Associated entities, foreign companies and the Fair Work Act

The legal test which applies when determining whether companies are related entities is the same irrespective of whether both companies are domiciled in Australia or whether one is in Australia and one overseas.

 

“Consideration

[31] I note that the issue of whether corporations incorporated in different countries can be associated was dealt with in the matter of Lau cited above. In that matter, Deputy President Booth held that: 7

“This question has been considered by single Members of the Commission but does not appear to have been determined by a Full Bench of the Commission or the Federal Court. Single Members have concluded that the offshore incorporation of the associated entity is not a constraint on finding that the employees of the associated entity are to be counted for the purpose of deciding whether an employer is a small business employer. A Full Bench of the Commission granted permission to appeal in relation to one of these instances but the substantive appeal did not proceed. I adopt the reasoning of these Members and conclude that there is nothing in the Act or the Corporations Act that means that I should not take into account the employees of the associated overseas based entity for the purposes of s.23 of the Act.

Control

[32] Relevant to s.50AAA(3) of the Corporations Act, it must be determined if Leafbrook, or alternatively, Mr Winter controls the Philippines Company. In doing so regard must be had to the test of ‘control’ in s.50AA of the Corporations Act.

[33] On the evidence of Mr Winter, there is no shareholding and no commonality in terms of Directorship or executive management. The ability for Leafbrook to exert influence over the Philippines Company is limited to the commercial strength it holds when engaging the Philippines Company to provide services to it. This position is supported by the evidence of Mr Winter indicating that the Philippines Company could cease doing business with Leafbrook unilaterally at any time.

[34] Mr Prill was unable to point to any evidence that identified a practical influence exerted by Leafbrook to determine the outcome of decisions of the Philippines Company or to identify any practice or pattern of behaviour, beyond the payment for services, affecting the Philippines Company’s financial or operating policies.

[35] Accordingly I make the following findings and have had regard to the following:

(a) Leafbrook does not have the capacity to determine the outcome of decisions about InTechnology Distribution Inc.’s financial and operating policies;

(b) The practical influence that Leafbrook can exert, rather than the rights it can enforce has been considered;

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

[36] For the same reasons to those in finding that Leafbrook is not in control of the Philippines Company, I also determine that Mr Winter is not in control of the Philippines Company. Mr Winter gave evidence at hearing that he has no ownership of or directorship with the Philippines Company. Further, he gave evidence that the extent of his interaction with the Philippines Company is limited to engaging them, by agreement, to provide services for Leafbrook.

[37] While Mr Prill provided evidence after hearing that purported to show that Mr Winter was involved in the hiring of employees of the Philippines Company, that evidence also suggested that others (the Muscats) were ‘managing the Manila office now’. I am satisfied that Mr Winter does not have the capacity to determine the outcome of decisions about the Philippines Company’s financial and operating policies. Given he does not hold any position with or have any ownership of the Philippines Company, I am satisfied that he has little practical influence over the Philippines Company in relation to its financial and operating policies. No evidence was provided as to any practice or pattern of behaviour of Mr Winter affecting the Philippines Company’s financial or operating policies that should be taken into account. Relevant to him “hiring” Ms Cacas, with the scant information before the Commission, it might be as far as having sourced her from LinkedIn, but it is not clear that he made any decisions relevant to Ms Cacas’ employment, and associated terms and conditions.

[38] Given this determination as to the lack of control Mr Winter exercises over the Philippines Company, it is not necessary to consider whether, pursuant to s.50AAA(7)(a) of the Corporations Act whether the operations, resources or affairs of the Philippines Company are material to Mr Winter.

Qualifying Investment

[39] It was also said by Mr Prill that Leafbrook and the Philippines Company were associated entities by virtue of Leafbrook having a qualifying investment in the Philippines Company pursuant to s.50AAA(6) of the Corporations Act.
[40] s.50AAA of the Corporations Act defines a ‘qualifying investment’ as existing if Leafbrook:

(a) has an asset that is an investment in the Philippines Company; or

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

[41] The term ‘asset’ is defined in s.601WAA of the Corporations Act as meaning ‘property, or a right, of any kind, and includes:

  • Any legal or equitable estate or interest…of any kind; and
  • Any chose in action; and
  • Any right, interest or claim of any kind including rights, interests or claims in or in relation to property…; and
  • Any CGT asset within the meaning of the Income Tax Assessment Act 1997

[42] An ‘investment’ in a company is defined in s.601WAA of the Corporations Act as meaning:

  • A share; or
  • A debenture; or
  • A legal or equitable interest in a share or debenture; or
  • An option to acquire a share, debenture or a legal or equitable interest in a share or debenture; or
  • An option to dispose of a share, debenture or a legal or equitable interest in a share or debenture; or
  • An interest a person holds under an arrangement that is a derivative if the consideration to be provided or the value of the arrangement is ultimately derived or varies by reference to an investment of the kinds above.

