Holmes v Balance Water Inc and Ors (No.2)
[2015] FCCA 1093
•28 August 2015
FEDERAL CIRCUIT COURT OF AUSTRALIA
| HOLMES v BALANCE WATER INC & ORS (No.2) | [2015] FCCA 1093 |
| Catchwords: INDUSTRIAL LAW – Termination of employment – non payment of benefits – whether the applicant was an employee of one or more of the respondents, whether there was a transfer of employment between the respondents and if so, whether the employer was a National System Employer considered. |
| Legislation: Annual Holidays Act 1944 (NSW) |
| ACE Insurance Ltd v Trifunovski (2013) 295 ALR 407 Johnson v Monti-Haitsma Enterprises Pty Ltd [2014] FCCA 259 Mersey Docks & Harbour Board v Coggins & Griffith (Liverpool) Ltd [1947] AC 1 |
| Applicant: | KIERAN HOLMES |
| First Respondent: | BALANCE WATER INC |
| Second Respondent: | PETER JOHN MAHER |
| Third Respondent: | BALANCE WATER COMPANY PTY LTD |
| Fourth Respondent: | BALANCE WATER COMPANY LLC |
| File Number: | SYG 1363 of 2013 |
| Judgment of: | Judge Driver |
| Hearing dates: | 15-19 December 2014 |
| Date of Last Submission: | 16 March 2015 |
| Delivered at: | Sydney |
| Delivered on: | 28 August 2015 |
REPRESENTATION
| Counsel for the Applicant: | Mr I Latham |
| Solicitors for the Applicant: | Toomey Pegg |
| Counsel for the Respondents: | Mr G Hatcher SC, with Mr M Easton |
| Solicitors for the Respondents: | Terrett Lawyers |
ORDERS
Within 28 days, the parties are to submit agreed short minutes of order consistent with these reasons or, in the absence of agreement, they are to submit alternative proposed short minutes of order with any necessary explanation.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 1363 of 2013
| KIERAN HOLMES |
Applicant
And
| BALANCE WATER INC |
First Respondent
PETER JOHN MAHER
Second Respondent
BALANCE WATER COMPANY PTY LTD
Third Respondent
BALANCE WATER COMPANY LLC
Fourth Respondent
REASONS FOR JUDGMENT
Introduction and background
The applicant, Ms Holmes, claims to have been an employee of at least one of the corporate respondents. By an amended application and statement of claim filed on 20 October 2014, she claims relief under the Fair Work Act 2009 (Cth) (Fair Work Act) and the Workplace Relations Act 1996 (Cth) (Workplace Relations Act) in respect of alleged failures to provide notice of termination of employment, to pay annual leave on termination of employment, to pay long service leave on termination of employment, to pay minimum rates of pay under the Fair Work Act, to pay appropriate rates of pay under the Workplace Relations Act, to pay remuneration in a timely manner under both Acts, breach of contract and failure to provide notice of termination of employment.
The first, third and fourth respondents are related corporations. The first respondent (Balance Water Inc) is a US corporation, as is the fourth respondent (Balance Water LLC). The third respondent (Balance Water Company) is an Australian company. The second respondent, Mr Maher, is (and was at all material times) a manager and director of the corporate respondents. The respondents, in their amended defence, filed on 11 December 2014, deny that there was an employment relationship with Ms Holmes prior to 2012 (although they concede that she provided services and that there was a contractual relationship), or, to the extent that there was an employment relationship, they deny that the employer was liable under Australian law, or, if there was an employment relationship and the Court has jurisdiction, they assert that Ms Holmes has not suffered any loss.
In an interlocutory judgment I delivered on 4 December 2013[1], I dealt with some of the issues between the parties and some of the background facts. Briefly, it is common ground between the parties that Ms Holmes approached Mr Maher in July 2006 seeking employment. At that time, the Balance Water business was a “start up” business and Mr Maher said that he could not offer employment. It was agreed, however, that Ms Holmes would initially work on a voluntary unpaid basis, which commenced on or about 12 October 2006. Ms Holmes claims that, in a conversation with Mr Maher on 7 December 2006, he made an oral offer of employment which was later recorded in an email dated 12 February 2007. The terms of the contract are said to be a salary of $100,000 per year, the provision of “phantom shares” worth $80,000 and the opportunity for a performance bonus. The email included the statement that the business would provide backpay to November 2006.
[1] Holmes v Balance Water Inc & Ors [2013] FCCA 1787
Ms Holmes continued working in Sydney on an unpaid basis and there were further discussions between the parties which culminated in a letter from Mr Martin Chalk (another director of the respondents) on 7 August 2007 referring to the commencement of the payment of income. Mr Maher wrote to Ms Holmes on 23 August 2007 to the effect that he had received advice that Ms Holmes needed to be paid salary and 9 per cent superannuation and that workers compensation insurance needed to be provided. That advice was confirmed on 28 August 2007, which also referred to the need to pay annual leave. Ms Holmes first received payment of income on 14 November 2007 but the payments were not continued and on 22 April 2008 Ms Holmes raised concerns as to non payment.
Later that year, Ms Holmes informed Mr Maher of her intention to relocate to the USA, which she did in November 2008. She also spent time in France. She claims to have continued to work for the respondents. It appears to have been accepted, on behalf of the respondents, that there was a need to regularise Ms Holmes’ situation in some way. On 13 February 2012, Mr Maher raised the suggestion of Ms Holmes receiving stock options in the business as well as additional stock options as compensation for the delay in providing her with compensation for her services. An agreement was entered into, although there is now a dispute as to what the stock options are really worth. Balance Water LLC concedes that it employed Ms Holmes between 1 July 2012 and 7 December 2012. She was paid in US currency in the USA. Ms Holmes was dismissed from her employment on 4 December 2012.
