) are on a crusade against Part 6A of the Employment Relations Act 2000 (“Act”) or Part 6A has unfairly rallied against Crest.  The object of Part 6A is to “provide protection to specified categories of employees if, as a result of a proposed restructuring, their work is to be performed by another person”.  This is achieved by giving employees “a right to elect transfer to the other person as employees on the same terms and conditions of employment” as before.  Seems pretty simple, right?  Apparently not.
 
In Doran v Crest Commercial Cleaning, Crest refused to allow Mr Doran to transfer his employment because it claimed that insufficient information was provided to it.  The Employment Court considered what steps an employer of employees who will be affected by a restructuring must take to give notice to the employees of their right to make an election to transfer.  The Court also considered the steps required for affected employees to make an election under the Act.  The question whether the new contractor could require certain information be made available to it at the time an employee’s election is made was considered by the Employment Relations Authority in Fotu v Crest Commercial Cleaning. 
 
In the Doran case, Tonkin & Taylor Ltd (“Tonkin”) engaged Hills Cleaning Services Ltd (“Hills”) to clean its premises in Nelson.  Hills Cleaning employed Mr Doran to do the cleaning at Tonkin’s premises.  On 17 July 2009 Tonkin gave two weeks notice to Hills cleaning that it would cancel its contract with Hills effective from 1 August 2009.  Ms Williams, Hills’ manager, spoke to Mr Doran about the restructuring the same day.  Although she was unable to tell Mr Doran at the time of their conversation who the new contractor was (Tonkin not having provided that information to her), Mr Doran told Ms Williams he wished to transfer to the new contractor as he needed the work.  Ms Williams confirmed her conversation with Mr Doran in a letter written shortly after their meeting. 
 
Tonkin subsequently advised Hills that the new contractor was Crest.  Ms Williams contacted Crest’s regional manager (Mr Bailey) and told him Mr Doran wished to transfer to Crest in relation to the work at Tonkin.  Mr Bailey passed the information on to Crest’s owner and manager, Mr McLauchlan, who was based in Dunedin.  Mr Bailey told Ms Williams that she should contact Mr McLauchlan in future.  Ms Williams then attempted to phone Mr McLauchlan but was unable to speak to him.  She left several messages to which he did not respond. 
 
Ms Williams eventually managed to speak to Mr McLauchlan on 24 July 2009.  Ms Williams told Mr McLauchlan that Mr Doran wished to transfer to Crest to do the work at Tonkin.   Following her conversation, Ms Williams wrote to Crest setting out Mr Doran’s employment details.  In response to her letter, Mr McLauchlan wrote to Ms Williams stating that she had not supplied the documentation required under the Act.  He sought copies of Mr Doran’s executed employment agreement, site specifications, his election notice, and an undertaking that Hills had done what it was required to do under the Act. 
 
Ms Williams forwarded an unsigned copy of Mr Doran’s employment agreement to Mr McLauchlan.  She advised that the details of the transfer had been outlined in her earlier letter, and that site specifications were to be provided by Tonkin.  Mr McLauchlan responded stating that the agreement was unsigned and Ms Williams had failed to provide Mr Doran’s signed election to transfer.  Ms Williams then faxed a copy of the signed agreement to Mr Doran.  She advised Mr McLauchlan that there was no obligation to provide a signed election to transfer.  She reminded him that she had advised him in her email that Mr Doran wished to transfer to Crest. 
 
When Mr Doran did not hear from Mr McLauchlan he attempted to contact him himself.  He left approximately six messages for Mr McLauchlan asking him to call and discuss the transfer.  Mr McLauchlan did not reply.  Mr Doran did eventually manage to speak to Mr McLauchlan on 30 July 2009.  He confirmed that he had elected to transfer to Crest.  Mr McLauchlan advised Mr Doran that he did not consider his election valid because it was not in writing and signed.  Mr McLauchlan then told Mr Doran that he was not sufficiently qualified to do the work at Tonkin. 
 
When Mr Doran suggested they attend mediation, Mr McLauchlan refused.  Mr Doran advised that he would pursue his rights through the personal grievance procedure.  The following day Mr Doran emailed Mr McLauchlan stating that he elected to be employed by Crest to undertake the cleaning of Tonkin.  He did not receive a response from Mr McLauchlan, although he sent a follow up email requesting a mediation. 
 
The Court found that the steps Ms Williams took to give notice to Mr Doran of his right to elect were appropriate in that he was given a reasonable opportunity to exercise his rights, and had been given information sufficient to enable him to make an informed decision about whether to exercise his right to make an election.  In particular, Ms Williams spoke to Mr Doran on 17 July 2009 and advised him of the nature and scope of the restructuring and the date on which it was to take place.  Having been told who the new contractor was and who Mr Doran should make his election to, Ms Williams communicated this information to Mr Doran.  Ms Williams did not provide the date by which an election needed to be made.  However, as Mr Doran indicated, when Ms Williams first told him of the restructuring that he wished to transfer to the new contractor, this requirement was unnecessary. 
 
The Court noted that, while the employer is required to provide information on how an election should be made (for instance, in writing or orally) the information provided is simply to inform the employee on how an election can be made.  The methods provided should not be read as the only means by which the employee may make an election. 
 
