Transfer of business for length of service in fair work law

The issue of whether there has been a transfer of business for the purposes of calculating length of service under the Fair Work Act is complex, as the following extract from  a recent decision of the Fair Work Commission makes very clear.

“Section 311(3): Transfer of assets from old employer to new employer

[27] This subsection requires there to be a connection between the old employer and the new employer if, in accordance with an arrangement between:

(a) the old employer or an associated entity of the old employer; and

(b) the new employer or an associated entity of the new employer;

the new employer, or the associated entity of the new employer, owns or has the beneficial use of some or all of the assets (whether tangible or intangible):

(c) that the old employer, or the associated entity of the old employer, owned or had the beneficial use of; and

(d) that relate to, or are used in connection with, the transferring work.

[28] For Ms Rossi to be protected from unfair dismissal, she not only needs to be a ‘transferring employee’, which has been established to my satisfaction, but there also needs to be a transfer of business that involves a ‘connection’ between the old and new employer (or associated entities thereof), in accordance with an ‘arrangement’ relating to the transfer of some or all of the assets the old employer or new employer (or associated entities) owns or has the beneficial use of.

[29] The applicant states that the assets that relate to the transferring work are Opal House at Five Dock and a motor vehicle. The respondent denies that Opal House and a motor vehicle are assets that relate to the transferring work and further says that there was no arrangement relating to a transfer of assets.

[30] It is thus necessary to examine the meaning of the word ‘arrangement’ to arrive at a conclusion as to whether there was a transfer of business.

[31] In the decision of Peter Zabrdac v Transclean Facilities Pty Ltd, 4 Bissett C examined the Explanatory Memorandum to the Fair Work Bill 2008 and cases where the word ‘arrangement’ was considered. In the decision, Bissett C made the following observations:

“[66] The word ‘arrangement’ is not defined in the Act. The Explanatory Memorandum to the Fair Work Bill 2009 states that ‘the word arrangement is intended to be interpreted broadly.’ This does not, however, suggest that it should be given a loose form. It must be a term that has some meaning.

[67] The definition of ‘arrangement’ in the Macquarie Dictionary is of little assistance although I agree with the Applicant that ‘arrange’ is defined as ‘to come to an agreement’. An agreement, however, is defined as ‘the act of coming to a mutual arrangement’ or ‘the arrangement itself’, which does not assist.

[68] The word ‘arrangement’ has been judicially considered, primarily in the context of trade practices and taxation matters. While there appears to be no consideration of the term ‘arrangement’ in a transfer of business context in the Act, guidance as to the use and meaning of the word can be found in these decisions.

[69] In Australian Competition & Consumer Commission v CC (NSW) Pty Ltd 5 Lindgren J considered the meaning of the phrase ‘arrangement or understanding’ as it appears in s.45(2) of the Trade Practices Act 1974 (Cth). His Honour considered a number of decisions on the meaning of the word ‘arrangement’:

In Newton v Federal Commissioner of Taxation (1958) 98 CLR 1 the Privy Council was concerned with the expression “[e]very contract, agreement, or arrangement” in s 260 of the Income Tax and Social Services Contribution Assessment Act 1936 (Cth), and expressed the opinion (at 7):

“that the word ‘arrangement’ is apt to describe something less than a binding contract or agreement, something in the nature of an understanding between two or more persons – a plan arranged between them which may not be enforceable at law.” (Emphasis added.)

Clearly, the scope of ss 45(2) and 45A(1) with which I am concerned extends beyond legally enforceable agreements, that is, contracts.

In British Basic Slag Ltd v Registrar of Restrictive Trading Agreements [1963] 1 WLR 727; [1963] 2 All ER 807, the English Court of Appeal had to consider the meaning of the expression “any agreement or arrangement, whether or not it is or is intended to be enforceable” in s 6 of the Restrictive Trade Practices Act 1956 (UK). It was argued that the trial Judge had erred in holding that an arrangement within the meaning of the expression exists when, by communications between the parties, “each has intentionally aroused in the other an expectation that he will act in a certain way”. It was submitted that the expression also required “that there must be mutuality in the acceptance of rights and obligations”. In the Court of Appeal, Willmer LJ said (at 739; 814):

“ …, I think it is highly significant that Parliament did not see fit to include any definition of ‘arrangement.’ I infer from this that it was intended that the word should be construed in its ordinary or popular sense. Though it may not be easy to put into words, everybody knows what is meant by an arrangement between two or more parties. If the arrangement is intended to be enforceable by legal proceedings, as in the case where it is made for good consideration, it may no doubt properly be described as an agreement. But the Act of 1956 clearly contemplates that there may be arrangements which are not enforceable by legal proceedings, but which create only moral obligations or obligations binding in honour. This seems to me to be entirely consistent with the dictum of Upjohn J. to which I have already referred. Nor do I consider that there is any inconsistency between that and the view expressed by the judge in the present case. For when each of two or more parties intentionally arouses in the others an expectation that he will act in a certain way, it seems to me that he incurs at least a moral obligation to do so. An arrangement as so defined is therefore something ‘whereby the parties to it accept mutual rights and obligations.’”

