Redeployment and associated entities in the fair work system

The legal concepts of redeployment and associated entities are important  issues in the fair work system and in this extract they are explained in a recent Fair Work Commission case involving an application for an unfair dismissal remedy.

“Redeployment

[63] The Respondent sets out a useful summary of the legislative framework relevant to this consideration in their final submissions with which I agree. For convenience, it is replicated below:

“Section 389(2) of the FW Act provides that a dismissal will not constitute a genuine redundancy if it would have been reasonable in all the circumstances for the person to be redeployed within:

(a) the employer’s enterprise; or

(b) the enterprise of an associated entity of the employer.

The obligation in respect of redeployment is not at large. It applies only in respect of the enterprise of an “associated entity” of the employer.

“Associated entity” is defined in section 12 of the FW Act as having the meaning given by section 50AAA of the Corporations Act 2001 (Cth) (Corporations Act).

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.”

An “entity” is defined in section 64A of the Corporations Act. It provides:

“Except in Chapters 2E and 8A, a reference to an entity:

(a) is a reference to a natural person, a body corporate (other than an exempt public authority), a partnership or a trust; and

(b) includes, in the case of a trust, a reference to the trustee of the trust.”

Section 50AA of the Corporations Act sets out what “control” is for the purpose of the Corporations Act. It states:

“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.” 26

The entities

[64] The corporate structure with which the Respondent, Acquire BPO Pty Ltd, is associated is helpfully set out in a diagram included in the Respondent’s final submissions as follows: 27

[65] It is accepted by the Respondent that Ostia Holdings and Acquire Client Services are associated entities of the Respondent and they are related bodies corporate.

[66] As to whether any other entity is an associated entity of the Respondent, the Respondent submits that the evidence is insufficient to make a findings that any entity is “controlled” by the Respondent and therefore an associated entity pursuant to s.50AAA(3) of the Corporations Act 2001 (Cth) (Corporations Act).

[67] An entity will be “associated” with the Respondent, pursuant to section 50AAA (4) of the Corporations Act, if that entity:

(a) controls the Respondent; and

(b) the operations, resources or affairs of the Respondent are material to the other entity. 28

[68] The Applicant’s asserts that Larry Kestelman controls the Respondent as he owns 75% of the shares in Ostia Holdings. Other evidence of control by Mr Kestelman asserted by the Applicant include:

  • the Respondent and other entities in which Mr Kestelman has an interest use the same external human resources company, Wall Street, for their human resources needs;
  • the Respondent utilised a hospitality box at basketball games for a team (Melbourne United) which was said by the Applicant’s legal representative to be was “owned” by Mr Kestelman;
  • Wall Street’s website contained testimonials attributed to Mr Kestelman;
  • the Respondent was located in the same building as other Kestelman entities; and
  • Ms Akoka shared with the Respondent’s legal representatives a communication the Applicant’s legal representative sent to a lawyer for a Kestelman company (Elkay Property Group), concerning these proceedings. 29

[69] At the hearing, the Applicant also advanced, for the first time, that IT functions were shared between the Respondent and Kestelman entities in addition to the ability of the companies to transfer phone calls. This contention was unsupported by any evidence other than the claims of the Applicant (and was the subject of an objection) and was never addressed with Mr Stavretis in recall. 30 I am not satisfied on the evidence that there was IT function sharing or transferring of phone calls.

[70] Other contentions advanced for the first time at the hearing were that:

  • the Applicant had seen staff members work across the Respondent and other Kestelman entities; and
  • the Applicant had entertained people at the National Basketball League with Larry Kestelman.” 31

[71] This evidence was vague and not credible, 32 and I have given it little weight in considering the level of managerial integration with the Kestleman entities.

[72] In any case, the Respondent asserts, and I agree, that the matters advanced by the Applicant do not deal with the relevant question under the Corporations Act, which is whether:

  • Mr Kestelman had the capacity to determine the outcome of decisions about the Respondent’s financial and operating policies; and
  • the operations, resources or affairs of the Respondent are material to Mr Kestelman. 33

Nor is there evidence of qualifying investment or third entity control. 34

[73] I agree therefore with the submissions of the Respondent that “the enterprises for the FWC to consider on the redeployment question are those of the Respondent and the two associated entities – Ostia Holdings and Acquire Client Services.” 35

Was there a position to which it was reasonable to redeploy the Applicant in the Respondent or the associate entities?

[74] As to whether it would have been reasonable in the circumstances for the Applicant to be redeployed within the Respondent or in either of the associated entities. I dealt earlier with the situation regarding the Respondent, the clear evidence of a downturn in the business, the redundancies that were effected at the time the Applicant was terminated, the reduction to just one BDM position and the hiring freeze.