The Court found that Mr Doran had elected to transfer to Crest.  It said that the right to elect transfer is unqualified.  There is no requirement that an election be in writing and signed by the employee, as contended by Crest.  An election can be validly made “by any means which effectively conveys the affected employee’s choice to the incoming employer.  It may be done orally or in writing, either by the employee personally or by someone acting on his or her behalf”.  The Court held that Mr Doran had on at least five occasions elected to transfer to Crest: when Ms Williams told Mr Bailey Mr Doran wished to transfer, when Ms Williams spoke to Mr McLauchlan, in Ms Williams’ letter to Mr McLauchlan, when Mr Doran spoken to Mr McLauchlan himself, and when Mr Doran emailed Mr McLauchlan. 
 
As Mr Doran had validly elected to transfer to Crest in respect of the cleaning work at Tonkin he became an employee of Crest from 1 August 2009.  The terms of employment were those that previously existing between Mr Doran and Hills.  By refusing to recognise and implement the employment relationship, Crest dismissed Mr Doran.  The dismissal was unjustified.  The Court ordered that Crest reimburse Mr Doran for lost wages, and to pay compensation to Mr Doran for humiliation, loss of dignity and injury to his feelings as a result of the unjustified dismissal. 
 
As a side note, the Court held that Mr McLauchlan had no right to insist Mr Doran provide him with a signed election document.  In addition, he had no proper basis to require Hills to provide the information he sought, namely copies of Mr Doran’s executed employment contract, site specifications, and an undertaking that Halls done it was required to do under the Act.  That information could only be sought where the party seeking information was negotiating an agreement, deciding whether to enter into an agreement or tendering for an agreement.  In this instance, the agreement had been concluded. 
 
In Fotu, Professional Property and Cleaning Services Ltd (“PPCS”) was engaged to carry out cleaning work at Taylors College (“Taylors”).  Taylors cancelled its contract with PPCS and entered into a new contract with Crest.  Mr and Mrs Fotu, and a third employee, were advised that they could transfer their employment to Crest if they wished.  They each signed a form stating that they opted to transfer to Crest.  PPCS emailed the forms to Crest’s sales manager, and suggested setting up a meeting between Crest, PPCS and the employees to arrange the transfer.  PPCS received no response.  Mr McLauchlan emailed PPCS asking for copies of the employees’ signed employment agreements, an executed and signed election to transfer, an undertaking from PPCS that it had complied with Part 6A and a copy of the cleaning specification for the school.  PPCS refused to provide the information to Crest.  It advised Crest however, that the information would have been readily available had Crest attended the meeting it proposed in its earlier email.  Mr McLauchlan advised PPCS that in his opinion the election to transfer was invalid as the required information had not been provided.  PPCS again approached Crest to set up a meeting with the employees who were transferring.  Crest did not respond.  On the day the transfer was to take place, Mr and Mrs Fotu went to Taylors College expecting to meet a Crest representative to commence work for Crest.  They were unable to find anyone from Crest. 
 
By the time of the hearing, Mr McLauchlan, having been made aware of the Employment Court decision in Doran, accepted that Mr and Mrs Fotu, having elected to transfer to Crest, had became or were eligible to become Crest employees.  Crest however, argued strongly that because the company did not receive the information it sought from PPCS about the Fotus’ employment, and the specification of the cleaning work they had been doing, the transfer of their employment was incomplete or ineffective. 
 
The Authority did not accept Crest’s argument.  It held that the only condition of transfer required by the Act was that an employee had made an election to transfer – Mr and Mrs Fotu clearly had done so in that case.  The Authority awarded both Mr and Mrs Fotu lost wages, and damages for humiliation, loss of dignity and injury to feels suffered as a result of Crest’s actions. 
 
The Authority was critical of Crest’s actions.  It commented that an “objection to Part 6A and the way it operates cannot justify a failure to comply with the law as enacted” and it “is also aware that protest against the Act needs to be aimed at those who make the law rather than workers whom he regards as having been pawns in a movement to have the legislation amended or repealed”. 
 
In Our View
 
Crest’s actions can hardly be considered reasonable.  Crest appear to have done everything, by doing nothing and failing to respond to communications, to ensure that Mr Doran and then Mr and Mrs Fotus did not transfer to its employ.  Crest has complained that Part 6A is confusing. 
 
There are certainly problem areas within Part 6A.  These include, in some sectors, identifying which employees are and which are not covered.  There is also a genuine concern that ‘vulnerable employee’ legislation is also protecting employees on substantial salaries who are not vulnerable at all.  The LSG Sky Chefs cases have canvassed these issues. 
 
However, the circumstances of Mr Doran and Mr and Mrs Fotu were obvious.  They were cleaners.  They had a right to elect to transfer.  Crest ensured that they did not.  The obligations that Crest had were clear. 
 
Part 6A is not an easy area to navigate, particularly where contracting is involved.  The contracting companies have no relationship and are obviously competitors. 
 
Crest should have requested the information that it sought a lot earlier.  As a contractor attempting to secure Tonkin’s work in Doran and Taylors College’s work in Fotu, Crest was entitled to request employee transfer information.  However, that request should have been to Tonkin or Taylors College as it was their responsibility to provide it. 
 
It is important to take advice early, as the rights that a prospective ‘new employer’ has exist during the negotiation for a contract, (whether for services or for sale and purchase of a business), not after that contract has been entered into. 
 
If you have any questions regarding these issues email us on employmentnews@heskethhenry.co.nz or call us on (09) 375 8699. 
 
Topics: Employment Law
 
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