DECISION

Fair Work Act 2009
s.394—Unfair dismissal

Brendan Charan
v
Meeples Pty Ltd ATF The Games Shop Trust T/A The Games Shop
(U2017/6876)

Application for an unfair dismissal remedy – jurisdictional objection – minimum employment period – associated entities.

[1] On 27 June 2017, Mr Brendan Charan (the Applicant) made an application to the Fair Work Commission (the Commission) pursuant to s.394 of the Fair Work Act 2009 (Cth) (the Act) for a remedy in respect of his dismissal by Meeples Pty Ltd t/a The Games Shop (TGS) (the Respondent).

[2] Mr Charan named the Respondent to this application as ‘Meeples Pty Ltd T/A The Games Shop’. During the hearing, TGS submitted that the correct name of the entity should be Meeples Pty Ltd ATF The Games Shop Trust t/a The Games Shop. Mr Charan made no objection to this submission. 1

[3] On the evidence before me, I am satisfied that the name of the Respondent in this matter is Meeples Pty Ltd ATF The Games Shop Trust t/a The Games Shop. I have utilised the discretion in s.586 of the Act to amend the application accordingly.

Procedural Background

[4] This matter was listed for conciliation on 13 July 2017. On 6 July 2017, the Respondent filed their Form F3 and raised the jurisdictional objection that Mr Charan had not met the minimum employment period.

[5] The matter proceeded to conciliation however was unable to be resolved. Consequently, the matter was referred to me for the jurisdictional objection to be determined.

[6] There is also a dispute between the parties as to whether Mr Charan was dismissed or whether he resigned from his employment on 6 June 2017. However, this is not a matter that is relevant to my consideration of whether Mr Charan has completed the minimum employment period as required by the Act.

[7] A hearing was held before me in Melbourne on 25 August 2017. Mr Charan attended and gave evidence on his own behalf. Ms Rebecca Nosiara, retail employee, attended and also gave evidence on behalf of Mr Charan.

[8] Mr Matthew Pohlen, owner of TGS 2, appeared and gave evidence on behalf of TGS.

Relevant Legislative Provisions

[9] Section 382 of the Act sets out the circumstances that must exist for Mr Charan to be protected from unfair dismissal:

“382 When a person is protected from unfair dismissal

A person is protected from unfair dismissal at a time if, at that time:

(a) the person is an employee who has completed a period of employment with his or her employer of at least the minimum employment period; and

(b) one or more of the following apply:

(i) a modern award covers the person;

(ii) an enterprise agreement applies to the person in relation to the employment;

(iii) the sum of the person’s annual rate of earnings, and such other amounts (if any) worked out in relation to the person in accordance with the regulations, is less than the high income threshold.”

[10] It is not contentious that Mr Charan was employed by Games Laboratory for fourteen months and has since been employed by TGS for approximately two months. Therefore, unless his period of service with Games Laboratory is recognised, he will not have completed the minimum employment period and therefore would not be a person protected from unfair dismissal.

[11] The relevant provisions for determining whether Mr Charan has satisfied the requirements of section 382(a) in this matter are as follows;

[12] Section 22 of the Act provides:

“22 Meanings of service and continuous service

…

When service with one employer counts as service with another employer

(5) If there is a transfer of employment (see subsection (7)) in relation to a national system employee:

(a) any period of service of the employee with the first employer counts as service of the employee with the second employer; and

(b) the period between the termination of the employment with the first employer and the start of the employment with the second employer does not break the employee’s continuous service with the second employer (taking account of the effect of paragraph (a)), but does not count towards the length of the employee’s continuous service with the second employer.

Note: This subsection does not apply to a transfer of employment between non-associated entities, for the purpose of Division 6 of Part 2-2 (which deals with annual leave) or Subdivision B of Division 11 of Part 2-2 (which deals with redundancy pay), if the second employer decides not to recognise the employee’s service with the first employer for the purpose of that Division or Subdivision (see subsections 91(1) and 122(1)).

(6) If the national system employee has already had the benefit of an entitlement the amount of which was calculated by reference to a period of service with the first employer, subsection (5) does not result in that period of service with the first employer being counted again when calculating the employee’s entitlements of that kind as an employee of the second employer.

Note: For example:

(a) the accrued paid annual leave to which the employee is entitled as an employee of the second employer does not include any period of paid annual leave that the employee has already taken as an employee of the first employer; and

(b) if an employee receives notice of termination or payment in lieu of notice in relation to a period of service with the first employer, that period of service is not counted again in calculating the amount of notice of termination, or payment in lieu, to which the employee is entitled as an employee of the second employer.

