Counting employees of overseas entities for jurisdiction issues

Counting employees of overseas entities to determine whether a business is a small business employer

“He says that Nelson JA is a company owned by the same person, Mr Nelson Chi Kai Ho, as a company called Nelson Jewellery Arts Co. Ltd that is incorporated in Hong Kong.
It is uncontroversial that this company exists and employs sufficient employees that, if counted along with the employees of Nelson JA, would exceed the threshold for the definition of a small business employer. 3and 4
Mr Lau contends that the application of s.50AAA of the Corporations Act 2001 (Corporations Act) means that Nelson JA is an associated entity of Nelson Jewellery Arts Co. Ltd and I must count the employees of Nelson Jewellery Arts Co. Ltd in coming to a conclusion about whether Nelson JA is a small business employer.
Mr Lau is correct to refer the Commission to s.50AAA of the Corporations Act because s.23 of the Act requires the Commission to count the employees of an associated entity of the employer and because associated entity has the meaning in s.50AAA of the Corporations Act. One entity (the associate) is an associated entity of another entity (the principal) if at least one of a number of conditions apply. 5 These conditions are:
● The entities are related bodies corporate.
A related body corporate is defined in s.50 of the Corporations Act as follows
50 Related bodies corporate
Where a body corporate is:
(a) a holding company of another body corporate; or
(b) a subsidiary of another body corporate; or
(c) a subsidiary of a holding company of another body corporate;
the first-mentioned body and the other body are related to each other.
● The principal controls the associate.
Control is defined in the Corporations Act as follows:
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.
● The associate has a qualifying investment in the principal and significant influence over the principal and the interest is material to the associate.
● The associate controls the principal and the operations or affairs of the principal are material to the associate.
● The associate has a qualifying investment in the principal and significant influence over the principal and the interest is material to the associate. An entity has a qualifying investment in another entity where the first entity has an asset that is an investment in the second entity or the first entity has an asset that is the beneficial interest in an investment in the second entity and has control over that asset.
● The principal has a qualifying investment in the associate and significant influence over the associate and the interest is material to the principal.
● A third entity controls both the principal and the associate and the operations, resources or affairs of the principal and the associate are both material to the third entity.
The evidence is that the same person is the sole shareholder of two separate companies. 6 A sole shareholder has control.
The evidence discloses that:
● Nelson Jewellery Arts Co. Ltd cites its “Australia Office” at the same address as Nelson JA. 7
● The website of Nelson JA cites “headquarters” as a Hong Kong address. 8
● Emails in evidence referred to Hong Kong as “head office”. 9
● Nelson Jewellery Arts Co. Ltd directed the sales, supply and financial recording policy and practice of Nelson JA. 10
It appears to me that at least one of the conditions of the Corporations Act for Nelson JA and Nelson Jewellery Arts Co. Ltd to be associated entities is met. That condition is that the principal controls the associate.
Nelson Jewellery Arts Co. Ltd is incorporated in Hong Kong. The question arises as to whether the overseas location of incorporation of Nelson Jewellery Arts Co. Ltd makes any difference to my conclusion.
This question has been considered by single Members of the Commission but does not appear to have been determined by a Full Bench of the Commission or the Federal Court. Single Members have concluded that the offshore incorporation of the associated entity is not a constraint on finding that the employees of the associated entity are to be counted for the purpose of deciding whether an employer is a small business employer. 11 A Full Bench of the Commission granted permission to appeal in relation to one of these instances but the substantive appeal did not proceed. I adopt the reasoning of these Members and conclude that there is nothing in the Act or the Corporations Act that means that I should not take into account the employees of the associated overseas based entity for the purposes of s.23 of the Act.
I find that Nelson JA is not a small business employer. Accordingly I must apply s.387 of the Act and consider whether Mr Lau was unfairly dismissed.”

Lau v Nelson (Aust) J A Pty Ltd – [2016] FWC 7490 – 19 October 2016 – Booth DP