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Employers Pay up on Workers Entitlements |
AOS Group Australia Pty Limited (in liquidation) - v - Arrogante and Ors [2004] NSW IRComm 80 |
What Happened |
This is an important case for New South Wales employers because it is a decision made by the full bench of the New South Wales Industrial Relations Commission. It relates to the responsibility of employers to provide their employees with their entitlements. |
In this case AOS Group ("AOS") went into liquidation. The company that acquired AOS was aware and assumed the liability for the employee entitlements. These liabilities were built into the purchase price. The group was subsequently split up into 2 companies. The first company, "New AOS", was to acquire the assets of the business and to manage the financial side of the company. The second company, "AOS Staff" was incorporated to employ and manage the staff. |
AOS Staff employed the employees based on new employment contracts. At this time AOS New and AOS Staff entered into an agreement where AOS Staff provided management consultancy services to AOS New for a fixed fee. This fee covered all the employees' wages, expenses and other entitlements. AOS Staff had no other assets except for the employees. |
Later, both AOS New and AOS Staff went into liquidation. The employees were not paid their entitlements, as AOS Staff had no assets that the employees would be able to claim their entitlements against. The question before the Court was whether the management agreement between AOS New and AOS Staff was fair or whether it fell under Section 105 of the Industrial Relations Act relating to unfair contracts for employment. |
What was Decided |
Marks J heard the case and found the two new companies, New AOS and Staff AOS, would take on all outstanding employee entitlements. He held it was not enough that the companies were in liquidation to absolve them from their obligation to pay the employee's entitlements. |
Marks J found this especially because the sale of the original company took into account the outstanding employee entitlements in the purchase price. Also, the employees were told that they would be paid their outstanding entitlements if they began new employment contracts with AOS Staff. Marks J found that employees who did not transfer over to AOS Staff and employees who left before the original company went into liquidation were paid their full entitlements. He also found that the two company structure was artificial because AOS Staff purposely had no other assets against which the employees were able to claim their entitlements. Consequently, it was found that the purpose of the structure was to prevent employees from receiving their entitlements. |
This decision was subsequently appealed. |
Under Section 105 in the Industrial Relations Act 1996 an unfair contract is a contract that has one or more of the following characteristics:
- It is harsh.
- It is against the public interest.
- It provides less pay and entitlements than would otherwise payable if it weren't for that particular contract.
- It is a contract that is seen to be trying to avoid an industrial relations division.
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| The Appeal |
In dismissing the appeal, the full bench of the NSW Industrial Relations Commission found that this was a case that involved a scheme whereby two companies were created in order to remove the employees' access to the business assets if the business was not successful. This was found to be unfair and that there should have been assets through each employee where they were able to get their entitlements irrespective of the success of the business. |
The full bench decided that they would interpret the Section for unfair contracts in a way that would give it full and fair meaning in the English language and an interpretation that would lead to a fair and just outcome in light of the circumstances. As a result, any questions of jurisdiction and other objections were outweighed by the circumstances in this case. |
It was held Section 105 was designed to protect employees from the situations exactly like this. Thus the full bench upheld Marks' J decision to exercise the power given under Section 106 under the Industrial Relations Act 1996 to vary the aspects of the employment contracts that were unfair. The full bench deemed it was their duty to utilise their powers in this area in order to ensure that employees were protected. They found that to come to any other arrangement would lead to an artificial result and would open the way for corporate structures specifically designed to deny employees of their rightful entitlements. |
The aftermath of the Case |
This case reinforces the importance of employees' rights. Employers must be careful to ensure they provide all their employees with their legal employee entitlements. The courts will see through schemes such as the one described above that are designed to artificially remove their employees right to their entitlements. The expense and time spent on litigation outweighs the savings that would be made through denying the employees their entitlements. |
The appeal brought up an important jurisdictional question even though in this case it was dismissed. Where an employee is covered by federal legislation, that is working for bodies that are constituted under Commonwealth legislation the NSW Industrial Relations Commission is not able to regulate contracts because powers given through state legislation are not able to override Commonwealth legislation. Section 106 is not replicated in Commonwealth legislation or other state legislation and is limited in its use to contracts for work in NSW. |
Section 106 may however possibly be relied on where the employment relationship is regulated by a Federal Award but not by Commonwealth legislation. The Federal Award and the State legislation may apply concurrently. This is because Section 106 deals with contractual arrangements whereas awards deal with conditions of employment and minimum entitlements and thus not with contracts as such. |
This decision and in particular this section has important implications for employers in NSW. Employers should be aware that:
- They cannot enter into any type of corporate structure that results in the elimination or reduction of employee entitlements.
- They are not necessarily protected from Section 106 claims for their Federal Awards employees.
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Peter McNamara |
peter.mcnamara@cml.com.au
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