Grouped companies can result in redundancy entitlements

Analysis

Grouped companies can result in redundancy entitlements

Smaller companies can be required to pay redundancy entitlements if they are part of a bigger group of companies — despite the provisions exempting employers with fewer than 15 employees from redundancy obligations.

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Smaller companies can be required to pay redundancy entitlements if they are part of a bigger group of companies — despite the provisions exempting employers with fewer than 15 employees from redundancy obligations.

Under ss121 and 123 of the Fair Work Act, the redundancy pay scale in the National Employment Standards (NES) does not apply to an employee's termination of employment if, immediately before the time of the termination due to redundancy, or at the time when the person was given notice of termination to a number of prescribed situation, including that the employer is a small business employer (employs fewer than 15 employees)

However, this exemption is qualified by the 'associated entity' provision — see below.

Typical case study

An example of the 'associated entity' issue is shown in the following question recently received by our Ask an Expert service:
'We are a company that employs eight employees, however, there are a number of other companies that operate within the group. Due to a reorganisation, our company is to make one position redundant.

The employee is a professional employee and his duties are not covered by a modern award or an enterprise agreement.
 
In terms of determining whether there are sufficient employees to require the company to make a redundancy payment to the employee, does our company use the number of employees employed by our company (who is his employer) or the number of employees employed across the group of companies?'
'Associated entity' provisions

The crucial issue in this instance is whether the other companies in the group are determined to be associated entities for the purposes of the Fair Work Act (FWAct).

The FWAct (s.12) defines an 'associated entity' to have the meaning given in the Corporations Act 2001 [Cth] (s.50AAA). FWA has determined that the question of associated entities is contemplated by the definition of 'control' in the Corporation Act (s.50AA).

Control includes direction or influence over the operations of the associated entity or entities. The section sets out in some detail a range of indicia indicating an 'associated entity'.

Meaning in Corporations Act

The meaning of 'associated entities' in the Corporations Act is satisfied:
  • if the associate and the principal are related bodies corporate
  • if the principal controls the associate
  • if the principal has a qualifying investment in the associate, and the principal has significant influence over the associate, and the interest is material to the principal
  • if the associate controls the principal, and the operations, resources or affairs of the principal are material to the associate
  • if the associate has a qualifying investment in the principal, and the associate has significant influence over the principal, and the interest is material to the associate
  • if an entity (the third entity) controls both the principal and the associate, and the operations, resources or affairs of the principal and the associate are both material to the third party.
Note that one entity (the first entity) has a qualifying investment in another entity (the second entity) if the first entity has an asset that is an investment in the second entity, and has an asset that is the beneficial interest in the second entity and has control over that asset.

Specific advice

Because of the sometimes complex nature of corporate structures, the answer to whether other companies within the group are associated entities may require specific advice from a chartered accountant or corporate legal practitioner.
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