What is an “arrangement” for purposes of a transfer of business?

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8 March 2013

A Full Bench of the Fair Work Commission (FWC) has recently clarified what constitutes an “arrangement” between an old and a new employer for purposes of determining whether there has been a transfer of business under Part 2-8 of the Fair Work Act 2009 (Cth) (FW Act).

In John Lucas Hotel Management Services T/A World Square Pub v Ms Vanessa Hillie [2013] FWCFB 1198 (22 February 2013), the Full Bench (Drake SDP, Hamberger SDP and Bull C) overturned a decision of Cambridge C that Ms Hillie (the employee) could bring an unfair dismissal claim. This decision was based on the conclusion that the employee’s prior service with the old employer, in a transfer of business situation, counted towards the minimum 12-month qualifying period for bringing an unfair dismissal claim against the new employer.

In this In Brief, we examine the Full Bench decision, particularly its consideration of the factors that are relevant to determining whether a transfer of business has occurred under section 311 of the FW Act.

What happened?

  • In July 2009, the employee commenced work at the World Square Pub in Sydney, which was managed and operated by Wanslea Grove Pty Ltd (the old employer).  The employee worked for Wanslea Grove in what was described as a casual position, on a regular and systematic basis.
  • The owners of the hotel were Brookfield WS Retail Landowner Pty Ltd (ACN: 109033794) and AWPF Management No.2 Pty Limited (ACN: 135365365).  In July 2011, a representative of the owners made contact with Mr Lucas.  The owners informed him that Wanslea Grove was in financial difficulty and may be evicted from the premises.  The owners asked Mr Lucas if he would be prepared to run the hotel if Wanslea Grove was evicted.  He expressed an interest in managing the hotel on behalf of the owners (this was to be done through his operating entity, John Lucas Hotel Management Services (the new employer)).
  • On 23 August 2011, at a meeting between the owners, Wanslea Grove and Mr Lucas, Wanslea Grove announced that it could no longer pay the rent for the hotel, and that it would vacate the premises on the following Monday, 29 August.  The owners accepted these circumstances, and Mr Lucas asked Wanslea Grove to provide him with information including: a list of utility and inventory suppliers, a list of employees, and poker machine taxation information.
  • On 25 August, Wanslea Grove provided Mr Lucas with the information requested, which included a list of the names and details of seven employees, one of whom was Ms Hillie.
  • On Friday 26 August, Wanslea Grove abandoned the hotel.  A “hand-over” of the hotel from Wanslea Grove to Mr Lucas that had been planned for Monday 29 August did not take place.  Instead, he had to contact the owners to obtain a key for entry to the hotel premises. 
  • The hotel did not open on the weekend of 27 and 28 August, but it resumed partial operation on Monday 29 August.  On that day, the employee attended at the hotel and was employed by the new employer, performing essentially the same work that she had undertaken previously for the old employer. 
  • The employee was not given any notification by the new employer, either verbally or in writing, that her previous period of employment with the old employer would not be recognised for any employment-related purposes.  This was relevant as section 384(2) of the  FW Act provides that casual employees who work on a regular and systematic basis, and who are transferred to employment with a new employer,  will have their service with the old employer counted as service with the new employer – unless the new employer informs them in writing that their period of service with the old employer will not be recognised. 
  • The employee was dismissed by the new employer on 16 December 2011. She brought an unfair dismissal claim against the new employer, relying on section 384(2) to establish that she had served the 12-month qualifying period for bringing such a claim (taking into account her periods of service with both the old and new employers).

The applicable legislation

At first instance before Cambridge C, the new employer raised a jurisdictional objection: that the employee was not a person protected from unfair dismissal, because her previous employment should not count towards the 12-month qualifying period as there had been no transfer of business from the old to the new employer (as required by section 384(2)(b)(i) of the FW Act). 

Section 311(1)(d) of the legislation was of particular relevance.  It provides that:

“(1) There is a transfer of business from an employer (the old employer) to another employer (the new employer) if the following requirements are satisfied:

... ;

  (d) there is a connection between the old employer and the new employer as described in any of subsections (3) to (6)”.

