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  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.
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.
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:
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]” ( FWCFB 1198, at ).
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” ( FWCFB 1198, at ).
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:
“ 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. ...
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.
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:
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