Posted on: Sep 02, 2013

The Court of Appeal has found in favour of two companies which challenged a finding that they could be required to reimburse their successor to airline catering contracts for the previously accrued leave entitlements of 40 staff who transferred to the successor as Pt 6A of the Employment Relations Act 2000 permits. This is a result that the Employment Relations Amendment Bill currently before select committee would apparently seek to address.

The successful tenderer for certain Singapore Airlines catering, LSG Sky Chefs New Zealand Ltd, had been obliged to take on certain employees of Pacific Flight Catering Ltd and PRI Flight Catering Ltd (together referred to as “Pacific”) who had become surplus to Pacific’s requirements once it no longer held the contracts.

LSG acknowledged that it was required to recognise the outstanding leave entitlements of the transferring staff but argued — successfully in the High Court — that it was entitled to be reimbursed by Pacific under the common law action known as “money paid to the use of the defendant under compulsion of law”. The requirements of the cause of action are:

• the claimant must have made an actual or virtual payment of money
• the claimant must have been compelled or compellable to pay this money to a third party or have been    requested by the defendant to pay it
• the claimant must not officiously have intervened so as to expose itself to the liability to make the payment,    and
• the defendant must have been legally liable to pay the third party, though the reason for that liability need not    be the same as the one inducing the claimant to pay the third party.

Both LSG and Pacific agreed that the first three requirements were met. But was Pacific legally liable to pay the accrued leave entitlements of the transferring employees when LSG paid those entitlements? As the Court of Appeal defined the question, did Pacific have a continuing liability to the transferring employees, either under contract or statute, to pay their accrued leave entitlements?

The Court found that nothing in Pt 6A states that the old employer remains liable to its transferring employees for their pre-transfer entitlements or that the old employer has a liability to reimburse the new employer when the new employer pays the transferring employees their pre-transfer entitlements.

Were there other indications in the Act that no such liability existed? The Court found there were. The combined effect of several Pt 6A provisions was that, from the time of transfer, the transferring employee became an employee of the new employer and ceased to be an employee of the old employer. That meant there could be no contractual basis for a claim by the employee against the old employer for pre-transfer leave entitlements. The statute even provided that the transferring employee is treated as having always been an employee of the new employer. The Holidays Act responsibilities of an “employer” must therefore be those of the new employer.

The Court was unswayed by the argument that the Act specifically removes any responsibility from the old employee to pay redundancy to a transferring employee but makes no such provision with regard to accrued leave entitlements.

Seen as a whole, the Court said, the intention of Pt 6A was to preserve the ongoing employment of vulnerable employees at a time of restructuring and to do so in a way that was seamless from the employees’ point of view. That involved preserving all entitlements and allowing the transferring employees to treat their period of employment with the old employer and the new employer as if they had been employed throughout by the same employer.

The Court noted that in the cleaning industry a practice had arisen that an old employer pays to the new employer at the date of transfer a lump sum reflecting a present value calculation of future pre-transfer entitlements. The Bill before Parliament provides for a formula to apportion liability for certain pre-transfer entitlements where no such agreement has been reached between the parties.


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