A Fair Work Commission Full Bench has clarified the test for establishing what constitutes an “arrangement” between an old and new employer in the context of the transfer of business provisions in the Fair Work Act 2009 (Cth) (FW Act).

Implications for employers

This case, which overturns the first instance finding in Hillie v World Square Pub [2012] FWA 6806 (reported in our Employee Relations & Safety Update October 2012 bulletin), highlights that for an “arrangement” to be found to exist, the new employer must have made a commitment to the old employer, and be under an obligation to the old employer, to act in a certain way. Mere communication between the two will not be sufficient.

Background: legislation

Under section 311(1) of the FW Act, a transfer of business will occur from one entity (the old employer) to another (the new employer) where:

  • the employment of an employee of the old employer has terminated (for any reason, including employee resignation); and
  • the employee joins the new employer within three months after the termination; and
  • the work the employee performs for the new employer is the same, or substantially the same, as the work performed for the old employer; and
  • there is a “connection” between the old employer and the new employer.

A “connection” will exist in a number of situations. Importantly in the present case, a “connection” exists where, in accordance with an “arrangement” between the old employer and the new employer, the new employer owns or has the beneficial use of some of the old employer’s (tangible or intangible) assets.

Also relevant here is section 384(2)(b), which provides that, unless the new employer expressly states otherwise before a transferring employee starts work with the new employer, the employee’s service with the old employer must be recognised for purposes of determining whether that employee has completed the minimum employment period (MEP) required before the employee is eligible to bring an unfair dismissal claim.

Background: facts

Ms Hillie worked as a casual at World Square Pub (Hotel) from July 2009 to 16 December 2011.

Between July 2009 and 26 August 2011, Wanslea Grove (WG) was the tenant operating the Hotel and was Ms Hillie’s employer.

In July 2011, WG was experiencing financial difficulty and the Hotel’s owner contacted John Lucas Hotel Management Services Pty Ltd (JLH) and asked if it would be interested in taking over management of the Hotel. JLH indicated that it would. There was no evidence that JLH assumed an obligation to WG, or gave any assurance or undertaking to WG, as to the way it would act.

On 23 August 2011, WG advised JLH that it would be vacating on 29 August 2011. JLH asked WG for information regarding the Hotel, including employee details. WG provided that information via email on 25 August 2011. There was also email correspondence regarding JLH using some of WG’s assets, including stock and poker machine hardware.

The next day, WG abandoned the Hotel. No formal handover of the Hotel from WG to JLH took place.

The Hotel partially reopened on 29 August 2011 under JLH’s management. On that day, Mr Lucas of JLH contacted a person known as Mosan, who he had seen working at the Hotel some 12 months previously, and asked if Mosan was seeking work. Mosan recommended Ms Hillie as a potential employee.

Ms Hillie was subsequently employed by JLH and, from 29 August 2011, performed the same work for JLH as she had previously performed for WG. She was not told that her period of employment with WG would not be taken into account by JLH. She continued to work for JLH between 29 August 2011 and 16 December 2011.

Ms Hillie was terminated by JLH on 16 December 2011. She brought an unfair dismissal claim against JLH. She argued that there was an arrangement between WG and JLH and so a transfer of business had occurred. As JLH had not advised her that it would not recognise past service for MEP purposes, Ms Hillie claimed she was eligible to bring a claim for unfair dismissal.

JLH argued that there was no arrangement between WG and JLH and no transfer. Accordingly, JLH submitted that only Ms Hillie’s service with JLH was relevant for calculation of the MEP and she was ineligible to bring an unfair dismissal claim.

Decision at first instance

Commissioner Cambridge found in Ms Hillie’s favour, holding as follows.

  • The FW Act requires that a broad meaning is given to the term “arrangement”.
  • An “arrangement” must have some substance. There must be more than a mere expectation that a party will act in a particular way.
  • The test for what constitutes an “arrangement” was that set by Commissioner Bissett in Peter Zabrdac v Transclean Facilities Pty Ltd [2011] FWA 449, namely:
    • there must be communication between the parties to the arrangement; and
    • the parties must reach some understanding; and
    • there must be some expectation that each of the parties will behave in a particular way.
  • There was an “arrangement” between WG and JLH, as:
    • there was communication between the two on 23 and 25 August 2011; and
    • there was an explicit understanding that JLH would take over on 29 August 2011 and WG would hand the keys to the Hotel to JLH on 29 August 2011 (although this did not in fact occur, given WG abandoned the premises on 26 August 2011).
  • Accordingly, there was a transfer of business. As JLH had not notified Ms Hillie prior to her commencing work with JLH that her service with WG would not be counted toward her MEP, she was eligible to bring her unfair dismissal claim.

JLH appealed, arguing that no arrangement between WG and JLH existed.

Decision on appeal

On appeal, the Full Bench (composed of Senior Deputy Presidents Drake and Hamberger and Commissioner Bull) found in favour of JLH, holding as follows.

  • Commissioner Bissett’s approach in Zabrdac, which was to look to judgments in tax and trade practices matters for guidance as to the meaning of “arrangement”, was appropriate.
  • The word “arrangement” should be interpreted broadly. It “need not imply a formal let alone legally enforceable agreement between the two parties”. However, “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”.
  • The transfer of assets from WG to JLH did not occur in accordance with an “arrangement” between the two. The request by JLH to WG to provide information, and the provision by WG of that information, “in no way created any obligation, legal, moral or otherwise” on JLH’s part. For example, there was no evidence that the list of employee details was used at all. Mr Lucas employed Ms Hillie on the recommendation of Mosan.
  • Commissioner Cambridge was wrong to find that there was an “explicit understanding” between JLH and WG. Mr Lucas’ “misplaced” expectation that WG would hand the keys to the Hotel over to JLH on 29 August 2011 was not indicative of an arrangement between the two. The arrangement for JLH to take over the Hotel was not an arrangement between JLH and WG, but between JLH and the Hotel’s owner. An arrangement between JLH and the Hotel’s owner was not enough to establish a connection between JLH and WG as required under section 311.

In the circumstances, there was no arrangement between JLH and WG for the transfer of assets. Accordingly, Ms Hillie was in the MEP at the time of her termination and ineligible to bring an unfair dismissal claim.