Meaning of transfer of employment etc.

(7) There is a transfer of employment of a national system employee from one national system employer (the first employer) to another national system employer (the second employer) if:

(a) the following conditions are satisfied:

(i) the employee becomes employed by the second employer not more than 3 months after the termination of the employee’s employment with the first employer;

(ii) the first employer and the second employer are associated entities when the employee becomes employed by the second employer; or

(b) the following conditions are satisfied:

(i) the employee is a transferring employee in relation to a transfer of business from the first employer to the second employer;

(ii) the first employer and the second employer are not associated entities when the employee becomes employed by the second employer.

Note: Paragraph (a) applies whether or not there is a transfer of business from the first employer to the second employer.

(8) A transfer of employment:

(a) is a transfer of employment between associated entities if paragraph (7)(a) applies; and

(b) is a transfer of employment between non-associated entities if paragraph (7)(b) applies.”

[13] Whether TGS and Games Laboratory are associated entities is a relevant determination in this matter. The expression “associated entity” is defined in s.12 to bear the same meaning as in s.50AAA of The Corporations Act 2001 (Cth) which provides the following regarding associated entities:

“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.

[14] On 22 January 2016 Mr Charan commenced employment with Games Laboratory. On 3 April 2017 he began his employment with TGS. There is a dispute between the parties as to whether his employment was transferred from Games Laboratory to TGS at this time.

[15] Mr Charan submits he was employed by both TGS and Games Laboratory and that they are associated entities for the purpose of s.22(7)(a)(ii) and s.382 of the Act. 3 The Commission has to therefore determine, with regards to the facts in this matter and the above legislation, whether TGS and Games Laboratory are associated entities.

Submissions and evidence of the parties

[16] Mr Pohlen and Mr James Mackay-Scollay each held the position of Director for both Games Laboratory and TGS. They were business partners and there were no other directors for either entity at the time of Mr Charan’s dismissal.  4

[17] On 31 May 2017 Mr Pohlen signed a memorandum of understanding with Mr Mackay-Scollay to the effect that the business relationship would be dissolved and Mr Pohlen would take over sole ownership and directorship of TGS. 5 Mr Pohlen expected that the new business arrangements would not take effect until they had reached a final settlement, and at the time of the hearing those arrangements had not taken effect.6

[18] Up until 1 June 2017, when Mr Pohlen commenced managing TGS, Mr Mackay-Scollay had the sole responsibility for managing the day to day operations of both businesses. 7 Mr Mackay-Scollay was employed to manage both TGS and Games Laboratory8 and his duties included decisions about staff allocation for both stores, rostering within stores, staff pay rates and raises. Mr Mackay-Scollay worked at both stores and on occasion directed staff to work between the two stores.9

[19] Mr Pohlen’s oral evidence was that the relationship between himself and Mr Mackay-Scollay had become bitter and a dispute had arisen as to Mr Mackay-Scollay’s accrued leave entitlements. 10 Mr Mackay-Scollay was able to access the company funds and subsequently, around 31 March 2017, he made a payment to himself in the amount of disputed accrued leave.11

[20] Mr Pohlen’s submission was that prior to 1 June 2017 he had lost any effective control over the day to day running of both Games Laboratory and TGS due to the actions of Mr Mackay-Scollay. 12 Mr Mackay-Scollay had blocked Mr Pohlen from any decision making to do with the daily management of either company.13

[21] Mr Pohlen’s submission was that the companies were not associated entities. The companies were set up on the advice of his lawyer with the intention of keeping the businesses separate in the event that either party wished to divest themselves from one or the other of the businesses. The accounting for each business was done separately so that, should they have a prospective buyer, they could “create a separate set of books to show any prospective buyer”. 14

[22] Mr Pohlen and Mr Mackay-Scollay had set up an arrangement where Games Laboratory and TGS shared both a storeroom for stock and a stock control system. Mr Pohlen submits TGS paid Games Laboratory $3000 per calendar month for the use of the storeroom and to cover the wages of any Games Laboratory staff that were logging stock into the computer system for TGS and delivering stock to TGS. 15

[23] TGS and Games Laboratory shared a stock management system called Retail Express. Mr Pohlen’s submission was that Retail Express was licenced to Games Laboratory and a terminal licence was provided to TGS. 16 Stock from one shop was made available to the other upon request and sales were made providing stock from one shop to the other.17