Ms Holmes claims that she was employed by Balance Water Company for the bulk of the relevant period and that she was entitled to receive at least the national minimum wage, monthly payments, the payment of annual leave, the payment of long service leave and notice of termination.
The respondents deny that Ms Holmes was ever employed by Balance Water Company or that there was any transfer of her employment from that company to the other corporate respondents. They deny that Ms Holmes was ever employed by a National System Employer for the purposes of the Fair Work Act and assert that Ms Holmes was fully compensated for her services prior to her employment with Balance Water LLC in the USA by the stock options agreement. The respondents claim that even if there is a liability under Australian law, the Court should refuse to exercise its discretion in favour of Ms Holmes and should not make any compensation order.
On 15 and 16 December 2014 I heard argument on an Application in a Case filed by the respondents seeking summary dismissal of the proceedings. I ordered that the claim for damages under the general law based on an asserted contract for services or an asserted common law employment contract be dismissed summarily, pursuant to s.17A(2) of the Federal Circuit Court of Australia Act 1999 (Cth). I otherwise dismissed the Application in a Case. The remaining claim to be dealt with arises under the Fair Work Act and the Workplace Relations Act.
The evidence and submissions
Ms Holmes relies upon her affidavits made on 7 November 2014 and 9 September 2013 and the annexures and exhibits to them. Ms Holmes also relies upon an affidavit in reply made on 17 December 2014. Ms Holmes further relies in whole or part on five affidavits made by Paul Andrew Chapman (her solicitor) made on 27 June 2014, 29 July 2014, 29 September 2014, 7 November 2014 and 12 December 2014 and annexures thereto. Ms Holmes was cross-examined on her affidavits. Mr Chapman was not required for cross-examination.
The respondents rely upon the following affidavits:
a)the affidavits of Peter John Maher made on 2 October 2013, 7 November 2014 and 10 December 2014;
b)the affidavit of Martin John Chalk made on 11 December 2014;
c)the affidavit of Joelene Majorie Elaine Terrett made on 11 December 2014; and
d)the affidavit of the respondents’ solicitor, Mr Peter Anthony Terrett made on 7 November 2014.
A number of documents were annexed to or exhibited to the respondents’ affidavits. The deponents (other than Mr Terrett) were cross-examined on their affidavits.
I also received the following additional exhibits:
·A1 – facsimile from P Maher to I Napthall attaching NSW Workers Compensation Insurance proposal, 10.09.2007;
·A2 – facsimile from P Maher to WorkCover – appeals branch, 05.01.2009;
·A3 – letter from L Ricketts to P Maher, 03.10.2007.
The parties made both oral and written submissions.
Consideration
The applicant’s case
Ms Holmes alleges that the respondents, or one or more of them, contravened a number of industrial laws and instruments of the Commonwealth and of New South Wales.
Broadly speaking, those contraventions involve:
a)the payment of the national minimum wage;
b)payment at the required frequency (that is, at least monthly or fortnightly);
c)the payment of annual leave;
d)the payment of long service leave; and
e)notice of termination.
The issues
The issues raised by Ms Holmes are:
a)was she an employee of any of the corporate respondents?
b)if so, which one?
c)was employment transferred from one employer to another?
d)if any of the corporate respondents employed Ms Holmes, were they a National System Employer at the material times?
e)what are the amounts payable by that employer?
f)has Ms Holmes suffered compensable loss?
g)was Mr Maher an accessory for the purposes of the Acts?
h)if so, what orders can be made against Mr Maher?
i)what penalties should be ordered, if any?
j)who should the penalties be paid to?
k)what orders should be made as to costs?
The parties agree that any issues of penalty and costs should be determined after liability has been dealt with.
Ms Holmes asserts that the Court should find statutory liability to pay salary and other workplace entitlements based upon the following factual propositions:
a)Ms Holmes sought employment opportunities with Balance Water[2];
b)Ms Holmes met with Mr Maher and Mr Chalk on 26 July 2006 where Mr Maher spoke to her of an employment opportunity available[3];
c)further discussions as to employment on a trial basis took place in October 2006[4];
d)Ms Holmes commenced working on a full-time, trial basis on 12 October 2006 for one month. Ms Holmes continued working for Balance Water Company on a full-time basis after the conclusion of the one month trial period on 12 November 2006;
e)in a conversation on 7 December 2006, Mr Maher made an oral offer of employment to Ms Holmes on behalf of Balance Water Company[5]; and
f)Ms Holmes accepted the offer of employment on or about 8 December 2007[6].
[2] Exhibit KH-10, tab 1
[3] Affidavit of Ms Holmes dated 7 November 2014 (KH 7/11/14), at [10]
[4] KH 7/11/14, at [12] and [14]
[5] KH 7/11/14, at [17]
[6] KH 7/11/14, at [18]
The terms of the agreement concerning remuneration were recorded in an email from Mr Maher to Ms Holmes dated 12 February 2007[7]. The terms of the contract expressly include:
a)payment of salary of $100,000.00 a year;
b)the provision of $80,000.00 of phantom shares; and
c)the opportunity for performance bonus.
[7] Exhibit KH-10, tab 7
Ms Holmes performed work in Balance Water Company’s Sydney office from November 2006 to September 2007[8].
[8] Amended Defence to Amended Statement of Claim dated 11 December 2014 (Amended Defence), at [11]
On 7 August 2007, Mr Chalk wrote to Ms Holmes stating that “we can now start paying you some salary”[9].
[9] Exhibit KH-10, tab 12
On 23 August 2007, Mr Maher wrote to Ms Holmes stating that[10]:
[10] Exhibit KH-10, tab 13
I spoke with Simon Patterson [sic] re the options of paying you as an employee or having you sub contract to us.
We really need to pay you as employee.
...
We need to pay you 9% superannuation
We need to have workers compensation for you...
On 28 August 2007, Simon Paterson from WHK Horwath confirmed the need to pay annual leave, implement conditions, superannuation, workers compensation and tax[11].
