Associated entities for determining whether small business employer
Associated entities and whether small business employer
“The uncontested evidence before the Commission as to the relationship between the various carpet court entities demonstrates clearly they are under common or similar ownership and direction. The expression ‘associated entity’ as applied in the Act is “an expression of wide scope”: Clermont Coal Pty Ltd v Brown  FCAFC 136, Jessup J, Buchanan and Rangiah JJ agreeing. However consideration of s.50AAA can inject “considerable complexity” into matters under the Act: Leung v Brian Burgess as Trustee for Brian Burgess Family Trust, Binnia Downs Meat Co. Pty Ltd as Trustee for MCP Carr Investment Trust  FWCFB 5255.
The facts here indicate a set of business relationships involving companies that seemed to operate each store, but as trustees for unit trusts that held the shares in the operating companies. Mr Johnson’s evidence hinted that there were other underlying family or other unit trusts involved. The role of the Holding company was also unclear.
The facts here bear similarity to those in Salagaras v Fingal Glen Pty Ltd atf the Adelaide Riviera Trust t/as Comfort Hotel Adelaide Riviera  FWA 1401. In that case the employer was one of 3 different businesses owned by separate unit trusts with separate trustee companies. Each trustee company had the same single Director and each trust had the same Financial Manager, who were both employees of a single accountancy firm. The Commission held that they were associated entities and employees of the associated entities therefore counted for the purpose of determining whether the employer was a small business.
In my view the facts here are not materially different.
The exhibited bank statements do not, in my view, demonstrate independence of the 2 entities as there is insufficient detail. They show there were financial transactions in the CC Qld Holdings Pty Ltd account relating to Maryborough, Gladstone and Mackay, each $5000 monthly, but not the purpose and result of those transactions.
The evidence about the various unit trusts is either immaterial, or reinforces the commonality of interest between the 4 entities. In any case it is not sufficient for the Respondent to have demonstrated that because of the trusts, the entities are not associated.
The Corporations Act definition of associated entity includes the control (as defined by s.50AA) by another entity. “Entity” is defined in the s.64A of that Act to include not only other companies but also trusts and individuals. Further ‘control’ is described in s.50AA(1) as “capacity to determine the outcome of decisions about the second entity’s financial and operating policies”.
Does then Mr Jack, as sole Director of all 4 companies and other shareholders at the time of termination have the capacity to control the outcome of decisions about entities other than Gladstone CC Pty Ltd?
The notion of control is not restrictive, and extends to, for example a power to veto: Re A Reference to the Federal Court of Australia by the Australian Broadcasting Tribunal Pursuant to Section 22b of the Broadcasting and Television Act 1942 in relation to applications to the Australian Broadcasting Tribunal of Approval  FCA 6,  (Full Court, Bowen CJ). Further the test seems not to be limited to operations (for example were decisions of the character ever actually made; did the stores function completely independently), but about the capacity to make such determinations. That capacity will flow from the authority to make determinations rather than historical facts, although past facts might well indicate an actual control, such as joint board meetings.
Here, the entities are owned by the same shareholders and at the time of the dismissal, under the same sole Director, Mr Jack. It is clear that the “capacity to determine the outcome of decisions” about the employer’s financial and operating policies was vested in Mr Jack as sole Director and the shareholders. It follows that the other entities are associated entities within the meaning of s.50AAA.
Additionally, the long service letter exhibited by Mr Johnson indicates that Mr Coughlan’s claim was paid in full, and while the outcome was apparently the product of negotiation, it is not inconsistent with the position put by the Applicant that the entities were related.
In summary, I am satisfied the 4 corporate entities are associated entities on the basis of the common ownership, directorship, and capacity to control the outcome of decisions.
But the mere fact they are associated entities does not resolve the underlying question: Was there fewer than 15 employees at the relevant time? If so the employer was a small business employer and there would be no entitlement to redundancy payment.
The evidence before me is two contrasting and contested versions about the Gladstone store:
• Ms Davison says there were 22 employees;
• Mr Johnson says there were 6, aligning with the first 6 on Ms Davison’s list.
There is no evidence about the number of employees at the relevant date of the other 2 stores, and an untested statement from Mr Johnson that the holding company had no employees.
Additionally, Mr Johnson holds himself out as “employed by the Respondent”, and presumably was so at the relevant dates. However the details of his employment and the identity of the employer are not clear from his evidence. The same might be said of ‘Kim’, who could be the person identified in correspondence with the Commission as “PA to Andrew Johnson”, Kym McLaughlin. 2 Mr Harrison’s evidence hints of roles for the 3 business owners that may go beyond directorships, but whether that amounted to an employment relationship remains unclear. Finally there is no evidence before the Commission about whether the shareholding entities and individuals (especially Empirica Pty Ltd, Harrison Int Pty Ltd and Syntra Pty Ltd) are associated entities of the Respondent: they may or may not be, and they may or may not have employees for the purpose of s.23.
Given the contested nature of the evidence about the number of employees, the parties should be given the opportunity to put on evidence at a hearing of the matter.”
MacInnes v Gladstone CC Pty Ltd T/A Len Smith Carpet Court (2016) FWC 8838 delivered 21 December 2016 per Booth C