In the same case, Diplock LJ said that there were many ways in which arrangements might be made and (at 747; 819):

“[I]t is sufficient to constitute an arrangement between A and B, if (1) A makes a representation as to his future conduct with the expectation and intention that such conduct on his part will operate as an inducement to B to act in a particular way, (2) such representation is communicated to B, who has knowledge that A so expected and intended, and (3) such representation or A’s conduct in fulfilment of it operates as an inducement, whether among other inducements or not, to B to act in that particular way.”

In Top Performance Motors Pty Ltd v Ira Berk (Qld) Pty Ltd (1975) 24 FLR 286, a Full Court of this Court had to consider the expression “a contract, arrangement or understanding to the extent that it is in restraint of trade or commerce” in the then s 45(2)(b) of the Act. Smithers J referred to Newton and British Basic Slag and said (at 291) of the expression “arrangement”, that by parity of reasoning with British Basic Slag:

“ … the existence of an arrangement of the kind contemplated in s.45 is conditional upon a meeting of the minds of the parties to the arrangement in which one of them is understood, by the other or others, and intends to be so understood, as undertaking, in the role of a reasonable and conscientious man, to regard himself as being in some degree under a duty, moral or legal, to conduct himself in some particular way, at any rate so long as the other party or parties conducted themselves in the way contemplated by the arrangement.”

His Honour added (at 291):

“Where the minds of the parties are at one that a proposed transaction between them proceeds on the basis of the maintenance of a particular state of affairs or the adoption of a particular course of conduct, it would seem that there would be an understanding within the meaning of the Act.”

In Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 2) (1979) 40 FLR 83, Fisher J considered the notion of a “contract, arrangement or understanding” in the context of s 45 of the Act. After setting out certain passages from the cases, his Honour concluded (at 89):

“A significant feature of each of the above passages is the emphasis placed upon the necessity for each of the parties to have communicated with the other, for each to have raised an expectation in the mind of the other, and for each to have accepted an obligation qua the other. These are in my opinion the essential elements of the requisite meeting of minds.” (Emphasis supplied.)

(His Honour appears to have seen the words “arrangement” and “understanding” as synonymous in the present context, as Toohey J seems to have done in Hughes v Western Australian Cricket Association (Inc) (1986) 19 FCR 10 at 32.)

The cases require that at least one party “assume an obligation” or give an “assurance” or “undertaking” that it will act in a certain way. A mere expectation that as a matter of fact a party will act in a certain way is not enough, even if it has been engendered by that party. In the present case, for example, each individual who attended the Meeting may have expected that as a matter of fact the others would return to their respective offices by car, or, to express the matter differently, each may have been expected by the others to act in that way. Each may even have “aroused” that expectation by things he said at the Meeting. But these factual expectations do not found an “understanding” in the sense in which the word is used in ss 45 and 45A. The conjunction of the word “understanding” with the words “agreement” and “arrangement” and the nature of the provisions show that something more is required. With respect, the first passage set out above from the judgment of Smithers J in Top Performance Motors, although addressing the term “arrangement”, seems to me to describe appropriately that further necessary element of the “understanding” to which the provisions refer.

[70] In Pullen v R & C Products Pty Ltd and Another Marks J considered the meaning of the word ‘arrangement’ in the context of s.275 of the Industrial Relations Act 1991 (NSW), which states in part that the ‘Industrial Court may make an order declaring wholly or partly void or varying,…any contract or arrangement…under which a person performs work.’ His Honour found that:

The meaning of “arrangement” was discussed by the former Industrial Commission in Court Session in Custom Credit Corporation Ltd v Goldsmith [1976] AR (NSW) 98. The usual meaning of “arrangement” was said to be one which is in the nature of a bargain, which involved a degree of understanding but which may not satisfy the legal requirements of certainty as to terms so as to amount to a contract, or indeed even an agreement.

[71] In The Commissioner of Taxation of The Commonwealth of Australia v K. Porter & Co. Pty. Ltd Mahoney J considered the meaning of the term ‘arrangement’:

In the case as conducted before me and before the board of review, argument took place, first, as to the meaning of the term “arrangement” and, second, as to the evidence to which reference may properly be made in determining whether there is an arrangement and (if there is) what are its terms.