[11] Exhibit KH-10, tab 14
On 31 August 2007, Gow Gates Insurance Brokers confirmed the inception of a workers compensation policy number WGB07886837122 with CGU[12].
[12] Exhibit KH-10, tab 15
On 14 November 2007, Balance Water Company paid the following sums of money to Ms Holmes[13]:
a)monthly pay of $8,333.33 ($100,000 per annum);
b)plus 9% superannuation $750.00; and
c)total payment of $9,083.33.
[13] Exhibit KH-10, tab 16
Further payments were made in the amounts and on the dates specified in the particulars to [26] of the Amended Statement of Claim.
On 2 April 2008, Mr Maher confirmed payments to “KH @ 9k/mth”[14].
[14] Exhibit KH-10, tab 19
On 7 April 2008, Ms Holmes raised concerns as to non-payment of her salary.
On 20 May 2008, Mr Maher conceded to Mr Chalk that[15]:
[15] Exhibit KH-10, tab 22
We essentially owe Kieran:
14 months of pay ($116k) - it is $100k pa…
Plus her phantom shares (which is $80kpa)…
In May 2008, Ms Holmes mentioned to Mr Maher that she was thinking of travelling to the USA[16].
[16] KH 7/11/14, at [45] and [46]
On 21 July 2008, Ms Holmes wrote to Mr Maher referring to her move to the USA stating[17]:
[17] Exhibit KH-10, tab 26
I will still be an employee of the Pty Ltd while in the US.
On 1 October 2008, Mr Maher forwarded to Ms Holmes his email to Mr Chalk dated 30 September 2008. Mr Maher's email dated 30 September 2008 states:
[as at May 2009] she will have accumulated $223k in backpay ($100k pa plus super).
The spreadsheet attached to that email sets out a salary of $8,333.33 per month and superannuation of $750.00 per month[18].
[18] Exhibit KH-10, tab 27
In November 2008, Ms Holmes temporarily relocated to the USA and then France. She continued to work by email and telephone.
In November 2009, Ms Holmes returned to Sydney and after a short holiday continued to work there[19].
[19] KH 7/11/14, at [55]
On 10 September 2009, Mr Maher sent an email to Mr Chalk and Ms Holmes and refers to “FTEs are 3 Directors (ie us)”[20].
[20] Exhibit KH-10, tab 28 (page 2)
In September 2011, Ms Holmes is referred to in a non-confidential executive summary, prepared for potential investors, as part of a trio of seasoned management[21].
[21] Exhibit KH-10, tab 30 (page 5)
On 13 February 2012, Mr Maher suggested that Ms Holmes be provided an agreement as to stock options. That proposal was to “Issue Stock ‘options’ to Kieran (instead of stock)” and “Issue 20% additional stock options as compensation for our delay and the risk she has taken”[22].
[22] Exhibit KH-10, tab 32 (page 4)
Although the Court has found that the stock options had some value in March 2012 sufficient to constitute consideration for the release of Ms Holmes’ contractual remuneration entitlements, the stock options had and still have no measurable value.
Ms Holmes entered into an Invention and Non-Disclosure Agreement (NDA) with Balance Water Inc, which states that[23]:
In consideration of the employment or the continued employment of the Employee by the Company, the Company and the Employee agree as follows:
[23] Exhibit KH-10, tab 34
Ms Holmes signed the NDA and returned it to Mr Maher by email on 9 May 2012[24]. At that time, Ms Holmes was present and working in Australia and continued working in Australia after that date. The NDA represented Ms Holmes to be an employee of Balance Water Inc. In returning the signed NDA to Mr Maher, Ms Holmes communicated her consent to the transfer of her employment to Balance Water Inc.
[24] Exhibit KH-10, tab 35
On 26 June 2012, Balance Water Inc obtained insurance for a workforce of seven people in New York[25].
[25] Exhibit KH-10, tab 38
On 4 December 2012, Ms Holmes was given notice of the termination of her employment by Balance Water Inc with effect from 7 December 2012[26].
[26] Exhibit KH-10, tab 40
Should Ms Holmes be found to be an employee, she claims she is entitled to:
a)payment of the national minimum wage;
b)payment at least fortnightly prior to 1 July 2010 and payment at least monthly from 1 July 2010;
c)payment of annual leave;
d)payment of long service leave; and
e)payment in lieu of termination of notice.
Those amounts are said to be readily ascertainable.
The respondents’ case
The respondents resist Ms Holmes’ claim on the following bases.
Could not afford to employ
Ms Holmes approached Mr Maher seeking employment in July 2006. Mr Maher talked with Ms Holmes but declined to employ her. The Balance Water business was a “start up” business at that time with few resources and no employees.
At the first meeting Mr Maher told Ms Holmes that the business could not afford to employ her and that therefore it would not employ her. The business could not afford to employ Ms Holmes until July 2012.
Balance Water LLC employed Ms Holmes with effect from 1 July 2012 after a substantial cash investment of $4 million was received in June 2012. None of the respondents employed Ms Holmes before then.
Voluntary unpaid period
Ms Holmes worked on a voluntary, unpaid basis from 12 October 2006 until at least 12 February 2007 and possibly later.
During that voluntary period there was no concluded agreement of any kind and no intention to create any form of legal relationship. Therefore there was no “Employment Contract” and no contravention of the Workplace Relations Act during the voluntary period.
Backpay to include November 2006
The February 2007 email included a statement that the business “Will back-pay to include Nov 06”. That statement did not retrospectively bring any contractual relationship of any kind into existence in November 2006. It simply specified the time from which “remuneration” might ultimately be calculated. It did not give rise to the alleged contraventions of the Workplace Relations Act or the Fair Work Act in November 2006.
Discussion of “arrangement” and February 2007 email
Between 7 December 2006 and 12 February 2007, Ms Holmes and Mr Maher discussed an “arrangement” whereby Ms Holmes would provide her services to the business.
