Federal Court rules on long service leave after business sale

OUTCOME: Allowed

FEDERAL COURT OF AUSTRALIA

Secretary, Department of Employment v [RESPONDENT] [2017] FCA 9 Appeal from: [RESPONDENT] v Secretary, Department of Employment [2016] AATA 526

File number: VID 999 of 2016

Judge: [NAME] of judgment: 19 January 2017

Catchwords: INDUSTRIAL LAW – where employee's employment terminated after sale of business and subsequently hired by [NAME] – whether entitlement to long service leave under statute – whether Tribunal erred in holding entitlement owed by both employers – identification of correct employer at issue – appeal upheld.

Legislation: Fair Entitlements Guarantee Act 2012 (Cth) ss 3, 6, 10, 15 Long Service Leave Act 1992 (Vic) ss 60, 66, 72, 74

Cases cited: [NAME] v [NAME] (2005) 14 VR 206

Date of hearing: 6 December 2016

Registry: Victoria

Division: General Division

National Practice Area: [NAME]: Catchwords

Number of paragraphs: 24

[NAME]: [APPELLANT]

[NAME]: [APPELLANT]

Counsel for the Respondent: [redacted]

ORDERS VID 999 of 2016

BETWEEN: SECRETARY, DEPARTMENT OF EMPLOYMENT Applicant

[RESPONDENT] Respondent

JUDGE: [NAME] OF ORDER: 19 JANUARY 2017

THE COURT ORDERS THAT:

1. Paragraph 2 of the Decision of the Administrative Appeals Tribunal made on 25 July 2015 be set aside.

2. The case be remitted to the Tribunal with a direction to affirm, in such terms as the Tribunal considers reflect the reasons of the Court published this day, the decision of the [NAME] under s 15(1) of the Fair Entitlements Guarantee Act 2012 (Cth) that the respondent was not eligible for an advance in respect of long service leave.

