DECISION

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

Ms Jill Johnstone
v
EPFS Holdings Pty Ltd T/A Advice Partners Financial Planning
(U2017/10289)

Application for an unfair dismissal remedy - jurisdictional objection – whether applicant met minimum employment period – whether small business employer- whether related business is an associated entity.

[1] On 22 September 2017, Ms Jill Johnstone made an application pursuant to s.394 of the Fair Work Act 2009 (the Act) alleging that her dismissal from EPFS Holdings Pty Ltd T/A Advice Partners Financial Planning (EPFS) was harsh, unjust or unreasonable.

[2] EPFS objected to the application on the basis that it was, at the time of Ms Johnstone’s dismissal, a small business employer and Ms Johnstone had not completed the requisite 12 month minimum employment period to competently bring her application.

[3] It is not in dispute that Ms Johnstone was employed by EPFS between 9 January 2017 and 1 September 2017, being a total period of service of 7 months, 3 weeks and 2 days. The issue in dispute relevant to the jurisdictional objection is whether EPFS is a small business employer for the purposes of the minimum employment period, when regard is had to the relationship between EPFS and another entity, Ellingsen Partners Pty Ltd, to which Mr Ellingsen has an interest.

[4] At the time of Ms Johnstone’s dismissal, EPFS employed approximately nine employees, including Ms Johnstone. Ellingsen Partners Pty Ltd employed approximately thirteen employees at the time.

[5] Directions were issued for the filing of material, and a hearing was conducted by telephone on 2 February 2018. Ms Johnstone was granted permission pursuant to s.596 of the Act to be represented by Ms Melanie Thorley, Solicitor. EPFS was represented by Mr Ben Ellingsen, Director.

Legislative framework

[6] In order for Ms Johnstone to be protected from unfair dismissal she must have completed a period of employment with EPFS of at least the minimum employment period. The minimum employment period is one year for a small business employer and six months for other employers. 1

A national system employer is a small business employer at a particular time if the employer employs fewer than 15 employees at the time. 2 For the purpose of calculating a number of employees employed by the employer at a particular time:

(a) all employees employed by the employer at the time (including the dismissed employee who has made the unfair dismissal application) are to be counted subject to the caveat that a casual employee is not to be counted unless, at the time, he or she has been employed by the employer on a regular and systematic basis 3; and

(b) associated entities are taken to be one entity 4. The expression “associated entity” has the meaning given by section 50AAA of the Corporations Act 2001 (Cth) (the Corporations Act).

[7] Section 50AAA of the Corporations Act provides as follows:

‘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.’

[8] Section 50AA of the Corporations Act defines “control” as follows:

‘(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.’

[9] Except in chapter 2E of the Corporations Act, a reference to an “entity” in the Corporations Act is a reference to “a natural person, a body corporate (other than an exempt public authority), a partnership or a trust” (s.64A of the Corporations Act).

Evidence and submissions

[10] Mr Ellingsen gave the following evidence relevant to EPFS:

(a) EPFS was incorporated in January 2016 and operates a financial planning practice trading as Advice Partners Financial Planning;
(b) He is the sole director of EPFS;
(c) The sole shareholder of EPFS is a trust, The Kybe Family Trust. Mr Ellingsen and his wife are the trustees of the trust.

[11] Mr Ellingsen gave the following evidence relevant to Ellingsen Partners Pty Ltd (EP):

(a) EP was incorporated in January 2010 and operates an accounting practice trading as Ellingsen Partners Accountants and Business Advisors;
(b) He is the sole director of EP;
(c) The shareholders of EP consist of Mr Ellingsen (25%) and The Lydbell Family Trust (75%). Mr Ellingsen and his wife are the trustees of the trust.

[12] Mr Ellingsen’s evidence and submissions is as follows:

(a) EPFS and EP run independently of each other;

(b) EPFS and EP maintain physically separate premises, 1.9km apart from each other;

(c) There are no paid employees performing work across both of the two entities;

(d) Each entity has separate banking, insurance and workers compensation insurance arrangements;

(e) EPFS is a financial planning and lending service whereas EP is an accounting and tax service;

(f) Each entity employs separate Practice Managers;

(g) Neither entity exercises control over the other, and neither entity relies on the other entity.