Mr Maher sent the 12 February 2007 email to Ms Holmes that day as a summary of the “arrangement”.
Ms Holmes continued to work for the business after receiving the 12 February 2007 email.
The “arrangement” was not an employment relationship and Ms Holmes did not become an employee of any of the respondents until 1 July 2012.
No loss suffered by Ms Holmes
Ms Holmes received Stock Options in Balance Water Inc which she agreed were worth USD $536,464 (AUD $506,160) on 20 March 2012.
The respondents paid her an additional AUD $104,233.43 in cash.
On its own, the cash she received is worth more than the realistic high water mark of her asserted compensation claims.
When the Stock Options and the cash she received are combined they far exceed her claims. She has not suffered any loss and there is no factual basis for a compensation order.
“Available cash” condition precedent
The “available cash” term of the “arrangement” was a condition precedent which had the effect that there was no legal obligation for Balance Water Company to pay a monthly “salary component” to Ms Holmes or to employ Ms Holmes until there was “available cash through capital raising”.
The “threshold” for the “available cash” was understood by Ms Holmes to be somewhere between “a million or more” and “$3 million” and was not satisfied until the business “got [a] significant investment in June 2012”.
If the February 2007 email could be said to be an offer of employment such employment would only realistically commence when the “available cash” condition precedent had been satisfied in or about June 2012.
There are relevant communications between the parties and conduct of the parties which are only consistent with an express intention of the parties in February 2007 that Ms Holmes would provide her services to Balance Water Company as an independent contractor in the period from February 2007 to the time when the “available cash” condition precedent was satisfied.
No express employment contract as pleaded
There was no express “employment contract” agreed between Ms Holmes and Mr Maher as at 7 December 2006 as alleged by Ms Holmes in the amended statement of claim.
The absence of the pleaded “employment contract” as at 7 December 2006 is the central issue in the proceeding.
Between July and December 2006, Mr Maher and Mr Chalk told Ms Holmes that they had a company policy of not engaging employees but only engaging independent contractors. Ms Holmes continued to provide her services with knowledge of that policy.
Mr Maher avoided making reference to the words “employ” or “employment” in discussions with Ms Holmes on 7 December 2007 and did not make an “offer” of employment on that date or at any other time before 2012.
The “arrangement” which the parties intended, insofar as it related to the period between February 2007 and the end of June 2012, was one of independent contract and not of employment.
The February 2007 email was not an offer of employment to commence in February 2007. It did not refer to either an “offer” or to “employment”. It summarised a “remuneration arrangement” and provided for a “salary component” to be paid monthly to Ms Holmes at a later date when there was “available cash through capital raising”.
Ability to create independent contract relationship
It was legally open to the parties to determine whether their relationship was one of employment or independent contract, provided it was not a sham and further provided that it did not deprive a vulnerable employee of employment entitlements.
It has not been suggested by anyone that the arrangement was a sham. Ms Holmes was not a “vulnerable employee”.
No implied employment contract
An employment relationship can, at law, be created by implication in the absence of an express contract of employment. However that is not what Ms Holmes alleges at [7] of the amended statement of claim. She alleges an express “employment contract”, not an employment relationship created by implication or otherwise in the absence of an express contract of employment.
The various “indicia” of employment alleged by Ms Holmes, when properly analysed in the context of all of the available evidence, do not support the existence of an employment relationship between Balance Water Company and Ms Holmes at any time.
Changed contract terms
Ms Holmes, Mr Maher and Mr Chalk eventually realised that there would be delay in satisfying the “available cash” condition precedent and they negotiated changes to the agreed “arrangement” a number of times, notably in September 2007, February 2008, August 2008, October 2008, October 2010, October 2011 and 3 March 2012.
Each time the “arrangement” was renegotiated, the “indicia” of the changed arrangement looked less and less like employment. The 3 March 2012 change to the “arrangement” resulted in the issue of Stock Options to Ms Holmes.
Parts of the Fair Work Act came into effect on 1 July 2009 and its national minimum wage civil penalties provisions came into effect on 1 July 2010. Ms Holmes’ pleadings and submissions make no reference to the changed contract terms operating at those times. Independent of anything else, Ms Holmes was not an employee of any respondent as at either 1 July 2009 or 1 July 2010 because of the changed contract terms. Ms Holmes erroneously asserts that there were contraventions of the Fair Work Act in 2010 by reference to alleged acts or omissions in 2006.
No contraventions
Ms Holmes was never employed by Balance Water Company. For that reason there could be no contraventions by Balance Water Company of the Workplace Relations Act, Fair Work Act, Annual Holidays Act 1944 (NSW) (Annual Holidays Act) or Long Service Leave Act 1955 (NSW) (Long Service Leave Act).
There were no contraventions of the Fair Work Act by either Balance Water Inc or Balance Water LLC because neither of the USA corporations was a “National System Employer”.
Employment by Balance Water LLC in 2012
The “available cash” condition precedent was satisfied for the first time in June 2012. Balance Water LLC employed Ms Holmes from 1 July 2012 and began to pay her a monthly cash salary, in US currency in the USA.
Ms Holmes was employed by Balance Water LLC between 1 July 2012 and 7 December 2012.
No transfer of employment
There was never a transfer of employment between Balance Water Company and any other corporate respondent.
Ms Holmes did not consent to any alleged transfer of employment.
US corporations are not National System Employers
Balance Water LLC was not a “National System Employer” and was not bound by the Fair Work Act, Annual Holidays Act or Long Service Leave Act. The employment of Ms Holmes by Balance Water LLC in 2012 was not “in and of Australia”[27].
[27] per the decision of Buchanan J in Fair Work Ombudsman v Valuair (No 2) Ltd [2014] FCA 759
Even if Balance Water Inc were to have employed Ms Holmes, which is disputed, Balance Water Inc was not a “National System Employer” and any such employment was not “in and of Australia”.
