Fair Work Australia (FWA) has found that informal discussions between an old and new employer can constitute an “arrangement” for the purpose of a transfer of business under section 311(3) of the Fair Work Act 2009 (Cth) (FW Act).

The ultimate effect was that a casual employee was entitled to bring an unfair dismissal claim against the new employer.

Implications for employers

In potential transfer of business situations, if an employer wishes to seek to avoid the operation of the transfer of business provisions in the FW Act, care needs to be taken with respect to discussions and arrangements with the exiting employer. We recommend you seek advice if uncertain.

Further, when taking on transferring employees, if an incoming employer wishes to restart the minimum employment period (MEP) for unfair dismissal purposes, the transferring employee must be advised of this prior to commencing employment with the incoming employer.

Background - legislation

Under section 311(1) of the FW Act, a transfer of business will occur 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.

Relevantly for present purposes, 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 MEP required before the employee is eligible to bring an unfair dismissal claim.

Background - facts

The employee, Ms Hillie, worked as a casual at World Square Pub (Hotel) between July 2009 and 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 (JL) and asked if it would be interested in taking over management of the Hotel. JL indicated that it would. On 23 August 2011, WG advised JL that it would be vacating on 29 August 2011. JL asked WG for information regarding the Hotel, including employee details. WG provided that information on 25 August 2011. The next day, WG abandoned the Hotel. The formal handover of the Hotel planned for 29 August 2011 did not occur. The Hotel partially reopened on 29 August 2011 under JL’s management. Ms Hillie attended for work that day and performed the same work for JL 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 JL. She continued to work for JL between 29 August 2011 and 16 December 2011.

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

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

Decision

Commissioner Cambridge found in Ms Hillie’s favour, noting the following.

  • 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” is 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.
  • Having regard to these tests, there was an “arrangement” between WG and JL. There was communication between the two on 23 and 25 August 2011. There was an explicit understanding that JL would take over on 29 August 2011. There was also an understanding that WG would hand the keys to the Hotel to JL 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.
  • JL had not notified Ms Hillie prior to her commencing work with JL that her service with WG would not be counted toward her MEP. Accordingly, section 384(2)(b) dictated that all of Ms Hillie’s service from July 2009 onward be counted toward her MEP. She was eligible to bring her unfair dismissal claim.