[43] Mr Prill’s assertion that Leafbrook has the requisite qualifying interest by virtue of Leafbrook providing the Philippines Company with significant amounts of business under an oral service agreement which allowed the employees of the Philippines Company to be paid is misguided.

[44] While the contractual arrangement between the parties for the provision of services provides Leafbrook with an asset in the sense that the contract confers legal interests and rights upon Leafbrook, it cannot be said to be an investment as defined by the Corporations Act. The legal interests and rights acquired by Leafbrook by virtue of the contact for services between Leafbrook and the Philippines Company may be an interest in personal property or some claim or chose in action in the event of non-performance, but the interests or rights arising out of that agreement are not of the nature required to characterise that asset as an investment so as be a qualifying investment which indicates the entities are associated. For those interests or rights to be an asset that is an investment and therefore a ‘qualifying investment’ in the Philippines Company, they would need legal interests or rights in relation to share or debentures.

[45] The evidence provided by Mr Winter at hearing was that Leafbrook holds no right or interest in relation to shares of the Philippines Company. No evidence has been advanced by Mr Prill that contradicts that.

[46] Further, Mr Prill contended that any business that is developed in the Philippines will have a financial benefit for Leafbrook. Aside from the admission by Mr Winter that both Leafbrook and the Philippines Company benefit from the success of the other by virtue of increased brand recognition as a result of their similar branding, there was no evidence to suggest that business that is developed by the Philippines Company will provide a financial benefit for Leafbrook.

[47] It is unequivocal that there was no evidence to suggest that Leafbrook benefitted in a manner that saw it have a legal right, interest, claim or chose in action that is a share or debenture or a beneficial interest in a share or debenture of the Philippines Company. Further, there was evidence provided by an officer of the Philippines Company (albeit not somebody that would be assumed to have complete knowledge of the financial arrangements in place) that explicitly states that Leafbrook has ‘no financial interest in [the Philippines Company]’. As discussed above, while it is uncontroversial that Leafbrook would obtain an asset out of its relationship with the Philippines Company, that asset is not an ‘asset that is an investment’ or ‘the beneficial interest in an investment’ in the Philippines Company so as to make the two associated entities.

Conclusion

[48] On the evidence available it cannot be said that either Leafbrook or Mr Winter has the capacity to determine the outcome of decisions of the Philippines Company. While it may be that Leafbrook can enforce rights over the Philippines Company by virtue of the contract for services between the companies, it cannot be said that Leafbrook can exert any practical influence over the Philippines Company. It is also not apparent that there have been practices or a pattern of behaviour of Leafbrook affecting the Philippines Company’s financial or operating policies.

[49] For these reasons, I do not find that Leafbrook and the Philippines Company (InTechnology Distribution Inc.) are associated entities. Further, I do not find Mr Winter’s involvement results in Leafbrook and the Philippines Company being held to be associated entities.

[50] As such the number of employees to be counted for the purpose of determining whether Leafbrook was a small business employer is 13 and therefore Leafbrook is a small business employer pursuant to s.23 of the Act.

[51] As Leafbrook is a small business employer, the minimum employment period required by s.383 of the Act to be completed by Mr Prill in order to be protected from unfair dismissal is 12 months. I determine that Mr Prill did not complete the minimum employment period of 12 months pursuant to s.383(b) of the Act.

[52] For that reason I am satisfied that the Applicant was not, pursuant to s.382 of the Act, a person protected from unfair dismissal.

[53] Accordingly, I must dismiss the Applicant’s application and I do so.”

Prill v Leafbrook Pty Ltd T/A inTechnology Distribution (Australia Group) (2019) FWC 7542 delivered 31 October 2019 per Hunt C