In turn, section 311(3) provides that:

“(3) There is a connection between the old employer and the new employer if, in accordance with an arrangement between:

  (a) the old employer ...; and

(b) the new employer ...;

the new employer ... owns or has the beneficial use of some or all of the assets (whether tangible or intangible):

(c) that the old employer ... owned or had the beneficial use of; and

(d) that relate to, or are used in connection with, the transferring work”.

As indicated above, Cambridge C found that there had been a transfer of business between the old and new employers within the meaning of these provisions.

What is an “arrangement” between old and new employers under section 311(3)?

In dealing with the new employer’s appeal against Cambridge C’s decision that the employee could bring the unfair dismissal claim, the Full Bench observed that:

  • in order to be protected from unfair dismissal, the employee had to be a “transferring employee in relation to a transfer of business” between the old and the new employer (section 384(2)(b)(i)); and
  • for there to be a transfer of business, there had to be a “connection” between the old and new employers (section 311(3)).

According to the Full Bench, to establish such a connection between Wanslea Grove and the new employer, the latter “would need in effect to own or have the beneficial use of some or all of the assets (whether tangible or intangible) that Wanslea Grove owned or had the beneficial use of ‘in accordance with an arrangement’ between Wanslea Grove and the [new employer]” ([2013] FWCFB 1198, at [18]). 

Drawing on previous judgments on the meaning of the term “arrangement” in trade practices and taxation cases, the Full Bench held that “for an ‘arrangement’ to exist one party must have assumed at least a moral obligation, or given an ‘assurance’ or ‘undertaking’ that it will act in a certain way” ([2013] FWCFB 1198, at [20]). 

Applying this test, the Full Bench reasoned as follows in upholding the appeal and overturning the decision of Cambridge C that the requisite arrangement existed:

[21]  Did the transfer of assets (such as they were) between Wanslea Grove and the [new employer] occur in accordance with an “arrangement” between them?  The [employee] cited as evidence of such an arrangement the request by Mr Lucas for Wanslea Grove to provide him with certain information, and the subsequent provision of that information.  However that in no way created any obligation, legal, moral or otherwise on the part of the [new employer].  For example, while a list of employees was sent to [Mr Lucas], there was no evidence that this created an obligation on the part of the [new employer] to employ anyone on that list.  In fact there is no evidence that the list was used at all.  ...

[22]The Commissioner referred in his decision ... to an explicit understanding that the [new employer] would be taking over the operation of the hotel on Monday 29 August 2011.  However that reflected an arrangement between the owner of the hotel and the [new employer].  Nor is there any evidence that Mr Lucas’s misplaced expectation that he might receive the keys from Wanslea Grove suggest any arrangement he had with Wanslea Grove.  Whatever arrangement existed was between the owner of the hotel and the appellant.  This does not establish a connection between the “old employer” and the “new employer” as required by s.311(3).”

As there was no transfer of business, the employee was not a transferring employee within the meaning of section 384(2), and was therefore ineligible to pursue her unfair dismissal claim.

Lessons from Hillie

The approach of the Full Bench in Hillie is a practical one.  Although it is unnecessary that there be a contractual obligation, there will be no arrangement and, therefore, no transfer of business on the basis of a transfer of assets unless the new employer at least assumes a moral obligation, or gives an assurance or undertaking that it will act in a certain way as regards any assets that are transferred to it from the old employer.  If there is no evidence of that, there will be no relevant connection between the old and the new employer for purposes of section 311(3). 

The Full Bench’s decision also highlights a number of issues that a new employer should consider in a transfer of business situation, including:

  1. What assets, if any, have been transferred to it from the old employer?
  2. Whether such a transfer of assets was in accordance with a moral obligation, assurance or understanding of the new employer.  The decision highlights the importance of clarifying these issues in the documents evidencing the transaction between the old and new employers.
  3.  Which employees of the old employer does the new employer wish to engage? The new employer should enter into clear, written terms of employment with any such employees – including clarification of whether the new employer does or does not recognise the prior service of any casual employees with the old employer (for purposes of section 384(2) of the FW Act). 

The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.


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