No accessorial liability for Mr Maher
It was necessary for Mr Maher to have had actual knowledge of the essential elements of any alleged contraventions before he could be found to have any accessorial liability.
Ms Holmes’ submissions misstate the essential elements of the alleged contraventions, of which Mr Maher is required to have had knowledge to establish accessorial liability.
Mr Maher did not know of, and was not wilfully blind to, the existence or requirements of the civil remedies provisions in the Workplace Relations Act and the Fair Work Act which are alleged to have been contravened by the respondents until Ms Holmes commenced the present proceeding. He accordingly has no accessorial liability.
Resolution
This is not a case that turns on disputed facts. The key witnesses, Ms Holmes and Mr Maher, were both credible and, in my assessment, generally gave truthful evidence. There is a factual issue concerning the hours worked by Ms Holmes at various times (to which I shall return later) but otherwise the critical facts bearing on this case are not seriously in dispute. What the outcome of this case turns on is the conclusions that should be drawn from the available facts. The parties have significantly different views as to what are the key issues that need to be resolved and which are the most important issues. I am, of course, not bound by the way in which the parties choose to frame the issues in their submissions. In my opinion, the critical issues are first, whether the relationship between Ms Holmes and any of the respondents took on the character of an employment relationship subject to Australian law. Secondly, if the answer to that question is “yes” then the second question is whether Ms Holmes is entitled to receive anything more than she has already been given by the respondents.
It is clear that between July and November 2006 Ms Holmes, Mr Maher and Mr Chalk discussed the possibility of Ms Holmes working for the Balance Water business. Ms Holmes was the instigator of those discussions and it is clear that she saw the opportunity of working in the business as a valuable one, complementing and building upon her prior experience in the USA. It is also plain that in those discussions Mr Maher and Mr Chalk made clear that the business could not afford to employ Ms Holmes. It was a start up business and they were unwilling to take on the burdens of an employer. A compromise was reached: that compromise was that Ms Holmes would work for a period as a volunteer and the parties would then discuss whether she would stay on, and if so, in what capacity.
A critical point was reached on or about 7 December 2006 when Ms Holmes asserts that Mr Maher made an express oral offer of employment. The respondents contend that that conversation is the central issue. It is certainly important. An agreement of some kind was reached orally in that conversation. The evidence is, however, unclear as to whether the parties were intending to enter into a legally binding relationship and, if so, the nature of it. The only thing which can safely be concluded from that conversation is that it was agreed that Ms Holmes could stay on (in other words, keep working) and the parties would explore how she would be remunerated for her work.
The respondents are correct that the oral agreement reached on 7 December 2006 was not an agreement to enter into a contract of employment. Apart from anything else, Mr Maher had not at that time changed his mind on the general issue of employees. His position remained that the business could not afford employees. It logically flows from that that he wanted to consider what sort of legal relationship Ms Holmes would have with the business and what it would cost the business. It was not then a pressing issue for Ms Holmes. She wanted to continue working in the business so long as she was ultimately remunerated adequately for her efforts.
Consistently with that assessment of the situation, I do not accept that the parties on 7 December 2006 entered into either an employment or an independent contractor relationship. The parties had not turned their mind to the precise legal nature of the relationship except that Mr Maher did not at that time want to take on the burdens of an employer.
The second critical point was reached on 12 February 2007 when the proposed basis for the remuneration of Ms Holmes was put in writing by email. The precise terms of that email are not material (because the basis of remuneration changed over time) but what is important is that Mr Maher proposed that Ms Holmes would be remunerated from November 2006. The email created in the mind of Ms Holmes the legitimate expectation that she could continue working in the business because her efforts would be remunerated, although the precise terms were still being worked out. That was sufficient, in my view, to establish a legally binding relationship of some kind. As near as can be determined with certainty that relationship was agreed to have commenced about a month after Ms Holmes started working as a volunteer, ie 13 November 2006.
The third and, to my mind, most critical point was reached in August 2007. First, Mr Chalk wrote to Ms Holmes on 7 August 2007 to tell her that the business could now start paying her some salary. This was, in my opinion, a statement that the policy which had previously prevented the business from taking on employees was being lifted, at least in the case of Ms Holmes. Secondly, and even more importantly, on 23 August 2007 Mr Maher wrote to Ms Holmes to tell her that he had received advice that the business needed to remunerate Ms Holmes as an employee, including paying the superannuation guarantee and taking out a workers compensation policy. On 28 August 2007 that advice was apparently confirmed, with the addition of an annual leave obligation. A workers compensation policy was effected on 31 August 2007.
In my opinion, these exchanges and the documents verifying them can only lead to one conclusion: that is, that Mr Maher, on advice, had concluded that the relationship between the business and Ms Holmes had to be an employment relationship. This conclusion is reinforced by Mr Chalk’s decision that the financial impediment for taking on Ms Holmes as an employee had been resolved. The significance of the workers compensation policy is that it establishes that the decisions made by Mr Maher and Mr Chalk were put into effect. It follows, and I find, that the relationship between the business and Ms Holmes was an employment relationship and that it was backdated to 13 November 2006. It does not matter, in my view, that the relationship was not created initially as an employment relationship. What happened was that Mr Maher and Mr Chalk had pondered over a considerable time as to what the relationship with Ms Holmes should be and concluded in August 2007 that the relationship must be an employment relationship. They had previously established the commencement of the relationship. The legal character of the relationship did not change over time. It was simply that the employer ultimately accepted its obligations as an employer.
I draw the inference, from the available material and the surrounding circumstances, that the employer was Balance Water Company. Balance Water Company was trading in Australia and was the legal emanation of the business in Australia. Ms Holmes was working in Australia for the business. Ms Holmes dealt with Mr Maher and Mr Chalk as representatives of the business in Australia and as directors of Balance Water Company. I find that Balance Water Company employed Ms Holmes with effect from 13 November 2006.