[24] Mr Pohlen had access to the financial accounts of both businesses and it was Mr Charan’s submission that Mr Pohlen had dealt with pay issues over a long period. Mr Pohlen did not dispute the submission of Mr Charan. 18

[25] It was Mr Pohlen’s evidence that he was involved in the finances of both businesses however he was not responsible for the day to day or weekly payroll. 19 Mr Pohlen did have full access to the financial and payroll data of both businesses when required. Mr Pohlen gave evidence that he had a separate MYOB account for each of the businesses and he was able to see that Mr Charan had accrued leave which had not been paid out when he left Games Laboratory and commenced with TGS. Mr Pohlen submitted the accrued leave was still a liability against Games Laboratory.20

[26] Mr Pohlen’s oral evidence was that, along with Mr Mackay-Scollay, he was the director of both companies and, although he did not manage the day to day running of the shops, he had complete access to the financial management of both companies and had direct control over both companies as far as the financing and the leases and other matters such as governance. Mr Pohlen and Mr Mackay-Scollay would generally meet to discuss how they were going to pay the BAS statement and other financial issues of a similar nature. 21 However he submits because each entity had its own insurance, separate bank accounts and accounting system in MYOB they were separate entities.22

[27] Mr Charan’s evidence consists of Australian Securities Investment Commission (ASIC) current and historical company extracts for both RTFC Pty Ltd (Games Laboratory) 23 and Meeples Pty Ltd (TGS)24 dated 3 August 2017. Mr Pohlen and his business partner, Mr James Mackay-Scollay, were listed as the directors of both entities. They also each held 25% ordinary shares in each of the entities. The content of the searches was uncontested by either party.

Findings

[28] The meaning of associated entities is taken from s.50 AAA of the Corporations Act 2001 which provides that one entity (the associate) will be an associated entity of another entity (the principal) if any of section 50AAA (2) through to (7) apply. Of particular relevance in this matter is s.50AAA(3) and (4)(a) and (b).

[29] Entity is defined in s.64A of the Corporations Act to include not only other companies but also inter alia individuals. A relevant consideration in this matter is section 50AA which defines “control” to mean having the ‘capacity to determine the outcome of decisions about financial and operating policies’.

[30] Section 50 AA provides as follows;

“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.”

[31] Key to this matter is whether there was the capacity, in accordance with the definition in section 50AA(1), for TGS to determine the outcome of decisions of Games Laboratory or vice versa in accordance with 50AAA (3) and (4). The evidence of Mr Pohlen establishes that both he and Mr Mackay-Scollay had controlling interests as well as equal share holdings in both Games Laboratory and TGS.

[32] The practical control Mr Pohlen had over the financial and operating policies extends itself to the meaning of control as defined in s.50AA of the Corporations Act. From the evidence it is clear that Mr Pohlen’s role extended to determining decision making about the broader financial and operating policies of both TGS and Games Laboratory rather than the day to day store management.

[33] Mr Pohlen was capable of influencing TGS and Games Laboratory’s financial and operational policies. Further he had a qualifying investment in both entities as he held 25% of the shares in TGS and Games Laboratory, as did Mr Mackay-Scollay.

[34] Noting the common directorship and the evidence of Mr Pohlen it seems reasonable to find that the operations, resources and affairs of TGS are material to Games Laboratory and vice versa. Consequently I find that for the purpose of determining Mr Charan’s length of service with TGS that TGS and Games Laboratory are associated entities.

[35] Therefore there has been a transfer of Mr Charan’s employment in accordance with section 22(7)(a) of the Act and Mr Charan’s service with Games Laboratory is recognised for the purposes of section 382(a) of the Act. Accordingly, Mr Charan has satisfied the requirements of s.382(a) and is a person is who protected from unfair dismissal.

[36] For these reasons the jurisdictional objection raised by TGS is dismissed. Mr Charan’s application for an unfair dismissal remedy will now be remitted for further programming.

COMMISSIONER

Appearances:

B. Charan on his own behalf;

M. Pohlen for the Respondent.

Hearing details:

2017

Melbourne

25 August

 1   PN7 – PN10

 2   Exhibit R5

 3   Exhibit A13

 4   Exhibit A9

 5   PN253

 6   PN255

 7   PN658

 8   PN660

 9   PN496;

 10   PN521

 11   PN523

 12   PN263

 13   PN265

 14   PN277

 15   PN389

 16   PN473 - PN475

 17   PN424

 18   PN494 - PN496

 19   PN496

 20   PN515

 21   PN647 – PN670

 22   PN638

 23   Exhibit A10

 24   Exhibit A9

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