Vulnerable workers and contracting out services

Note: This article provides an overview of the employment implications of contracting out services. It should not be considered advice on other implications of contracting out services.

What is contracting out?

When work currently being performed by a school board employee(s) is given to an independent contractor (or third party) to perform instead.

This is done through a contract for services, hence the name “contracting out”.

Contracting out is considered a restructure.

Contracting out in the education sector should be a last resort and cannot be driven by financial factors alone.

A primary objective of school boards (as Crown Entities) is to maintain full employment of school staff.

What protection is available for vulnerable workers?

Part 6Aopen_in_new of the Employment Relations Act 2000 provides additional protections to certain groups of employees during restructures:

• Who are employed in areas that are often subject to multiple restructures because the work is provisioned by way of contracts for service,

• Often see their terms and conditions undermined as part of the tendering for contracts, and

• Have low bargaining power.

In the education sector, employees who perform caretaking, cleaning, food catering (including tuck shops and those employed under the Healthy School Lunches Programme) and laundry services are protected by Part 6A of the Act.  

This means that extra obligations, responsibilities, and steps are placed on schools throughout a potential restructure, such as carrying out due diligence on the financial status and stability of the contracting company.

If you are considering contracting out one of these functions, it’s important to carry out due diligence and seek advice early.

Can you use contracting out as a remedy for concerns?

No. You cannot use contracting out as a solution to address concerns that you have with an employee, such as absenteeism, poor performance, or misconduct.

Using contracting out to address these could constitute an unjustifiable dismissal.

Instead, deal with the issue(s) using the appropriate process in the relevant Collective Agreement.

You can also contact our Advisory and Support Centre to discuss your situation further.

Do you need to consult with employees before making your decision?

Yes. If your board is considering contracting out, it is required to engage with potentially impacted employees from the outset as part of its decision-making process.

A notification of the board’s consideration of contracting out must be made to impacted employees and to the relevant union (if any of the impacted employees are union members) at least six weeks before any proposed contracting out would take place.

Before making decisions, potentially affected employees (and the union) must be provided with all relevant information.

The consultation process requires ongoing and constructive communication.

Potentially affected employees must be given opportunities to submit to the board, including a response to any contracting out plan.

Boards must consider submissions and responses received in good faith with an open mind and show how they factored them into their decisions.

What else do you need to do before making a decision?

During this consultation period, your board is also required to:

• Determine whether attrition can achieve the desired outcomes without contracting out (“attrition” – the non-replacement of employees who retire, resign, or transfer internally).

• Try to retain the employee’s employment at the school in a role with terms and conditions no less favourable to them (even if this involves some on-the-job training).

• Meet your obligations as a good employer and as a Crown Entity.

Board members and decision-makers would benefit from reading this information from Employment New Zealandopen_in_new as a starting point.

What do you need to do if you decide to contract out?

If your board does decide to contract out, please contact our Advisory and Support Centre.

However, for your information, one of the key implications of this decision is that impacted employees gain the right to choose whether they want to transfer to the new employer.

This decision is solely that of the employee. Your school and the new employer cannot pressure, coerce, or otherwise inappropriately influence the employee’s decision.

Your school will need to work with the new employer to ensure the information provided to the employee, as required by section 69Gopen_in_new of the Act, is accurate and complete.

What if the employee(s) opts to transfer?

If an employee(s) opts to transfer, they are entitled to transfer on all the same terms and conditions they have under their current employment agreement.

If they are a union member, the new employer technically becomes party to the Collective Agreement, but only as it relates to union member employees who transferred to it.

The employment of transferred employees is treated as continuous, meaning they carry over their leave balances and entitlements (including annual and long-service leave).

Your school and the new employer will need to work together to apportion (divide) the financial liability of service-related entitlements (per section 69LAopen_in_new of the Act).

A transferring employee is not entitled to any redundancy payout – unless the new employer subsequently makes them redundant. It would then have to follow the terms of their employment agreement.

Your school also needs to comply with section 69OCopen_in_new when sharing information with the new employer.

What if the employee(s) opts not to transfer?

If an employee(s) opts not to transfer, your school is guided by the clauses of the relevant CA.

These clauses require you to make reasonable efforts to assist impacted employees in finding alternate employment, such as providing paid time to attend interviews or other matters related to their job search. 

If, by the end of the notice period, the employee has been unable to find another role “in-house”, or employment with another state (or state-integrated) school within reasonable commuting distance, that has comparable duties and has terms and conditions that are no less favourable than their current job, they are made redundant.

They will receive redundancy pay consistent with their terms and conditions.

What do you need to do if you decide to contract in?

If your school chooses to bring “in-house” one of the functions described in the introduction from an existing contractor, it must also comply with the requirements of Part 6Aopen_in_new.

Many of the previously described obligations flip:

• An employee currently employed by the contractor can opt to come across to your school, and your school cannot refuse their transfer.

• That employee’s leave balances transfer as is, and your school is required to honour them.

• The employee transfers on the same terms and conditions of employment they currently have. This will likely require concurrence from the Ministry of Education to ensure a tailored IEA is available. If the Collective Agreement offers better terms and conditions than they currently have, they should be offered the more beneficial terms, and these should be incorporated into the IEA.

• If your school subsequently determines that a redundancy situation needs to take place, you are required to follow the redundancy provisions of the Collective Agreement (including redundancy pay if that is the outcome) or their existing terms and conditions if they were more beneficial to the employee.

You can contact our Advisory and Support Centre to discuss your situation further.

Templates, resources, and references

Click on the link(s) below to access this topic’s templates, resources, and references.

Depending on your device, these may download or open in a separate browser.

Links from us

• Board as a Good Employer

• Healthy School Lunches Programme

Employment New Zealand

• Restructuring when a business is sold or transferredopen_in_new

Employment Relations Act 2000

• Part 6A – Continuity of employment if employees’ work affected by restructuringopen_in_new

• Section 69G – Notice of right to make electionopen_in_new

• Section 69LA – Liability for costs of service-related entitlements of transferring employeeopen_in_new

• Section 69OC – Disclosure of employee transfer costs informationopen_in_new

Ministry of Education

• Caretakers’, Cleaners’, Canteen or Ground Staff Collective Agreement
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