At [189] of their submissions and onwards, the respondents submit that Ms Holmes was subject to a fundamental change in her working relationship when she ceased working to have her child. This is said to be because she allegedly:
a)broke the continuity of the employment test implicit in s.4 of the Long Service Leave Act;
b)did not comply with the maternity leave provisions in the Industrial Relations Act 1988 (NSW) (Industrial Relations Act);
c)worked from home; and
d)agreed to have her back pay in the form of phantom shares and/or stock options;
In dealing with these in order, Ms Holmes submits the following, which I accept:
a)there is no implicit test in s.4 of the Long Service Leave Act;
b)Ms Holmes was not subject to the maternity leave provisions in the Industrial Relations Act because her employment was governed by Commonwealth legislation;
c)while it is true that Ms Holmes performed some of her work from home, Ms Holmes pleaded that she returned to work full time and worked from Balance Water’s office on Mondays and Tuesdays[28]. That allegation was not denied at [14] of the amended defence. In any event, even working from home on a full time basis is not a bar to a finding of employment. Mr Maher himself worked from home[29]; and
d)the mode of payment whether it be by cash or phantom share or stock options is not presently relevant. What is important is the nature of the relationship that gave rise to those payments.
[28] paragraph 14 ASOC
[29] see KH-10 Tab 8: “I am working from my home office if you need to call”
I find that there was no change to that relationship because of Ms Holmes’ pregnancy.
The next issue is whether the employment relationship changed in November 2008 when Ms Holmes went overseas. In my opinion, it did not. First, there is no real doubt that Ms Holmes remained an employee of Balance Water Company up until the time she went overseas. On 20 May 2008, Mr Maher and Mr Chalk had recognised that the business was accruing an ever increasing retrospective remuneration liability to Ms Holmes. They affirmed on 1 October 2008 that the liability had increased further. Ms Holmes had put the respondents on notice in July 2008 that she planned to spend time overseas and that she intended to still work for the business while overseas. There is no evidence that Ms Holmes’ employment was transferred to either of the other corporate respondents at that time. There is evidence from Ms Holmes, which I accept, that she undertook work on behalf of the business while overseas by working electronically. It is apparent that Ms Holmes was not working all of the time while overseas and she herself concedes taking a holiday after returning to Sydney in November 2009. Of course, as an employee, she would have accrued leave entitlements. Ms Holmes gives evidence, which I accept, that after her return to Sydney, she continued to work for the business in Australia in the period from 2009 until 2012. She claims to have worked full time (which is disputed) and I find that the employment relationship continued.
A further critical point was reached in 2012. On 13 February 2012, after discussions extending over five years, Mr Maher sought to finalise the issue of Ms Holmes’ remuneration through the issue of stock options. Ms Holmes had herself had concerns over her taxation liability in Australia if she were paid in cash. Ms Holmes had by that stage received several salary payments into her bank account and had submitted a work schedule and hours of work. The purpose of the stock options agreement was to deal with the outstanding remuneration due to Ms Holmes in accordance with the discussions which had extended back to at least February 2007. Ms Holmes signed the stock option agreement on 4 May 2012 and returned it to Mr Maher on 9 May 2012. The parties plainly intended that the agreement would bring to a close the liability of Balance Water Company to Ms Holmes arising out of her employment. They did not then understand that Ms Holmes could not contract out of her statutory entitlements under the Fair Work Act but, consistently with my findings on the summary dismissal application, I find that the stock options agreement was intended to and did put an end to any further liability by Balance Water Company to Ms Holmes under the general law. The stock options agreement looked backwards, not forwards. It would be wholly inconsistent with that agreement for there to be a continuing employment relationship between Ms Holmes and Balance Water Company. I find that that employment relationship was concluded on 9 May 2012.
That agreement, however, did not put an end to all dealings between the parties. In June 2012, Mr Maher bought Ms Holmes a Macbook laptop computer. The respondents concede that Ms Holmes was employed by Balance Water LLC in the USA from 1 July 2012 until 7 December 2012. I do not accept Ms Holmes’ contention that there was a transfer of employment from Balance Water Company to Balance Water LLC. First, her employment with Balance Water Company was concluded by the stock options agreement. Secondly, there is no evidence supporting a finding of transfer of employment. In that regard, I accept the respondents’ submissions.
There is no document of any kind passing between Ms Holmes and Mr Maher, Mr Chalk or any corporate respondent at any time, whether before July 2012 or at any other time, in which the subject of the “transfer” of the alleged employment of Ms Holmes from Balance Water Company to any other corporate respondent was expressly raised or referred to.
There were no conversations at any time, whether before December 2012 or at any other time, between Ms Holmes and Mr Maher or Mr Chalk in which the subject of the “transfer” of employment of Ms Holmes by Balance Water Company to another corporate respondent was expressly discussed.
There is no written agreement between Ms Holmes and any respondent in which the subject of the “transfer” of employment of Ms Holmes by Balance Water Company to any other corporate respondent was agreed.
I accept that an employee cannot be “transferred” from one employer to another without the consent of the employee. Both parties have agreed on that point.
Despite the lack of supporting evidence Ms Holmes suggests that consent to transfer was “inferred”[30].
[30] [67] of Ms Holmes’ submissions
At [68] of Ms Holmes’ submissions, Ms Holmes asserts that there was “direct evidence” of a transfer and of consent to such transfer arising out of Mr Maher’s evidence at page 286 of the transcript. That assertion is incorrect because:
a)there was no mention of the issue of “transfer” by Mr Maher in his evidence (other than a denial of any transfer);
b)counsel for Ms Holmes did not put any question to Mr Maher about a “transfer”;
Ms Holmes asserts at [67] of her submissions that “consent may be inferred” relying on Mersey Docks & Harbour Board v Coggins & Griffith (Liverpool) Ltd[31]. However, Mersey Docks does not stand for the proposition that a transfer of employment may be simply “inferred” as Ms Holmes suggests. It is trite law that[32]:
[31] [1947] AC 1
[32] See Buchanan J in ACE Insurance Ltd v Trifunovski (2013) 295 ALR 407 at [45] citing the House of Lords in Mersey Docks
a contract of service cannot be unilaterally assigned.