3. There be no order as to costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

[NAME]: 1 This is an appeal on a question of law, pursuant to s 44 of the Administrative Appeals Tribunal Act 1975 (Cth), from a decision of the Administrative Appeals Tribunal ("the Tribunal") made on 25 July 2016, to set aside an earlier decision of a [NAME], the Secretary, Department of Employment, made on 28 May 2015 and affirmed on 18 September 2015, that the respondent, [NAME] [RESPONDENT], was not eligible for an advance under s 15(1) of the Fair Entitlements Guarantee Act 2012 (Cth) ("the FEG Act") in respect of long service leave. In its decision of 25 July 2016, the Tribunal substituted a decision that the respondent was so eligible. The applicant now contends that, in setting aside the delegate's decision and in substituting a different decision, the Tribunal erred on a question of law. 2 According to findings of fact made by the Tribunal, the respondent was employed to work in a hotel in Bright, Victoria. Her work included bar work, waiting, cleaning rooms, gaming and TAB as well as booking accommodation. Although employed on a casual basis, she had been so employed, by a succession of different proprietors of the hotel, since 1972. In 1996, the business of the hotel was acquired by [COMPANY] ("[NAME]"), at which time the hotel was known as [COMPANY]. 3 On 20 August 2013, [COMPANY] ("[NAME]") was appointed as controller of the property of [NAME]. On 16 December 2013, [NAME] was placed into liquidation, but the [NAME] were, it seems, content for [RESPONDENT] to continue in control of [NAME]'s property. The respondent continued to be employed in the operation of the hotel as previously. 4 By an agreement dated 22 August 2014, [NAME] sold the assets of [NAME], defined in the sale agreement as "all furniture, plant equipment and chattels", but not including stock in trade, to [COMPANY] ("[NAME]"). The agreement was subject to and conditional upon [NAME] receiving the approval of the Victorian Commission for Gambling and Liquor Regulation ("the Commission") to the transfer of what was referred to as "General Licence No 31913939". 5 On 8 February 2015, the respondent's employment was "terminated" (the Tribunal's term) by [RESPONDENT]. On 9 February 2015, the respondent commenced employment by [RESPONDENT]. On the same day, [RESPONDENT] leased the hotel premises, and thereafter carried on business as the proprietor of the hotel. The respondent continued to work there as previously. 6 On 21 July 2015, Mr [RESPONDENT] asked the respondent to sign, and she did sign, a letter addressed to himself as Director of [NAME]. The letter read as follows: I confirm that I am not entitled to any Long Service Leave entitlements in relation to my employment at [COMPANY] and [COMPANY] is in no way indebted to me in respect of any long service leave entitlements whatsoever. Any purchaser of the [COMPANY] can rely on this statement made by me. As far as I am concerned my employment with [COMPANY] in the business of [COMPANY] commenced on 9 February 2015. Mr [RESPONDENT] told the respondent that he needed to have the signed letter back on the same day, which made it impossible for the respondent to obtain legal advice on the matter. 7 On 31 July 2015, [NAME] entered into a contract for the sale of the [COMPANY], effective on 26 October 2015. On the day before settlement, 25 October 2015, [NAME] wrote to the respondent in the following terms: We confirm that the business of [COMPANY] has been sold as of 26th October 2015 and that your employment with [COMPANY]. Trading as [COMPANY] will cease at the close of business on 25 October 2015. We also confirm that all entitlements owed from 9th February 2015 to 25th October 2015 have been paid in full. We also would like to take this opportunity to thank each and every one of you not only for your work but also for your friendship. 8 On 27 October 2015, the respondent received a telephone call from the [NAME] advising her that he did not require her services. 9 Throughout the period of her employment at the hotel, the respondent had not taken, and had been paid nothing in respect of, long service leave. Neither did she receive any payment in that regard from the interests who purchased the business in October 2015. 10 Traditionally, true casual employees accrued no entitlement to long service leave because of the short-term nature of their engagements: [NAME] v [NAME] (2005) 14 VR 206. Then, by the Long Service Leave (Amendment) Act 2005 (Vic), the Long Service Leave Act 1992 (Vic) ("the [NAME]") was amended to give casual employees the benefit of long service leave. 11 The proceeding in the Tribunal was not, however, concerned directly with the respondent's entitlements under the [NAME]. Rather, the legislation under which the Tribunal's decision was made was the FEG Act, the main objects which were, according to s 3 thereof – (a) to provide for the Commonwealth to pay advances on account of unpaid employment entitlements of [NAME] employees of employers in cases where: (i) the employers are insolvent or bankrupt; and (ii) the end of the employment of the [NAME] employees was connected with that insolvency or bankruptcy; and (iii) the [NAME] employees cannot get payment of the entitlements from other sources; and (b) to allow the Commonwealth to recover the advances through the winding up or bankruptcy of the employers and from other payments the [NAME] employees receive for the entitlements. 