Unfair dismissal; counting overseas employees

The issue whether to count employees of associated entities which are based overseas has been somewhat of a vexed issue for the Fair Work Commission when determining whether or not an employer is a small business employer for the purposes of either jurisdiction or the Small Business Fair Dismissal Code.

Here is a very recent view of a senior member of the Commission which is hard to quarrel with. His answer is yes.

“Consideration of case law

In Garner v Redmako 1 Commissioner Johns concluded that:

“[2] The Corporations Act does not expressly address whether a company that is incorporated in a foreign jurisdiction falls within the definition of an associated entity. The FW Act is silent on the point. However, there are a number of decisions of the Australian Industrial Relations Commission which have confirmed that foreign companies can fall within the definition of related body corporate for the purposes of the former “100 employees or fewer” exclusion that applied under the former legislation.”

In Espie v Studio 301 Pty Ltd 2 Senior Deputy President Hamberger concluded:

“[13] The respondent noted that any overseas but related entities of the respondent would not fall within the definition of “employer” as set out in Section 6 of the Workplace Relations Act. While true, this is irrelevant. To include the employees of related overseas entities in the calculation of the threshold for access to the jurisdiction of an employee employed by an Australian employer does not imply per se that those employees of overseas entities themselves have access to the jurisdiction.”

In another decision a member decided that the employer in that case did not meet the definition of a small business as employees in the overseas associated entity were also to be taken into account for the purpose of s.23 of the Act. Therefore the Applicant had met the requisite minimum employment period. 3

To determine if the employees of GMBH should be counted for the purposes of determining if the Respondent is a small business employer it is relevant to consider the terms of the Explanatory Memorandum to the Fair Work Bill 2008. 4 The Fair Work Bill 2008 Explanatory Memorandum provides:

“Key Elements of the New System

r.5. The new workplace relations system will be built on:

unfair dismissal laws which balance the rights of employees to be protected from unfair dismissal with the need for employers, particularly small business, to fairly and efficiently manage their workforce”.

In relation to calculation of the number of employees to make it a small business, the Explanatory Memorandum, like the Act, does not suggest expressly or implicitly that certain employees such as those overseas in associated entities are not to be included in the calculation. Rather it provides, like the Act, that all employees are to be counted:

“123. Under subclause 23(1), an employer is a small business employer if the employer employs fewer than 15 employees at a particular time. The particular time referred to in this subclause is set by the applicable provision that relies on this definition. For example, in clause 121 (exclusions from obligation to pay redundancy pay), the particular time is either immediately before the time of termination of employment or when the employee is given notice of the termination (whichever happens first).

  1. The effect of subclause 23(2) is that, for the purpose of calculating the number of employees at a particular time, all employees employed by the employer are counted. All casual employees are included in the calculation if they have, at the particular time, been employed on a regular and systematic basis. Employees employed by associated entities are also included in the count (subclause 23(3)).
  2. The purpose of subclause 23(4) is to confirm that, when calculating the number of employees at a particular time in relation to the ending of an employee‘s employment, employees of an employer include not only the employee whose employment is ending, but also other employees of the employer whose employment is ending.” 5

The Memorandum also notes that the Act provides ‘special assistance’ to small business through the 12 months qualifying period, and explains that and other concessions to small business on the basis that such businesses may not have access to human resources to assist them in managing terminations:

“r.224. There will also be special assistance for small business employers through the Small Business Fair Dismissal Code and a 12 month qualifying period for small business employees. Therefore, small businesses will have 12 months in which to assess the performance of an employee and terminate their employment if necessary. This will be adequate time for a small business to assess the performance of an employee.

r.225. Small businesses tend not to have the resources to employ dedicated human resources professionals to help them manage dismissals. By providing a clear process and guidance to follow when dismissing an employee, the Code may help to mitigate any increase in unfair dismissal claims from small business employees, and provide certainty to small business when they need to dismiss an employee.” 6

It is less likely that a company of the size of the Respondent would have the difficulty of lack of access to specialist advice in managing terminations. It is a middle sized company with access to resources, given that it is an associate of the principal company, GMBH, which is not small but medium sized. It is not disputed that GMBH is an associated entity within the meaning of s.50AAA of the Corporations Act 2001.

I take the same view of the provisions of the Act as has been taken in previous authorities. The Respondent did not refer me to any authorities to the contrary. This approach is consistent with the obvious intention of the Act with respect to small business. Under the approach advocated by the Respondent, it would be possible for one of the world’s most well-resourced companies to establish a company in Australia, and to call it a small business and claim the various benefits and leniencies that flowed from that, although it faced none of the difficulties faced by actual small businesses. This would be an odd result which is avoided if the usual approach to calculation of numbers of employees of a small business is taken, and the ordinary meaning of the Act is applied.

I therefore conclude that the Respondent does not meet the definition of a small business. Mr Lingford has accordingly served the required minimum employment period and may make an application for relief from unfair dismissal.”

Lingford v KLS Martin Australia Pty Limited (2017) FWC 5157 delivered 9 November 2017per- Hamilton DP