Last month’s Workplace View considered the use of labour hire arrangements in the context of the sham contracting provisions of the Fair Work Act 2009 (Cth) (FW Act). This month we look at them again, but this time in the context of the transfer of business rules which were scrutinized by the Fair Work Commission (FWC) in the recent case of Burdziejko v ERGT Australia Pty Ltd [2015] FWC 2308.

In this case, the FWC was asked to determine whether Ms Burdziejko (an employee of ERGT) had sufficient continuous service with ERGT to claim unfair dismissal. She was initially employed by Hays on 3 June 2014 when she was supplied by Hays to ERGT as part of a labour hire agreement. Three months later she became a permanent employee of ERGT and continued to perform the same role until her employment terminated on 19 December 2014. 

Ms Burdziejko asserted that, when calculating whether she had the requisite six months’ continuous service to bring an unfair dismissal claim, she was entitled to include her service with Hays because there had been a transfer of business and ERGT had not informed her pursuant to section 384(2)(b) of the FW Act that her service with Hays would not be recognized.

When Does a Transfer of Business Occur?

Section 22(5) of the FW Act provides that, in the event of a transfer of employment (arising from a transfer of business), the period of service with the first employer counts as service with the second employer. Section 311 of the FW Act provides that, for a transfer of business to occur, the following conditions must be satisfied:

  1. the employment with the old employer must have terminated;
  2. within three months the employee must become an employee of the new employer;
  3. the work of the employee must be the same or substantially the same; and
  4. there must be a connection between the old and new employer

There was no dispute that conditions 2 and 3 were satisfied in this case. In terms of condition 1, while there was no evidence that Ms Burdziejko’s employment with Hays had been terminated, the FWC agreed that her acceptance of a full-time position with ERGT was inconsistent with the continuation of her employment with Hays. 

The main dispute, therefore, centered on whether there was a relevant connection between Hays and ERGT (condition 4). 

Did ERGT Outsource the Work?

ERGT argued that there was no outsourcing of work in this case to Hays. Rather, it was a straight labour hire arrangement in which Hays provided ERGT with “a warm body” to undertake work arising from ERGT gaining a new client. The company argued that, to constitute outsourcing, Hays needed to be contracted to provide a wider service to ERGT, e.g., if ERGT had required Hays to undertake all of its customer service work, rather than just supply labour to allow ERGT to continue to deliver those services.

The FWC disagreed. Deputy President Gooley noted the definition of “outsource” in the Macquarie dictionary is “to contract (work) outside the company rather than employ more in-house staff”. She found that ERGT had a requirement for additional work to be performed due to it gaining a new client. Instead of engaging an employee to perform the work, it engaged Hays to provide a person to perform that work. After a period of time, it decided that it no longer needed Hays to perform the work. It moved the work back in-house and employed Ms Burdziejko for this purpose. Unlike under predecessor legislation, there is no requirement under the FW Act for there to be a takeover of any business or part of a business. The focus is on whether there has been a transfer of work between the two employers and the reason for that transfer.

Lessons for Employers

As a result of the very wide interpretation given by the FWC to the term “outsourcing”, employers will now need to be mindful of the possible consequences of offering permanent employment to an existing labour hire employee. If a transfer of business occurs, an employer will be bound by any enterprise agreement that applied to the employee prior to the transfer and will generally be required to recognise the employee’s previous service for all entitlements under the NES. 

An employer can, however, decline to recognize previous service (assuming that the labour hire company is not an associated entity) for the purposes of annual leave, redundancy pay and qualifying service for unfair dismissal. Notification of this should be provided to transferring employees to avoid claims such as that of Ms Burdziejko. 

Employer Reminder 

Employers looking at selling (or buying) a business should remind themselves about how the structure of the transaction will impact their employees (or the employees employed by the target company). 

Where there is a share sale, the target company is acquired by the buyer via purchase of all of the shares in that company. The buyer then indirectly acquires all of the assets and liabilities of the target company. Where there is an asset sale, the assets and liabilities (specified in the share sale agreement) of the target company are purchased directly by the buyer.

With an asset sale transaction, while the employees of the target company will not automatically transfer to the buyer, certain employees may be deemed to be “transferring employees” pursuant to the Fair Work Act 2009 (Cth) if certain conditions are met. With a share sale transaction, the target company remains the employer (as only the ownership of that company changes) unless the incoming owners (buyer) wish to employ the employees directly. In this case the buyer will have to offer the employees employment. 

This area is complex. Advice on the employment-related implications of different transactions should be sought as part of the due diligence process.

Did You Know…?

…that the federal government is planning to pull the cord on the paid parental leave scheme in respect of working parents who are also eligible to claim monetary benefits from their employers? The change is said to take effect from 1 July 2015. 

The proposed change has become a hot topic of discussion following the release of statistics which reveal that approximately 47% of parents have been claiming paid parental leave from the government as well as their employers (where eligible), including federal public servants. The statistic is slightly higher for parents claiming partial reimbursements from the government. The government has voiced views that this approach is “double dipping”, “unfair” and not in line with the purpose of the scheme. 

Leading IR academics have opposed this view, arguing that the approach currently taken by working parents does not constitute “double dipping” as payments are received at different times, from different sources, and used consequetively.

The proposed change is intended to save AU$1 billion for the benefit of the federal budget.

Legislation Update

Click here to view table.