12 Section 10(1) of the FEG Act provided as follows: (1) A person is eligible for an advance if the Secretary is satisfied of all of the following: (a) the person's employment by a particular employer has ended; (b) after the commencement of this section, an insolvency event happened to the employer; (c) the end of the employment: (i) was due to the insolvency of the employer; or (ii) occurred less than 6 months before the appointment of an insolvency practitioner for the employer; or (iii) occurred on or after the appointment of an insolvency practitioner for the employer; (d) the person is (or would, apart from the discharge of the bankruptcy of the employer, be) owed one or more debts wholly or partly attributable to all or part of one or more employment entitlements; (e) the person has taken steps, so far as reasonable, to prove those debts in the winding up or bankruptcy of the employer; (f) if the person was owed any of those debts before the insolvency event happened, the person took reasonable steps before that event to be paid those debts; (g) when the employment ended, the person was an Australian citizen or, under the Migration Act 1958, the holder of a permanent visa or a special category visa; (h) an effective claim (see section 14) that the person is eligible for the advance has been made to the Secretary by or on behalf of the person. 13 On the basis that [NAME] was "the employer" referred to in this subsection, satisfaction by the respondent of all of its requirements, save that set out in para (d), was uncontroversial. The respondent's claim had been, however, rejected by the delegate on the ground that she did not have a relevant "employment entitlement" in relation to her untaken long service leave. That view was based on s 6(3) of the FEG Act, which provided as follows: (3) The person's long service leave entitlement is the amount the person is entitled to under the governing instrument from the employer: (a) for long service leave that the person had accrued at the end of the person's employment and had not taken by then; or (b) on account of long service leave that, had the person's employment continued until the person qualified for long service leave, would have been attributable to the period before the actual end of the person's employment. The "governing instrument" was the [NAME]. 14 The question which arose in the Tribunal, therefore, was whether the respondent had an entitlement to an amount in respect of untaken long service leave at the point of the termination of her employment by [RESPONDENT]. The respondent made no claim in respect of her employment by [RESPONDENT]. 15 Under s 56 of the [NAME], [NAME] was entitled to 13 weeks of long service leave on ordinary pay "on completing 15 years of continuous employment with [NAME]", and to four and one third weeks of long service leave on ordinary pay "on completing each period of 5 years of continuous employment with that employer after the first 15 years of continuous employment with that employer". Under s 57, if [NAME] stopped working for an employer after completing 15 years of continuous employment with that employer, the employee was entitled to an amount of long service leave "equal to 1/60th of the period of his or her continuous employment with that employer since he or she last became entitled to long service leave under section 56." 16 Section 60 of the [NAME] was critical in the Tribunal's consideration of the respondent's entitlement to long service leave. Relevantly, it provided as follows: (1) This section sets out several situations in which [NAME] is to be regarded, for the purposes of this Division, as having been employed by the [NAME], even though the employee may have worked over the relevant period of time for more than [NAME] in a strict legal sense. (2) …. (3) If the ownership of a business employing someone changes but the employment of the employee continues, the employee is to be regarded as having started employment with the [NAME] on the date on which the employee started his or her employment at that business. (4) Subsection (3) applies regardless of whether the change occurred before or after the commencement of this Division. (5) If [NAME] was dismissed from employment by the owner of a business, but the ownership of the business changes and the [NAME] employs the employee within 3 months after the dismissal, the employee is to be regarded as- (a) having finished employment with the [NAME] on the day before the ownership of the business changed; and (b) having started employment with the [NAME] on the day the ownership changed; and (c) having been employed by the [NAME] from the date on which the employee first started employment at that business. (6) If [NAME] performs duties in connection with any assets used in the carrying on of a business of his or her employer and those assets are transferred to another employer who continues the employment of the employee, the employee is to be regarded as having started employment with the [NAME] on the date on which the employee started his or her employment at that business. (7) Subsection (8) only applies if [NAME] performs duties in connection with any assets used in the carrying on of a business of an employer and- (a) the employee is dismissed by that employer; and (b) those assets are transferred to another employer; and (c) the other employer employs the employee within 3 months after the date of the dismissal to perform duties in relation to those assets, or other assets of a similar kind. (8) If this subsection applies, the employee is to be regarded as- (a) having finished employment with his or her [NAME] employer on the day before the assets were transferred; and (b) having started employment with the [NAME] on the day the assets were transferred; and (c) having been employed by the [NAME] from the date on which the employee first started employment at that business. 