Mersey Docks is a 1946 House of Lords decision in relation to vicarious liability in the post war stevedoring industry in the UK. There are five separate decision given respectively by Viscount Simon, Lord MacMillan, Lord Porter, Lord Simonds and Lord Uthwatt. One should exercise some caution in accepting Mersey Docks as authority for the simple proposition put by Ms Holmes.
The facts of Mersey Docks concerned the actions of a crane driver who was usually employed by Mersey Docks and Harbour Board (Board) and whose services, it was alleged, were temporarily “transferred” to the control of a stevedore company, Coggins & Griffiths (Liverpool) Ltd (Coggins) on a particular day when a third party was injured. The issue was whether the Board or Coggins was vicariously liable for the actions of the crane driver. The facts are quite different from those here.
In Mersey Docks only two of the five members of the Court, Lord Porter and Lord Uthwatt, said anything about consent to a transfer of employment.
Lord Porter, at pages 15 and 16 of the reported judgment, said:
In determining this question it has to be borne in mind that the employee's position is an important consideration. A contract of service is made between master and man and an arrangement for the transfer of his services from one master to another can only be effected with the employee’s consent, expressed or implied. His position is determined by his contract. No doubt by finding out what his work is and how he does it and how he fulfils the task when put to carry out the requirements of an employer other than his own, one may go some way towards determining the capacity in which he acts, but a change of employer must always be proved in some way, not presumed. The need for a careful consideration of the circumstances said to bring about the change of employment has latterly been accentuated by the statutory provisions now in force for compulsory health and accident insurance and in the case of many firms, by the existence of funds accumulated under a trust for the benefit of employees, who will not lightly incur the risk of losing such benefits by a transfer of their services from one master to another. Nor is it legitimate to infer that a change of masters has been effected because a contract has been made between the two employers declaring whose servant the man employed shall be at a particular moment in the course of his general employment by one of the two. A contract of this kind may of course determine the liability of the employers inter se, but it has only an indirect bearing upon the question which of them is to be regarded as master of the workman on a particular occasion.
The indicia from which the inference of a change is to be derived have been stated in many different ways, notably in the words of Bowen L. J. in Donovan v. Laing Wharton & Down [1893] 1 Q.B. 629 where he says at page 634: “There are two ways in which a contractor may employ his men and his machines. He may contract to do the work and, the end being prescribed, the means of arriving at it may be left to him, or he may contract in a different manner and, not doing the work himself, may place his servants and plant under the control of another-that is, he may lend them-and in that case he does not retain control over the work.”
Lord Uthwatt said at page 21 of the reported judgment:
It may be an express term of the bargain between the general employer and the hirer, that the workman is to be the servant of the hirer or is to be subject in all respects to his authority. That in my opinion does not of itself determine the workman's position. The workman's assent, express or implied, to such a term would, I think, conclude the point one way: and his dissent conclude it the other way. In cases where the point cannot be disposed of in this fashion, the nature of the activities proper to be demanded of the workman by the hirer and the relation of those activities to the activities of the hirer's own workmen, are of outstanding importance in determining whether the hirer has in any reasonable sense authority to control the manner of execution of the workman's task.
At page 22 he said:
The facts of this case have already been stated and I do not propose to travel over them again. There is, however, one matter in the evidence to which reference should be made. The hiring agreement contained the following provision: “The drivers so provided” (i.e., the crane drivers) “shall be the ‘servants of the applicants’” (i.e., the respondent company). There is no evidence that the workman agreed to this provision or was indeed aware of it. Without his consent he could not be made the servant of the respondent company. In light of the surrounding circumstances it is impossible to construe the provision as authorizing the respondent company to direct the manner in which the workman should do his work and for the purpose in hand I read the provision merely as stating what the appellant board and the respondent company agreed should be the legal result of an arrangement the operative terms of which are to be found elsewhere. Their agreement on a matter of law is immaterial. For the purposes of this case this point may be left there.
Lord Porter observed in Mersey Docks that the transfer of an employee from one employer to another “can only be effected with the employee’s consent, expressed or implied”. Importantly, his Lordship then went on to say[33]:
…but a change of employer must always be proved in some way, not presumed. The need for a careful consideration of the circumstances said to bring about the change of employment has latterly been accentuated by … statutory provisions …
[33] at page 15 of the reported judgment
In the present case the Court is being asked by Ms Holmes to infer that there was a transfer of employment without proving the transfer. No transfer has been proved and none was admitted. There was no transfer for Ms Holmes to consent to.
On the facts in evidence I am unable to find a transfer of employment or Ms Holmes’ consent to such transfer.
Even if I were wrong in that, I find that neither Balance Water Inc or Balance Water LLC is a National System Employer.
The evidence regarding the formation and domicile and activities of Balance Water Inc and Balance Water LLC is as follows[34]:
Balance Water, Inc
2.Balance Water, Inc (BWI) is a corporation which was formed under the laws of the State of Delaware, United States of America and its main registered office is in Delaware.
3.BWI does not have an office in Australia and it does not carry on any business activities in Australia.
4.BWI is not registered or required to be registered as a foreign company in Australia.
5.The function of BWI is to hold stock in other corporations. … BWI does not carry on any trading activities and it has never employed any staff or paid any wages, salary or other remuneration to any person whatsoever.
[34] PAT 3.10.2013 Aff [2]-[8]
Balance Water Company LLC
6.BWC LLC is a corporation which was formed under the laws of the State of Delaware, United States of America, and its main registered office is in Delaware.