[72] His Honour found that

In Newton v. Federal Commissioner of Taxation it was said: “ Their Lordships are of opinion that the word ‘ arrangement ̕ is apt to describe something less than a binding contract or agreement, something in the nature of an understanding between two or more persons—a plan arranged between them which may not be enforceable at law. But it must in this section comprehend, not only the initial plan, but also all the transactions by which it is carried into effect—all the transactions, that is, which have the effect of avoiding taxation, be they conveyances, transfers or anything else. It would be useless for the commissioner to avoid the arrangement and leave the transactions still standing. The word ‘ purpose ̕ means not motive, but the effect which it is sought to achieve—the end in view. The word ‘ effect ̕ means the end accomplished or achieved. The set of words denotes concerted action to an end—the end of avoiding tax.”

In my opinion, the term “arrangement” as used in s80B (5) includes “an understanding” or “a plan” which may not be enforceable in law and would include, inter alia, the legally effective acts which are done in the carrying out of that plan or arrangement.

[73] The decision in Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 2) reached a similar conclusion.”

[References and footnotes omitted].

[32] The Commissioner then summarised the above case history by stating:

“[74] These decisions provide authority for the proposition that an arrangement, whilst not necessarily legally enforceable, requires:

  • That there be communication between the parties to the arrangement; and
  • That the parties must reach some understanding; and
  • That there is some expectation that each of the parties will behave in a particular way.

[75] An arrangement is not an expectation that a party will behave in a particular way and it cannot be contrived. It requires some substance.”

[33] The meaning of ‘arrangement’ was also traversed in the Full Bench decision of John Lucas Hotel Management Services T/A World Square Pub v Hillie. 6 In this decision, the Full Bench stated that the word ‘arrangement’, while it should to be interpreted broadly and need not imply a legally enforceable agreement between the two parties, must still be given some content; one party must have assumed at least a moral obligation, or given an assurance or undertaking.7

[34] The respondent states that it is a start-up organisation incorporated as a ‘charitable not for profit organisation’, which has no association with SILC. SILC did not participate in the hearing and no material was provided as to any handover from SILC to NEDS in providing the in-house services.

[35] The directors of NEDS include Ostilio Pisanu and Corinne Pisanu, who both appeared for the respondent. All seven board members/Directors of NEDS are volunteers and receive no remuneration. It was stated that SILC, for whom the applicant previously worked, provided one month’s notice to the parents of the three 8 residents of the home that they would stop being a service provider around early July 2019. The Pisanus became aware of this as Mrs Pisanu’s disabled son is a resident of Opal House. Mrs Pisanu stated that she owns Opal House through a company known as Cossie Pty Ltd, which is the accommodation provider. Cossie Pty Ltd does not employ any staff. Cossie Pty Ltd is an NDIS-registered provider, which now provides in-house support services. Its two directors are Mr and Mrs Pisanu.

[36] Mrs Pisanu’s disabled son wished to move out of the family home and Opal House was provided by Mrs Pisanu for this purpose. Two other disabled residents also occupy Opal House and provide companionship to the other residents. The residents of Opal House all suffer from severe disabilities and require 24/7 care. The Pisanus provide the accommodation to the residents at no cost, on a philanthropic basis. The residents are not required to reside at Opal House for the purposes of the National Disability Insurance Scheme (NDIS).

[37] NEDS was registered with the Australian Charities and Not-for-profits Commission on 2 May 2018. Participate Australia provided the disability services as NEDS was not at the time an accredited provider. NEDS supply the labour which provides the disability services at Opal House. Supported Independent Living funding is allocated to the NDIS participant, being the person with the disability.

[38] Mrs Pisanu explained that SILC provides supported independent living services i.e. in-home support. It did not provide nor have any obligation to provide the accommodation for residents at Opal House. It can deliver in-house support to residents at any home owned, rented or provided for the benefit of or by an NDIS participant, or the home could be supplied by a disability organisation. Mrs Pisanu submitted that what SILC did in providing in home support was no different to a cleaner or gardener carry out their in any home.

[39] Cossie Pty Ltd is an NDIS-registered provider and has outsourced the provision of in-house support to NEDS. This was done because NEDS is now a registered charity which can provide salary packaging to employees, which Cossie Pty Ltd could not offer. The retention of staff is an important factor in providing in-house support and providing salary packaging assists with this.

[40] The staff at Opal House use a motor vehicle owned by Cossie Pty Ltd to be used by the residents for community participation i.e. to take its residents to appointments, participate in social activities, and attend day programs. Mrs Pisanu submitted that these activities were not the role of SILC.

[41] Ms Rossi confirmed that the motor vehicle was used by SILC. She submits SILC therefore had the beneficial use of the vehicle, although it was not required to provide any transport services.

[42] Opal House and the motor vehicle are not assets of NEDS. Both the motor vehicle and Opal House are owned by Cossie Pty Ltd. It therefore needs to be ascertained whether Cossie Pty Ltd is an associated entity of NEDS.

[43] 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 2019per- Bull DP