17 The Tribunal held that, in relation to the events of February 2015, the respondent's circumstances fell within those described in s 60(8) as qualified by s 60(7). She was, therefore, "regarded as having been employed by [NAME] … from the date on which she first started employment in the [COMPANY]." However, the Tribunal continued: The fact that [NAME] … might have liabilities arising under the [NAME] does not answer the question whether [the respondent] was entitled to an advance in respect of long service leave. That is determined by reference to s 10 of the FEG Act. All of the relevant events occurred after 5 December 2012 when s 10 commenced. [The respondent's] employment with [RESPONDENT] had ended. An insolvency event had happened to [NAME] after the commencement of s 10 on 5 December 2012. That event was the appointment of [NAME] on 16 December 2013. The end of [the respondent's] employment with … [RESPONDENT] occurred after the appointment of those [NAME]. She was owed a debt wholly attributable to an employment entitlement. Going to paragraph (a) of the definition of a "long service leave entitlement" in s 6(3), her entitlement was the amount that she was entitled to under the [NAME] for long service leave that she had accrued at the end of her employment and had not taken. The reference to her employment in that definition is a reference to [the respondent's] employment by the employer to whom the insolvency event has happened. Under the [NAME], long service leave is accrued first by completing 15 years continuous employment with the [NAME] and then by completing subsequent five year periods of continuous employment with that [NAME]. In essence, the provisions of s 60 of the [NAME] ensure that mere changes in ownership do not affect [NAME]'s ability to accrue years of service and so entitlements under the FEG Act. At the end of her employment with … [RESPONDENT], [the respondent] had accrued long service leave and had not taken it. It may be that she had accrued part of a further period that would qualify her for further long service leave. In either and both cases, [the respondent] had an entitlement to that leave at the end of her employment with … [NAME]. 18 In the present proceeding, it was submitted on behalf of the applicant that this reasoning involved an error of law. When the conditions in subs (7) and (8) of the LSL were satisfied, it was submitted, the liability for long service leave, and for any permissible payment in lieu thereof, was transferred to the [NAME]. The Tribunal appeared to accept as much when it held that [NAME] would have become liable under s 60(8). But it went further and held, in effect, that [NAME] corresponding liability was not at the same time extinguished, with the result that the respondent would, it was submitted, have had a valid claim against both companies, which could not have been the intention of the [NAME]. 19 The applicant's submission should be accepted. The Tribunal did not refer to subs (1) of s 60. Once it was held that subs (8) applied in the circumstances, the result was that the respondent was to be regarded as having been employed by the [NAME]. That is to say, for long service leave purposes, the employment of the respondent was deemed not to have been terminated when it was in fact terminated by [NAME] on 8 February 2015. The effect of subs (8) was to make it clear that, from the date of the transfer of the assets, it was the "[NAME]" who was deemed to have been the single employer "from the date on which the employee first started employment at that business". 20 One then turns to s 66 of the [NAME], subss (1)-(4) of which provided: (1) An employer and [NAME] who is entitled to long service leave under this Act may agree when the employee is to take the leave. (2) In the absence of an agreement under subsection (1), the employer may direct the employee to take long service leave at a particular time by giving the employee at least 3 months' written notice. (3) Subject to subsection (4), [NAME] who receives a notice from an employer under subsection (2) must take the leave as directed by the employer. (4) The employee may apply to the Industrial Division of the Magistrates' Court for an order concerning the taking of long service leave- (a) if the employee and the employer cannot agree under subsection (1); or (b) if the employee receives a notice from the employer under subsection (2). That is to say, while [NAME] might have had an entitlement to long service leave, the timing of the exercise of that entitlement was, in the absence of agreement and subject to court proceedings of the kind contemplated by subs (4), a matter for the employer. 21 By s 74 of the [NAME], an employer was not to give, and [NAME] was not to accept, a payment in lieu of long service leave, except as permitted by the legislation. A form of payment in lieu was permitted – indeed, required – by s 72, which provided as follows: (1) If the employment of [NAME] ends before he or she has taken all the long service leave to which he or she is entitled, the employee is to be regarded as having started to take his or her leave on the day the employment ended. (2) On that day the employee's employer must pay the employee the full amount of the employee's long service leave entitlement as at that day. Penalty: 20 penalty units. (3) [NAME]'s long service leave entitlement under this section includes any entitlement that accrued as a result of the ending of the employee's employment. 22 Had the employment of the respondent by [RESPONDENT] ended conventionally (ie not involving a change in ownership of the business or a transfer of assets), she would then have been entitled to the payment for which s 72(2) provided. There would then have been a debt within the meaning of s 10(1)(d) of the FEG Act. But the effect of subs (1), (7) and (8) of s 60 of the [NAME] was that, for long service leave purposes, the respondent's employment was deemed not to have ended in February 2015. Thereafter, she remained entitled to the long service leave that she had not taken while employed by [NAME]. The circumstances under which [NAME] might have become indebted to her for a sum referable to her untaken leave had not arisen. 23 It follows that the appeal must be allowed, the long service leave aspect of the Tribunal's decision of 25 July set aside and an order made directing the Tribunal to affirm that aspect of the decision of the delegate. 24 In the event of success in the proceeding, the applicant did not seek costs. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the [NAME] [NAME].

Associate: Dated: 19 January 2017