[75] This outcome is consistent with a finding that there were no unfilled positions, let alone any that would have been reasonable to redeploy the Applicant to.

[76] The Applicant gave evidence that in his opinion it was the ‘greatest time in the world to sell automation.” 36 The opinion of the Applicant as to what business activities the Respondent should have engaged in is not evidence that supports a finding that it was reasonable to redeploy the Applicant. It is a matter for the Mr Stavretis as to what business strategy he wishes to pursue.

[77] There is no evidence of any unfilled positions in the Respondent’s enterprise at the time of termination. 37 The evidence of Mr Stratevis is that at the time of the Applicant’s termination the Respondent could not deliver on commitments to existing clients because of the lockdown’s effect on the working conditions in Philippines was credible. It follows that the business had no need for employees to sell a service it could not provide.38

[78] Redeployment of the Applicant into the Respondent’s enterprise was not possible nor reasonable.

[79] As to Ostia Holdings and Acquire Client Services, there was no evidence of any position to which it would have been reasonable to redeploy the Applicant.

Other associated entities

[80] For completeness, I note that in the event I am wrong on the legal position of associated entities and that, as submitted by the Applicant, the various companies of which Larry Kestelman is a director are actually associated entities, I agree with the Respondent that, on the evidence, there was not the necessary level of managerial or operational integration for the redeployment of the Applicant to be reasonable.

[81] The decision in Ulan Coal Mines 39 is authority for the proposition that the degree of managerial integration between the different entities is likely to be a relevant consideration.

[82] On this point, there is unchallenged evidence given by Mr Stavretis and Ms Akoka refuting any operational or managerial relationship between the Respondent and the companies owned by Mr Kestelman.

[83] Mr Stavretis gave evidence that:

“(a) the Respondent operates independently to Mr Kestelman’s other businesses;

(b) the Respondent does not share any managerial team or employees with any of Mr Kestelman’s other businesses;

(c) he does not have any managerial control or involvement with any of Mr Kestelman’s other businesses;

(d) the Respondent’s management team does not have any control or involvement with any of Mr Kestelman’s other businesses;

(e) none of Mr Kestelman’s other businesses, including members of their respective management teams, have any control or involvement with the Respondent or the Respondent’s subsidiaries;

(f) he is not aware of any instance in which an employee of the Respondent, or an employee of one of the Respondent’s subsidiaries, transferred to one of Mr Kestelman’s other businesses; and

(g) he is not aware of any instance in which an employee of one of Mr Kestelman’s other businesses transferred to the Respondent or to one of the Respondent’s subsidiaries.”

[84] Ms Akoka gave evidence that:

“(a) in providing services to the Kestelman Entities, including the Respondent, she was aware that each Kestelman Entity operates independently and separately to one another in relation to its management of staff and other human resources issues;

(b) in her dealings with the Kestelman Entities, each entity has its own independent management team. She deals with each Kestelman Entity separately to one another.; and

(c) Wall Street is engaged by each Kestelman Entity under a separate services agreement. The services provided by Wall Street to each Kestelman Entity wholly relates to that company. Wall Street does not provide shared services to the Kestelman Entities.” 40

[85] In any case, I am not satisfied on the balance of probabilities that there was a job or a position or other work within these entities to which it would have been reasonable in all the circumstances to redeploy the dismissed employee.

[86] However, even if there were, the clear evidence of the lack of any significant managerial integration weighs against a finding that redeployment would have been reasonable in all the circumstances where there was any such job, position or other work.

Conclusion

[87] For the reasons set out above, I am satisfied that the Applicant’s dismissal was a case of genuine redundancy within the meaning of s.389 of the FW Act because:

  • the Respondent no longer required the Applicant’s job to be performed by anyone because of changes in the operational requirements of the Respondent’s enterprise, namely the business downturn caused by the COVID-19 pandemic;
  • the Applicant was not covered by a modern award and therefore the Respondent was not required to comply with any obligation to consult about the redundancy; and
  • it was not reasonable in all the circumstances for the Applicant to be redeployed within the Respondent’s enterprise or the enterprise of an associated entity of the Respondent.

[88] As the dismissal was a case of genuine redundancy, the requirements of s.385(d) of the FW Act are not made out. Therefore, the Applicant has not been unfairly dismissed.

[89] The application for unfair dismissal remedy is dismissed.”

 

 

Pilcer v Acquire BPO Pty Ltd – [2020] FWC 6502 delivered 22 December 2020 per Lee C