CONTRACTING OUT – IS In

ACC, OSH, IRD – they are all acronyms
that for many employers equate to cost in time and effort. That’s not to say employers believe there shouldn’t be safe workplaces, or tax, it’s just that for many, they are synonymous with red tape and compliance costs.
Add to it now the ERA – Employment Relations Act – that many see as another layer of complexity and compliance. All of sudden there’s new acronym on the block that looks very appealing – TWB – Temporary Work Businesses. As the name suggests TWBs use temporary employees to fill client requirements, an arrangement that is becoming increasingly popular around the world.
This style of employment allows organisations to be flexible, adaptable and respond quickly to changing market conditions. Just as important for employers, TWBs remove the bureaucratic barriers to employing people.
While this trend to TWBs exists in both highly regulated and deregulated labour markets, the cost of compliance is big factor. Now in New Zealand, the ERA seeks to promote collectivism and unionism but for many employers the costs and other issues associated with collective agreements can encourage them to look for alternatives.
Under the new legislation, employers must make provision for employment relations education leave, paid stop work meetings and deduction of union fees. Bargaining and good faith provisions require expertise that not all employers have, which can equal cost to ensure compliance and achieve results. Many employers are also not looking forward to providing unions and independent reviewers with confidential business information.
If there are applicable collective agreements, employers cannot negotiate alternative individual arrangements for 30 days after they start. If an employer prefers collective agreement, they are forced to provide individual agreements to all staff who choose not to join union.
Agreements also now need clauses to cope with the possibility of work being contracted out or the business being sold or transferred. The effect is that this very emotive issue is going to feature in every negotiation for collective agreement.
Under the Employment Contracts Act, the courts were unlikely to challenge contractor relationships defined in writing as ?for service’ as opposed to direct employment. The ERA allows contractors to challenge arrangements freely and fairly negotiated if the relationship turns bad and there is some benefit to the contractor – for example access to personal grievance claims.
Our labour market is not unique – in many ways it’s middle of the road. Freer than some and more regulated than others. We can learn by examining some of the trends and some of the statistics from overseas.
In many countries, temporary work contributes to the optimum growth of employment. In the European Union, over 50 percent of unemployed people who found jobs in 1995 took temporary positions.
France has highly regulated employment market and has seen (and continues to see) growing trend towards temporary contract labour. This type of employment grew by 11.5 percent in 1998 and 20 percent in 1999 with projections for this year of another 16 percent. In 1999, 1.8 million people worked in the temporary market and interestingly men made up nearly three-quarters of that figure. Manufacturing accounts for 52 percent of the usage, construction 18 percent and service 30 percent.
In New Zealand the barriers confronting employers in directly employing staff, such as high compliance costs including ACC, OSH, Holidays Act, etc and now the ERA may see an increasing number of companies looking towards this option. It seems those that drafted the Employment Relations Bill recognised the trend towards contracting out with clause 66 “Continuity of Service” which sought to guarantee employment for employees during the term of collective agreement.
The intent was clear “to provide employment security and certainty in situations where work or employees are ?contracted out”. Obviously this form of labour hire does not fit well with the underlying philosophy of the promotion of collectivism and unionism within the workplace. Legislation governing temporary work differs from country to country. It is actively encouraged and accepted in the US and UK, but it is prohibited in Italy and Greece.
Although clause 66 did not make it through to the final version of the ERA, the Act does require collective agreements to contain clauses dealing with rights and obligations if work is contracted out. This will not slow the global trend towards contracting out, the irony is that forcing people to make provision for it in agreements may well be one of the catalysts for employers to make the move.

Tony Waddel is consultant with the Organisational Performance Consultancy, The Empower Group.

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