Related entities and the Fair Work Act

The issue of counting employee of related entities is of significance under the Fair Work Act for a number of reasons, including of course when determining whether an employer is a small business. Here is an explanation of the definition of the term “related entity”.

“However, the applicant has asserted that there were employees of associated entities of the employer that also needed to be included for the purposes of establishing whether or not the employer satisfied the meaning of a small business employer as stipulated by s. 23 of the Act. It is clear from subsection 23 (3) that employees of associated entities of the employer are to be included in any calculation of the number of employees determined for the purposes of s. 23.

Section 12 of the Act provides a meaning for “associated entity” and is in the following terms: “associated entity has the meaning given by section 50AAA of the Corporation Act 2001.”

Section 50AAA of the Corporations Act 2001 defines an associated entity in the following terms:

“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.”

It is also relevant to refer to section 50AA of the Corporations Act 2001 which provides a meaning for “control” in the context of inter alia, any operation of s. 50AAA. Section 50 AA is in the following term:

“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.”

Finch v Titles Strata Management Pty Ltd (2020) FWC 3675 delivered 14 July 2020 per Cambridge C