[13] Mr Ellingsen had the benefit of a decision of Saunders C in Budden v Finke Enterprises Pty Ltd ATF M&L Carlson Family Trust T/A Fused Café Pender Place [2015] FWC 8675 for his consideration before the hearing. Questions were put by me to Mr Ellingsen during the hearing having regard to the decision in Budden, relevant to s.50AAA(7) of the Corporations Act. Mr Ellingsen agreed that he, as a natural person and sole Director of the two entities, and joint trustee of both trusts would be considered the ‘third entity’ relevant to s.50AAA(7) of the Corporations Act. 5 The ‘principal’ is EPFS and the ‘associate’ is EP.

[14] Relevant to whether the Commission could be satisfied that Mr Ellingsen controls both EPFS and EP pursuant to the test in s.50AA of the Corporations Act, Mr Ellingsen submitted that he did not exert any day-to-day influence over EP. A Practice Manager is employed, and his wife works in the business. It is Mrs Ellingsen who makes arrangements for the payment of the bills and payroll for EP, not Mr Ellingsen.

[15] Mr Ellingsen submitted that the only reason he is the sole Director of EP is that it is a regulatory requirement to maintain the entity’s practice certificate. He confirmed that he determines the salary to be paid to the Practice Manager of EP. As a sole Director of EP, and a trustee of the family trust that owns EP, Mr Ellingsen has the capacity to terminate the employment of the Practice Manager.

[16] Ms Johnstone submitted that she had met the minimum employment period because EPFS is not a small business employer because EPFS and EP are associated entities.

Consideration

[17] Mr Ellingsen’s relationship with both EPFS and EP as both a Director and shareholder through the family trusts of which he is a trustee must be taken into account.

[18] Relevant to s.50AAA(7) of the Corporations Act, it must be determined if Mr Ellingsen as the ‘third entity’ controls both EPFS and EP. Having regard to the test of ‘control’ in s.50AA of the Corporations Act, I determine the following:

(a) Mr Ellingsen has the capacity to determine the outcome of decisions about EP’s financial and operating policies;

(b) The practical influence Mr Ellingsen can exert, rather than the rights he can enforce has been considered;

(c) The practices or pattern of behaviour affecting EP’s financial or operating policies has been taken into account.

[19] I have had regard to the capacity that Mr Ellingsen can exert over the way in which EP operates. He is the sole Director with relevant responsibilities in that role. While he does not attend the business and operate within it on a day-to-day basis, he ultimately is responsible for the business, including if it trades solvent. Mr Ellingsen has the capacity to manage the Practice Manager, determine salary for the role, and ultimately dismiss the Practice Manager if Mr Ellingsen so wishes.

[20] Mr Ellingsen is also a 25% shareholder of EP in his own right, and then a joint trustee of the family trust that owns the remaining 75% shareholding.

[21] I consider Mr Ellingsen’s shareholding as an individual and as a trustee relevant to his capacity to determine decisions about EP. Furthermore, Mr Ellingsen’s shareholding is relevant to the consideration necessary to the test at s.50AAA(7)(b). I determine that the operations, resources or affairs of EPFS and EP are both material to Mr Ellingsen. It is his evidence that EP makes a profit year-on-year. No dividends have been remitted to the shareholders, and the entity’s value continues to grow. This growing wealth is material to Mr Ellingsen as both a shareholder in his own right and as a trustee of the family trust.

[22] In the same vein, the operations, resources and affairs of EPFS are material to Mr Ellingsen, except to the extent that he is not a shareholder of this entity in his own right, but he is a trustee (together with his wife) of the family trust which owns EPFS.

Conclusion

[23] I am satisfied that on 1 September 2017, EPFS and EP were associated entities within the meaning of s.50AAA of the Corporations Act. There was at least 15 employees employed across the two entities on 1 September 2017 and therefore EPFS was not, at that time, a small business employer within the meaning of s.23 of the Act. Ms Johnstone had met the minimum employment period of six months at the time of her dismissal.

[24] The jurisdictional objection of EPFS is therefore dismissed and the matter will proceed to a determination in due course of the merits of Ms Johnstone’s unfair dismissal application. Directions in relation to the future conduct of the matter will be issued shortly.

COMMISSIONER

<PR600303>

 1   Fair Work Act 2009, s.383.

 2   Ibid, s.23(1).

 3   Ibid, ss.23(2) and (4).

 4   Ibid, s.23(2).

 5   Budden v Finke Enterprises Pty Ltd ATF M&L Carlson Family Trust T/A Fused Café Pender Place [2015] FWC 8675 at [21].

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