DECISION

Fair Work Act 2009
s.394 - Application for unfair dismissal remedy

Mr Kevin MacInnes
v
Gladstone CC Pty Ltd T/A Len Smith Carpet Court
(U2016/1862)

Termination of employment: Jurisdiction – Small Business Fair Dismissal Code.

[1] Mr Kevin MacInnes (the Applicant) makes application for unfair dismissal relief relating to the termination by way of redundancy from his job as a salesperson at “Len Smith Carpet Court” (the Respondent).

[2] The Respondent objected to the application on jurisdictional grounds asserting that the business, operated by Gladstone CC Pty Ltd employed only 6 employees at the time of the termination and was therefore a small business; and the termination was consistent with the Small Business Fair Dismissal Code (Code).

[3] The matter has so far been the subject of several conferences and directions hearings but the threshold jurisdictional question remains. This decision relates solely to whether the Respondent is a small business. The parties consented to this jurisdictional issue being determined on the papers.

[4] The Applicant is of the view that the Respondent, and associated entities, employs more than 15 employees and is not a small business; that the dismissal was:

• not consistent with the Code;



• not in any case a genuine redundancy; and



• otherwise harsh, unjust and unreasonable.

[5] These issues are important because if the employer is a small business employer, as defined by s.23 of the Fair Work Act 2009 (Act), it is excluded by s.121 from the obligation to make redundancy payments under s.119.

Two jurisdiction matters to be decided

[6] There are 2 matters that need to be decided.

[7] The first is whether the associated entities are to be included for the purposes of calculating the number of employees employed by the Respondent at the time the Applicant was dismissed.

[8] The second matter is, if the companies are associated entities, how many employees were employed by the Respondent and its associated entities at the time of termination?

Representation and statements

[9] The Applicant was represented by Ms Sarah Lock of Workplace Law Group. Statements were filed by the Applicant, Mr Mark Coughlan (former Store Manager), Ms Johanne Davison (then Manager of the business), Mr Verdon Harrison (former Director of the Respondent), and Ms Lock (exhibiting various company searches).

[10] Gladstone CC Pty Ltd made submissions and provided 3 statements through Mr Andrew Johnson who described himself as a Business Consultant employed by the Respondent.

The Respondent

[11] The Applicant named ‘Len Smith Carpet Court’ as his employer. A search of the relevant register 1 indicates that the business name Len Smith Carpet Court was cancelled in 2001 and Len Smith Carpet Court Gladstone was registered in 2014 to the trustees of the Gladstone Interiors Trust with Mr Jack (who is also the sole Director of Gladstone CC Pty Ltd) listed as the Trust’s representative.

[12] The evidence of Mr Johnson and the identification of the company on the Respondent’s Form F3 lead to the conclusion that Gladstone CC Pty Ltd was the Applicant’s employer. The Applicant does not seem to contest that proposition.

[13] The Respondent seems properly to be Gladstone CC Pty Ltd and an order will issue changing the name of the Respondent accordingly.

Associated entities

[14] The entities said by the Applicant to be related entities of Gladstone CC Pty Ltd are other companies that operate similar businesses in Mackay and Maryborough, and CC Qld Holdings Pty Ltd.

[15] The following table shows the entities, their Directors at relevant dates, and underlying shareholding drawn from the company searches in evidence of both parties. The Applicant’s searches were dated early August 2016 for the trading companies ((a), (b) and (c) below) and 6 October for the Holding company ((d) below). A search exhibited for the Respondent of the employer company was dated 8 August 2016.

(a) Gladstone CC Pty Ltd (registered office: 88 Hanson Rd, Gladstone City)

(b) Mackay CC Pty Ltd (registered office: 141 Sydney St, Mackay)

(c) Maryborough CC Pty Ltd (registered office: 127-129 Adelaide St, Maryborough)

(d) CC Qld Holdings Pty Ltd (registered office: 141 Sydney St, Mackay)

[16] The following observations emerge from these company searches and relevant at the search dates:

(a) at the date of dismissal, it seems that Mr Jack was the sole Director of all 4 companies;
(b) at earlier times Mr Harrison and Mr Mackay were also Directors of the 3 trading companies at Maryborough, Gladstone and Mackay;
(c) the shareholding of the trading companies was identical, and overlapped with the shareholding of the Holding company;
(d) the Mackay company and the Holding company shared a registered address.

