For many people, the question, “who do I work for?” will not be a difficult question to answer. However, the complexity of corporate groups will sometimes make this question very difficult indeed. Organisations which are large enough to employ HR professionals are usually large enough to have complex structures, and it is important for HR professionals to be aware of the range of employment problems which can arise if the correct employer is not identified.
A recent decision of the Full Bench of the Fair Work Commission shows how complex structures can affect unfair dismissal claims. Three related companies traded “under the same roof” and the employer’s evidence went so far as to describe the three companies as being “all one, like the Father, Son and Holy Ghost”. Although the famous hymn tells us that “God moves in a mysterious way”, corporations law is less mysterious; each company is a separate and distinct entity. This means that it is crucial to identify, in any given transaction, which company it is which is doing the transacting.
The dismissed employee’s letter of employment identified one company, Solar Station Alpha, as being his employer. The employee’s pay slip was provided on letterhead which bore the logos of Solar Station Alpha and Phase Change (the second company) but which referred to Solar Station Alpha’s ABN. However, when the employee was dismissed, the dismissal was effected by a letter from the third company, Arvio. That letter purported to give notice of the termination of the employment with Arvio, which was not, in fact, the employer.
When the employee commenced an unfair dismissal claim, a question arose as to whether the claim was out of time. This in turn depended on whether or not the letter from Arvio validly terminated the employee’s employment with Solar Station Alpha. The Commissioner at first instance found that the Arvio termination letter was ineffective to terminate the employment, because it was not issued by the correct employer. The Full Bench could find no error with this approach, and the sun did not shine on Solar Station Alpha’s attempt to have the claim dismissed as being out of time.
There are many other circumstances in which not identifying the correct employer can cause legal headaches. For example, restraint of trade clauses can fail if the correct employer is not properly identified. In one case, a doctor (who had personally employed another doctor in his practice) sued to enforce a restraint of trade clause when the employed doctor left. However, the first doctor’s practice was conducted by a company (which owned the goodwill). This meant that the first doctor could not rely on protection of goodwill as the basis for enforcing the restraint, because the company, which was the owner of the goodwill, which was not a party to the employment contract.
So what are HR professionals to do to avoid these problems? The first answer is to have a clear understanding of how many companies are involved in a corporate group and what each of them does (including, importantly, which of them employ people). Australian companies have a unique identifying number called an ACN, and this can be used to keep track of companies whose names might change over time. Be careful about relying on an ABN, because entities such as partnerships, and even trusts, can have an ABN even though they are not companies.
It is also important for HR professionals to be involved in any restructuring of any corporate group so that employment issues can be identified as part of the restructure. Experience shows that accountants who may be astute when it comes to the taxation consequences of particular structures are less adept when it comes to the employment consequences (and if I had a dollar for every employment problem arising from an accountant’s bright idea I’ve had to solve over the years, I’d have $573).
Finally, where corporate groups are involved, the drafting of contracts requires additional attention to ensure that restraints (and clauses concerning the ownership of intellectual property, in particular) have their intended effect.
So, where there is complexity in the employment structure, it is best to get things right from the beginning. Simply trusting that a corporate group is “all one, like the Father, Son and Holy Ghost” may be a reasonable proposition in a house of worship, but is somewhat less reliable is the more secular surroundings of the Fair Work Commission.
For more on our employment law capabilities, contact Angus Macinnis