• Employer with a Single Employee Held Not to Be a "Small Business Employer" for the Purpose of Unfair Dismissal Claim Where Employees of an Associated Entity Are Taken into Account
  • May 31, 2016 | Author: Adam Salter
  • Law Firm: Jones Day - Sydney, New South Wales Office
  • Facts. In Pretorius v Gardens of Italy Pty Ltd [2016] FWC 2503 (22 April 2016), the applicant (Mr Pretorius) brought an unfair dismissal claim against his former employer ("Gardens") under section 394 of the FWA. The former employer objected to the application on a number of grounds, including that the former employer was a "small business employer" under the FWA and that, as a result, the applicant was not entitled to protection from unfair dismissal (as he had not completed the requisite minimum employment period under section 383 of the FWA).

    Legal Background. Under section 382 of the FWA, a person is protected from unfair dismissal only if he or she has completed the "minimum employment period" with their employer. Under section 383, the minimum employment period is six months for a non-small business employer and one year for a small business employer. The meaning of "small business employer" is one that employs fewer than 15 employees (per section 23 of the FWA). However, that section also states that for the purposes of calculating the number of employees, associated entities are treated as one entity. The definition of "associated entity" is to be found in section 50AAA of the Corporations Act 2001 ("Corps Act"). That section contains various indicia for determining whether one entity is an associated entity of another (including whether one entity controls the other, and whether the operations, resources or affairs of one are material to the other).

    Decision. Senior Deputy President O'Callaghan conceded that at the time of his termination Mr Pretorius was the only employee engaged by Gardens. However, he noted that if the employees of another entity located in South Africa ("Close Corporation") were also taken into account, then Gardens could not be regarded as a small business employer (because Close Corporation employed 21 people at the time of Mr Pretorius's dismissal). On the facts, it was found that Gardens sold some products made by Close Corporation and that both entities were controlled by the same individuals in a manner consistent with section 50AAA(7) of the Corps Act (as Mr and Mrs Schmidt, the sole shareholders of Gardens, were also sole directors of Close Corporation).

    On this basis, Senior Deputy President O'Callaghan was satisfied that the two entities were associated entities under the Corps Act and that, for this reason, Gardens did not meet the definition of a small business employer under the FWA. As a result, Mr Pretorius had completed the requisite six-month minimum employment period and was entitled to bring the unfair dismissal claim. Senior Deputy President O'Callaghan emphasised that, although Gardens was, by itself, a small business, he was obligated under the Corps Act to take into account the employees of the associated entity, in spite of the fact that it operated overseas and did not have any relation to the present matter.

    Lessons for Employers. This decision confirms that in determining whether an employer is a "small business employer" for the purpose of section 383, the FWC will take into account the employees of associated entities, pursuant to section 23 of the FWA. Employers should be aware of the definition of "small business employer" under the FWA and the possibility that an employer company and its related entities will, by virtue of section 50AAA of the Corps Act, be taken to be part of a single entity. This may produce a result whereby an employer with fewer than 15 employees in Australia is pushed outside the definition of a "small business employer" by the inclusion of employees of related entities in the overall calculation.