[17] The material in evidence consists of full searches of the Australian Securities Investment Commission register and the content of the searches was uncontested between the parties.

[18] The Applicant urges the Fair Work Commission (the Commission) to find these entities are associated entities for the purpose of s.23(3) of the Act:

For the purpose of calculating the number of employees employed by the employer at a particular time, associated entities are taken to be one entity.

[19] The meaning of associated entity is found, from the Act’s dictionary definition of the term, in s.50AAA of the Corporations Act 2001 by reference to the relationship between the various entities or the degree of control exercised by the ‘principle entity’ over other entities. Section 50AA of the Corporations Act defines ‘control’ for the purposes of s.50AAA.

[20] The sections are as follows:

50AAA. Associated entities

(1) One entity (the associate ) is an associated entity of another entity (the principal ) if subsection (2), (3), (4), (5), (6) or (7) is satisfied.

(2) This subsection is satisfied if the associate and the principal are related bodies corporate.

(3) This subsection is satisfied if the principal controls the associate.

(4) This subsection is satisfied if:

(a) the associate controls the principal; and

(b) the operations, resources or affairs of the principal are material to the associate.

(5) This subsection is satisfied if:

(a) the associate has a qualifying investment (see subsection (8)) in the principal; and

(b) the associate has significant influence over the principal; and

(c) the interest is material to the associate.

(6) This subsection is satisfied if:

(a) the principal has a qualifying investment (see subsection (8)) in the associate; and

(b) the principal has significant influence over the associate; and

(c) the interest is material to the principal.

(7) This subsection is satisfied if:

(a) an entity (the third entity) controls both the principal and the associate; and

(b) the operations, resources or affairs of the principal and the associate are both material to the third entity.

(8) For the purposes of this section, one entity (the first entity) has a qualifying investment in another entity (the second entity) if the first entity:

(a) has an asset that is an investment in the second entity; or

(b) has an asset that is the beneficial interest in an investment in the second entity and has control over that asset.

50AA. Control

(1) For the purposes of this Act, an entity controls a second entity if the first entity has the capacity to determine the outcome of decisions about the second entity's financial and operating policies.

(2) In determining whether the first entity has this capacity:

(a) the practical influence the first entity can exert (rather than the rights it can enforce) is the issue to be considered; and

(b) any practice or pattern of behaviour affecting the second entity's financial or operating policies is to be taken into account (even if it involves a breach of an agreement or a breach of trust).

(3) The first entity does not control the second entity merely because the first entity and a third entity jointly have the capacity to determine the outcome of decisions about the second entity's financial and operating policies.

(4) If the first entity:

(a) has the capacity to influence decisions about the second entity's financial and operating policies; and

(b) is under a legal obligation to exercise that capacity for the benefit of someone other than the first entity's members;

the first entity is taken not to control the second entity.

Applicant’s evidence

[21] The Applicant exhibited to his statement the notice dated 25 February 2016 over a signature block of ‘Andrew Johnson, Len Smith Carpet & Tile Court’, advising him that his full-time employment would be terminated immediately and he would be paid 5 weeks’ notice. His evidence is that Mr Johnson and another person (Kim) had earlier been introduced by Mr Harrison as marketing agents contracted to sell the 3 stores in Maryborough, Gladstone and Mackay. There had been discussions with him and other employees about reduced hours to keep the business viable while Mr Johnson attempted to sell it and the other stores. He deposes that on 25 February Mr Johnson told him he must work out the notice period and if he left earlier he would only be paid the time he worked. He decided to work out the full 5 weeks and ceased employment on 31 March 2016.

[22] Ms Davison was the Applicant’s supervisor and was the manager of the Gladstone store. In her statement of 14 June 2016 she asserts 22 people were employed at Len Smith Carpet Court. She provides names for 7 of those, first names only for another 14 (one being Sharon), and a role (‘Warehouse Storeman’), and relationship (‘Sharon’s husband’), for the 22nd. She deposes that Mr Johnson and ‘Kim’ were described by Mr Harrison as marketing people and that he was looking to sell the 3 businesses and retire. She details a series of discussions and meeting with her and other staff about reduced working hours. She also deposes that she was interested in buying the business herself.

