Was founder of company an employee?

Cases

Was founder of company an employee?

A director of a mining start-up has lost her action for unfair dismissal against the company she founded as she was not an employee.

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A director of a mining start-up has lost her action for unfair dismissal against the company she founded as she was not an employee. 

Background 


Mrs K founded a private company in 2015 with her husband Dr Alan Walker. The company Trisap Group (the respondent) mines and distributes an industrial mineral that is used in the production of fertiliser. Mrs K is a director of Trisap and until January 2018 she was also the company secretary. 

In late 2017, the board of Trisap considered listing the company on the Australian Securities Exchange. The company conducted an audit and due diligence and found the company’s accounts were not in good order due to a lack of corporate governance. The respondent considered this was due to Mrs K not being up to standard in her role as company secretary. 

The board decided she would need to be replaced so that the company could list on the Australian Securities Exchange. 

There was some discussion between Mrs K and the board about resigning, however she did not resign. 

On 3 January 2018 a board resolution was passed to remove Mrs K immediately from her position as company secretary. The resolution also required her to resign from her director position with Trisap. 

Mrs K sought an unfair dismissal remedy. 

The law 


A person is protected from unfair dismissal if that person is considered an employee of the dismissing organisation. If that person is not an employee than he or she cannot seek protection under the Fair Work Act 2009. 

Legal arguments 


Mrs K argued that she was an employee of Trisap and was therefore protected against unfair dismissal. 

The respondent argued that Mrs K was a shareholder of Trisap, a start-up company, and that no employment contract existed. It contended that the reward for Mrs K’s labour were shares in the company. 

Legal question 


The commission had to determine whether Mrs K, as director and secretary of Trisap, was also an employee for the purposes of the Fair Work Act 2009.

Decision 


The commission noted that Mrs K was not paid a salary and, other than a one-off reimbursement of $450, she was not paid directly at all. It also noted there were other payments made to Mrs K's other company, Carillon, however this did not support a finding that an employment relationship existed. 

Deputy President Colman said: “In theory, there is nothing to preclude a person working as an employee for a company, and separately providing services to the company through their own corporate identity. But this is not what occurred here.” 

The commission also pointed out that there were instances where a company officer could be an employee but, in this case, Mrs K took on the role of company secretary without entering into an employment contract. 

“The compensation for her [the applicant’s] effort is equity, and a share in the success of the business” the deputy president said.
 
He ruled Mrs K was not an employee for the purpose of the Act. 

The bottom line: A company officer can be an employee of a company if the elements of an employment relationship are established. Although generally that is not the case, a company and its board should take steps to clarify and minimise any misapprehension as to whether an employment contract exists between itself and a company officer. 

Read the judgment


Mrs Young Sun Kim-Walker v Trisap Group Pty Ltd [2018] FWC 2300 (23 April 2018)
 
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