Fair Work Act; associated entities

The complex task of determining whether corporations are associated entities for the purposes of the Fair Work Act is on show in this extract from a decision of the Fair Work Commission.

“Section 12 of the Act defines ‘associated entity’ as follows:

“‘associated entity’ has the meaning given by section 50AAA of the Corporations Act 2001.”

[44] Sections 50AAA and 50AA of the Corporations Act 2001 (Corporations Act) provide 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.”

[45] Ms Rossi contends that Cossie Pty Ltd is an associated entity of NEDS on the basis that Ms Pisanu is a Director of both corporations, as well as being the owner of Opal House. 9

[46] To ascertain whether Cossie Pty Ltd has any control over NEDS, it must be demonstrated that Cossie Pty Ltd has the capacity to determine the outcome of decisions about NEDS’ financial and operating policies. While the two directors of Cossie Pty Ltd are on NEDS’ board of directors, they are only two of the seven directors. Nothing was put in evidence or by way of submissions to demonstrate that the Pisanus, as directors of Cossie Pty Ltd control the board of NEDS where the operations, resources or affairs of NEDS are material to Cossie Pty Ltd. 10 Nor was there any evidence that NEDS controls Cossie Pty Ltd.

[47] It was not demonstrated that either Cossie Pty Ltd or NEDS has the capacity to determine the outcome of decisions about each other’s financial and operating policies. 11 There was no evidence produced of any practice or pattern of behaviour relating to financial and operating policies to be taken into account.

[48] Ms Rossi, other than to state that the two bodies share two common directors, was unable to show that any control was exercised by one body over the other in the face of the denial by the Pisanus that there was any influence of one over the other.

[49] The Commission is therefore unable to conclude in accordance with the requirements of the Corporations Act that Cossie Pty Ltd is an associated entity of NEDS.

[50] Further, there was nothing before the Commission to support a conclusion, as is required by s.311(3) of the Act, that there was an ‘arrangement’, i.e. that SILC and Cossie Pty Ltd had reached some understanding regarding the ‘assets’, even accepting that Opal House and/or the motor vehicle were assets relating to or used in connection with the transferring work.

[51] Since the Commission is not satisfied that Cossie Pty Ltd is an associated entity of the new employer, NEDS, s.311(3) of the Act in relation to transferring assets is not met. It is therefore necessary to consider whether a connection between the old employer and the new employer has occurred under ss.311(4), (5) or (6), resulting in a transfer of business.

Section 311(4): Old employer outsources work to a new employer

[52] This subsection establishes a connection between the old employer and the new employer as per s.311(1)(d), if the transferring work is outsourced to the new employer. Neither party suggested that this was the case.

Section 311(5): New employer ceases to outsource work to old employer

[53] This subsection establishes a connection between the old employer and the new employer if the transferring work is performed by a transferring employee because the new employer outsourced the work to the old employer and had ceased to outsource the transferring work. Again, neither party suggested that this was the case.

Section 311(6): New employer is associated entity of old employer

[54] It has not been established that NEDS is an associated entity of SILC as per the Corporations Act. It was established to the Commission’s satisfaction that SILC did not exercise any influence of significance or control over NEDS. No other factor that meets the definition of associated entity as per the Corporations Act was established to exist.”

Rossi v New Era Disability Services Incorporated (2019) FWC 7785 delivered 13 November 2019 per Bull DP