[23] Mr Harrison was Director of the 4 companies and General Manager of the 3 stores until 2013. From that time Mr Jack managed the Mackay store and Mr Harrison the other 2 stores. He says that the accounting for all 3 stores was run from the Mackay store, and that he, Mr Jack and Mr Mackay each discharged various managerial roles for the 3 stores. He deposes that salaries for staff were calculated at each store and submitted to the Holding company for payment and processing by Mr Jack or Mr Mackay. Board meetings were held as 1 meeting for all stores. He explicitly refutes the Respondent’s claim that the stores were unconnected: “All 3 stores were run together as a group and under the ownership of CC Holdings Pty Ltd”: Statement of Mr Harrison at paragraph 10.

[24] Mr Coughlan was Sales Manager at Len Smith Carpet Court until 2012. He recruited the Applicant as a salesperson. He deposes that he was transferred from Gladstone to Mackay in 2008 with continuity of employment. He says that the Sales Managers of the 3 stores plus the Commercial Manager from Mackay all met regularly as a group; invoices were all processed at the Mackay store; and stock was regularly transferred between the stores to meet customer demand. Orders for carpet and underlay for all the stores were handled through CC Qld Holdings Pty Ltd.

Respondent’s evidence

[25] Mr Johnson in his statement dated 10 August 2016 argued Gladstone CC Pty Ltd was not associated with the other entities for the purpose of s.23 because of underlying trust arrangements to the benefit of Mr Harrison and Mr Jack. He further asserts that there are no cross holdings between the other city companies and that the operations, resources and affairs of Gladstone CC Pty Ltd are immaterial to the Mackay and Maryborough corporate trustees; there is no investment in or influence over the various entities among themselves and that no other party exercises the control or has the requisite relationships.

[26] In his statement of 14 November 2016, Mr Johnson states that as at 25 February 2016 (the date of the termination letter), 6 named people (including the Applicant and Ms Davidson) were employed by Gladstone CC Pty Ltd. He asserts that Ms Davison’s evidence as to 22 employees is false.

[27] He also asserts that Mr Coughlan’s evidence as to continuity and retention of conditions on transfer is false, and exhibits a letter in regard to a claim by Mr Coughlan after he resigned for payment of long service leave entitlements. The letter indicates that the claim was resolved by payment in full.

[28] Mr Johnson deposes that the Gladstone store was independent because it operates separate accounting systems, bank accounts, purchasing etc. His evidence is that the Holding company has no employees, but he does not provide evidence of employment by the potentially related entities. He also deposes that Directors were not in receipt of Directors’ fees.

[29] He exhibits to his statement of 7 December 2016 banking records for CC Qld Holdings Pty Ltd for 1 January to 29 March 2016 and for Gladstone CC Pty Ltd and for Gladstone Interiors Trust t/a Len Smith Carpet & Furniture Court from 15 February to 19 February 2016. He submits that these records demonstrate the independence of the entities and that staff and stock costs were not paid from the Holding company account, in refutation of Mr Harrison’s evidence.

Discussion

[30] The uncontested evidence before the Commission as to the relationship between the various carpet court entities demonstrates clearly they are under common or similar ownership and direction. The expression ‘associated entity’ as applied in the Act is “an expression of wide scope”: Clermont Coal Pty Ltd v Brown [2015] FCAFC 136, [5] Jessup J, Buchanan and Rangiah JJ agreeing. However consideration of s.50AAA can inject “considerable complexity” into matters under the Act: Leung v Brian Burgess as Trustee for Brian Burgess Family Trust, Binnia Downs Meat Co. Pty Ltd as Trustee for MCP Carr Investment Trust [2015] FWCFB 5255, [6].

[31] The facts here indicate a set of business relationships involving companies that seemed to operate each store, but as trustees for unit trusts that held the shares in the operating companies. Mr Johnson’s evidence hinted that there were other underlying family or other unit trusts involved. The role of the Holding company was also unclear.

[32] The facts here bear similarity to those in Salagaras v Fingal Glen Pty Ltd atf the Adelaide Riviera Trust t/as Comfort Hotel Adelaide Riviera [2011] FWA 1401. In that case the employer was one of 3 different businesses owned by separate unit trusts with separate trustee companies. Each trustee company had the same single Director and each trust had the same Financial Manager, who were both employees of a single accountancy firm. The Commission held that they were associated entities and employees of the associated entities therefore counted for the purpose of determining whether the employer was a small business.

[33] In my view the facts here are not materially different.

