Unfair dismissal and associated entities

When calculating employee numbers to determine whether an employer being sued for unfair dismissal is a small business employer, the number of employees of associated entities of the employer are included in the count and this passage from a recent unfair dismissal case offers a useful look at the issue in play.

“1] Pastor Travis Barnes was the Associate Minister of the Castlemaine Church of Christ from 9 April 2018 until he was dismissed for serious misconduct on 24 September 2020. The alleged misconduct arose from certain communications with members of the congregation, which the Church considered to be misleading and prejudicial to its interests, and inconsistent with the duties of a Minister.

[2] Four days after his dismissal, Mr Barnes applied in time for an unfair dismissal remedy under section 394 of the Fair Work Act 2009 (the Act). Through his application, Pastor Barnes seeks reinstatement or compensation for the dismissal.

[3] It is agreed that Pastor Barnes was dismissed and that he is protected from unfair dismissal: the Church is a national system employer; Pastor Barnes was employed for more than the minimum employment period; and his annual income of $80,968 was less than the high income threshold. The dismissal was not a redundancy.

[4] At the time of dismissal, the Church had two employees, Pastor Dave Tolputt and Pastor Barnes. However, I have found that the Church is not a small business employer and that the Small Business Fair Dismissal Code does not apply to the dismissal of Pastor Barnes.

[5] I have also decided that the dismissal was unfair and that compensation is the appropriate remedy.

[6] These are my reasons.

Is the Church a small business employer?

[7] At a particular time, an employer is a small business employer if it has less than 15 employees, including casual employees employed on a regular and systematic basis. When counting how many employees are employed by an employer, associated entities are taken to be one entity. 1

[8] In the Act, the term ‘associated entity’ is given same the meaning as section 50AAA of the Corporations Act 2001 (Cth), which says this:

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.

[9] The Castlemaine Church of Christ is established and governed by its Constitution. It has no related bodies corporate and no other corporate entities over which it has or asserts control.

[10] The Church is a member (affiliate) of Churches of Christ in Victoria and Tasmania Incorporated (CCVT), an association registered under the Associations Incorporation Reform Act 2012 (Vic). It pays annual membership fees to CCVT together with a percentage of its general offerings. Its Constitution requires that the Church to be affiliated with CCVT. While it can seek to disaffiliate, this can only occur by mutual agreement (by resolution at the Annual General Meeting). Affiliation can also be terminated as a result of disciplinary or grievance processes conducted in accordance with the CCVT Constitution.

[11] Under its affiliation agreement with CCVT, the Church supports the purposes of CCVT and must comply with the CCVT Constitution. The Church has limited autonomy. It can determine its own methods of ministry but is bound to support the values and purpose of CCVT. On significant financial and operational matters, it is subject to guidance from CCVT – including in relation to the appointment and accreditation of Ministers and other leaders (including Board members), good governance, property use and cooperation with CCVT’s mission and strategic direction including ‘church planting’ and ‘intentional conversations’.

[12] CCVT has the power to discipline the Church for conduct that is prejudicial to CCVT or inconsistent with its purpose, or for non-compliance with the CCVT Constitution or the affiliation agreement. In those scenarios, disciplinary action is considered by an impartial Dispute Sub-committee appointed by CCVT and can take the form of reprimand, suspension or disaffiliation. The Church has a right of appeal against disciplinary decisions but requires at least three quarters of members present with voting rights at a Disciplinary Appeal hearing to overturn a decision. Disputes between the Church and CCVT that fail to resolve at mediation are determined by the Dispute Sub-committee.

[13] The Church has beneficial use of a Church building at 66 Blakely Road, Castlemaine, Victoria, which is owned by the Properties Corporation of the Churches of Christ under The Churches of Christ in Victoria Property Act 1941 (Vic) and held on trust for CCVT. The Trustees of the Properties Corporation are the Directors of CCVT. They have the power to deal with church property as they see fit and subject to the terms of the trust, and although it commits to consultation, it can do so with or without the consent of the Church.

[14] The Church is an affiliate of CCVT.

Does CCVT control the Church?

[15] In section 50AAA, ‘control’ is a defined term and means:

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.

[16] Does CCVT control the Church? The answer depends on whether CCVT has the capacity – in terms of its practical influence – to determine the outcome of decisions about the Church’s financial and operating policies, having regard to any practice or pattern of behaviour affecting those policies. In my view, the answer is yes.

[17] CCVT requires affiliates to have a written constitution or charter setting out their purpose and objectives and dealing with at least: the definition of membership, appointment of leaders and ministers, how votes are conducted, financial management, recording and reporting, CCVT affiliation, not-for-profit status and winding up as well as legal requirements under the Churches of Christ in Victoria Property Act 1941 including decision making about property development and sale.

[18] CCVT has practical input into the content of these arrangements. It determines the Code of Ethics for Ministers, sets their terms and conditions of their employment and is responsible for minister accreditation – a condition of ongoing ministry. In the Church, Pastors are members of the Board with voting rights. CCVT determines the Code of Conduct for Church leaders, including Board Members. In doing so, CCVT has direct influence over the Board’s management of the Church’s financial and operational affairs.

[19] CCVT requires church leaders to adopt and implement a range of policies, including its Safe Places policy, Child Safety policy, the Child Safety Reporting Procedure and Marriage Licence policy. Consistent with the legal position, Church property must be registered in the name of the Properties Council and consultation is required over any proposed property development.

[20] CCVT is regularly consulted on governance matters. Where called upon, CCVT personnel work in partnership with members of the Church Board and Ministry to deal with operational matters of significance, such as in this case, the relationship between its ministers as well as the counsel and termination of employment of one.

[21] CCVT has the power to impose sanctions on the Church, including disaffiliation for any conduct considered prejudicial to it, and subject to an appeal mechanism which sets a high threshold for the revocation of sanctions. If attendance at Church falls below 20 people, the Church is required to transfer its management to CCVT. In the event of disaffiliation, the Church would no longer have the beneficial use of the Church building in which it conducts its affairs. For all intents and purposes, the Church would and could no longer be a Church of Christ.

[22] In practice, the various structures and mechanisms requiring the Church’s alignment with CCVT on key matters mean that CCVT can have the final say on financial or operating policies of the Church, should it so wish. Its capacity to control decisions of the Church does not arise because it is under a legal obligation to exercise that capacity for the benefit of someone other than CCVT’s members. CCVT is not merely an arms-length ‘peak body’ or advisory service. The notion that affiliation – once given – can simply be withdrawn, is inconsistent with both the legal and practical reality. The relationship between CCVT and the Church is more than that. Each forms part of the religious body known as the Churches of Christ Victoria and Tasmania, and CCVT exerts significant influence over the administration of the Church. 2

[23] The two cases relied on by the Church in support of its contention that it is a small business employer can be distinguished on the facts and do not persuade me that is so.

[24] I find that CCVT controls the Church in the manner contemplated by section 50AA. It is an associated entity of the Church.

The Church is not a small business employer

[25] The Church concedes that if it is an associated entity of CCVT, at least 15 employees were employed at the time of Pastor Barnes’ dismissal. The Church was not a small business employer at that time. It is not necessary to consider whether the dismissal was consistent with the Small Business Fair Dismissal Code.”

Barnes v Castlemaine Church of Christ (2021) FWC 2493 delivered 4 May 2021 per McKinnon C