[34] The exhibited bank statements do not, in my view, demonstrate independence of the 2 entities as there is insufficient detail. They show there were financial transactions in the CC Qld Holdings Pty Ltd account relating to Maryborough, Gladstone and Mackay, each $5000 monthly, but not the purpose and result of those transactions.

[35] The evidence about the various unit trusts is either immaterial, or reinforces the commonality of interest between the 4 entities. In any case it is not sufficient for the Respondent to have demonstrated that because of the trusts, the entities are not associated.

[36] The Corporations Act definition of associated entity includes the control (as defined by s.50AA) by another entity. “Entity” is defined in the s.64A of that Act to include not only other companies but also trusts and individuals. Further ‘control’ is described in s.50AA(1) as “capacity to determine the outcome of decisions about the second entity's financial and operating policies”.

[37] Does then Mr Jack, as sole Director of all 4 companies and other shareholders at the time of termination have the capacity to control the outcome of decisions about entities other than Gladstone CC Pty Ltd?

[38] The notion of control is not restrictive, and extends to, for example a power to veto: Re A Reference to the Federal Court of Australia by the Australian Broadcasting Tribunal Pursuant to Section 22b of the Broadcasting and Television Act 1942 in relation to applications to the Australian Broadcasting Tribunal of Approval [1987] FCA 6, [66] (Full Court, Bowen CJ). Further the test seems not to be limited to operations (for example were decisions of the character ever actually made; did the stores function completely independently), but about the capacity to make such determinations. That capacity will flow from the authority to make determinations rather than historical facts, although past facts might well indicate an actual control, such as joint board meetings.

[39] Here, the entities are owned by the same shareholders and at the time of the dismissal, under the same sole Director, Mr Jack. It is clear that the “capacity to determine the outcome of decisions” about the employer’s financial and operating policies was vested in Mr Jack as sole Director and the shareholders. It follows that the other entities are associated entities within the meaning of s.50AAA.

[40] Additionally, the long service letter exhibited by Mr Johnson indicates that Mr Coughlan’s claim was paid in full, and while the outcome was apparently the product of negotiation, it is not inconsistent with the position put by the Applicant that the entities were related.

[41] In summary, I am satisfied the 4 corporate entities are associated entities on the basis of the common ownership, directorship, and capacity to control the outcome of decisions.

[42] But the mere fact they are associated entities does not resolve the underlying question: Was there fewer than 15 employees at the relevant time? If so the employer was a small business employer and there would be no entitlement to redundancy payment.

[43] The evidence before me is two contrasting and contested versions about the Gladstone store:

• Ms Davison says there were 22 employees;



• Mr Johnson says there were 6, aligning with the first 6 on Ms Davison’s list.

[44] There is no evidence about the number of employees at the relevant date of the other 2 stores, and an untested statement from Mr Johnson that the holding company had no employees.

[45] Additionally, Mr Johnson holds himself out as “employed by the Respondent”, and presumably was so at the relevant dates. However the details of his employment and the identity of the employer are not clear from his evidence. The same might be said of ‘Kim’, who could be the person identified in correspondence with the Commission as “PA to Andrew Johnson”, Kym McLaughlin. 2 Mr Harrison’s evidence hints of roles for the 3 business owners that may go beyond directorships, but whether that amounted to an employment relationship remains unclear. Finally there is no evidence before the Commission about whether the shareholding entities and individuals (especially Empirica Pty Ltd, Harrison Int Pty Ltd and Syntra Pty Ltd) are associated entities of the Respondent: they may or may not be, and they may or may not have employees for the purpose of s.23.

[46] Given the contested nature of the evidence about the number of employees, the parties should be given the opportunity to put on evidence at a hearing of the matter.

[47] The matter will be set down for arbitration of the following:

1. the number of employees employed by the Respondent and associated entities; and
2. whether the Applicant was unfairly dismissed.

[48] A directions conference will be held to provide dates for witness evidence and submissions.

[49] A decision and orders will issue as follows:

1. For the purpose of calculating the number of employees employed by the employer at a particular time, the following associated entities are to be included:

Gladstone CC Pty Ltd;
Mackay CC Pty Ltd;
Maryborough CC Pty Ltd; and
CC Qld Holdings Pty Ltd.

2. That the name of the Respondent is Gladstone CC Pty Ltd.

COMMISSIONER

 1   See s.590 of the Act - the Commission may inform itself by undertaking research.

 2   E.g. email dated 15 November 2016 covering the Respondent’s submissions and Mr Johnson’s second statement

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