7.BWC LLC does not carry on business, have any office or hold any assets whatsoever in Australia.
8.BWC LLC is not registered or required to be registered as a foreign company in Australia.
I said in my reasons for judgment in Holmes v Balance Water Inc & Ors delivered on 4 December 2013[35]:
The power to deal with foreign corporations is directed to their activities within Australia. To fall within the Fair Work Act, such a corporation must be a foreign corporation within the meaning of s.51(xx) and therefore, to the extent that it employs employees to perform work in Australia, it is a national system employer as defined in s.14 of the Fair Work Act.
[35] [2013] FCCA 1787 at [8]
Neither Balance Water Inc nor Balance Water LLC have any activities in Australia except, arguably, to the extent that Balance Water LLC employed Ms Holmes and she subsequently came back to work in Australia for a time.
In the present case the facts are that:
a)Balance Water LLC employed Ms Holmes in the USA on 1 July 2012 (as dealt with above);
b)Ms Holmes was physically present in the USA at all times between 14 June and 21 August 2012;
c)Ms Holmes requested Balance Water LLC to pay her in US currency in the USA and gave as her employment address an address in the USA. She also paid US taxes, not Australian taxes[36];
d)there is no evidence that Balance Water LLC ever required Ms Holmes to perform work in Australia;
e)Ms Holmes returned to Australia of her own accord on or about 21 August 2012 but continued to be paid in US currency in the USA until her employment with Balance Water LLC was terminated in December 2012.
[36] Ex PAT-3 pages 139-143
In the time since my interlocutory judgment was published on 4 December 2013, the Federal Court has handed down its decision in Fair Work Ombudsman v Valuair Limited (No 2)[37].
[37] [2014] FCA 759
In Valuair Buchanan J found that the Fair Work Act applies[38]:
to employment relationships rather than simply to particular work, so that it it is necessary first to identify an appropriate connection linking the employment relationship sufficiently with Australia.
[38] at [75]
There are therefore requirements to be met before the Fair Work Act will apply to the employment contract under which Ms Holmes worked for Balance Water LLC:
a)that there is an “appropriate connection” aligning that employment relationship with Australia; and
b)that the employment relationship is “sufficiently” linked with Australia.
In the present case there is not “an appropriate connection” which links Ms Holmes’ employment contract with Australia. Moreover the employment relationship is not “sufficiently” linked with Australia.
In Valuair the Court found that there was not an appropriate connection sufficiently linking the employment of Thai and Singaporean aircraft cabin crew with Australia despite the fact that the crew spent substantial time working and travelling on Jetstar aircraft within Australia. Buchanan J observed that[39]:
TET and Valuair are foreign corporations. Their cabin crew employees are not resident in Australia. The contracts of employment in the present case were made outside Australia and they are regulated by the laws and practices of either Singapore or Thailand. Payment of wages is made and tax, social security and other liabilities on both employer and employee are acquitted outside Australia. Tours of duty commence and finish at the home base outside Australia. The time on duty in Australia of any of the cabin crew represents only a small proportion of overall working time, and is transient.
[39] At [84]
At [85] Buchanan J went on to find that:
It is, in my respectful view, incorrect to postulate that the contracts of employment, or the employment relationships, are in and of Australia in any respect.
Each case must be determined on its own facts. For that reason it is not necessary for each of the indicia of the employment relationship to be identified in relation to Balance Water Inc and Balance Water LLC. However the Valuair decision supports a finding that Ms Holmes’ employment by Balance Water LLC is not “in and of Australia”.
I disagree with the summary of the legal position set out at [72] of Ms Holmes’ submissions which states that the relevant connection with Australia must be either in relation to the constitutional corporation or in relation to its employees. That analysis misstates the law as found by Buchanan J in Valuair. His Honour observed that[40]:
It is therefore important, at the outset, to establish the existence of a contract of employment. It is upon that legal circumstance, not just the performance of work, that awards operate.
[40] At [76]
The proper test, as set out by Buchanan J, is to link “the employment relationship sufficiently with Australia”[41] not just the employee or the employer.
[41] At [75]
In the present case I do not regard the place at which work was to be performed as critical. Ms Holmes had previously performed work in the USA for Balance Water Company between November 2008 and November 2009 and had also performed work in France. There was never any contractual stipulation as to where Ms Holmes was required to work and no evidence of any such stipulation.
More significant facts which weigh in favour of a contractual connection with the USA are the facts that Ms Holmes elected to be paid in US currency in the USA and gave her employment address as being in the USA. Ms Holmes also elected to pay US State and Federal taxes. That election was communicated to the respondents in a series of emails dated between 31 July 2012 and 16 August 2012[42]. Tellingly, these emails were sent by Ms Holmes to Mr Maher immediately before she returned to Australia, of her own accord and for her own purposes, on 21 August 2012. I infer from that fact that Ms Holmes intended her employment relationship to have a substantial link with the USA despite her return to Australia.
[42] Ex PAT-3 pages 130 to 146
The evidence overwhelmingly suggests that Ms Holmes made a deliberate choice to link her employment relationship to the USA and not to Australia.
The Federal Court found that the employers in Valuair were not National System Employers. Consistently with that decision I find that neither Balance Water Inc nor Balance Water LLC is a National System Employer in relation to the employment of Ms Holmes.
The employment relationship between Ms Holmes and Balance Water LLC was not “in and of Australia”. There is no sufficient evidence that Balance Water Inc ever employed Ms Holmes. There is no sufficient or appropriate connection between Balance Water Inc and Australia for the purposes of the Fair Work Act.
I conclude that Ms Holmes was employed by Balance Water Company from 13 November 2006 until 9 May 2012. The parties agree that in the event that the Court made a finding of employment, Ms Holmes was entitled to receive the equivalent of the national minimum wage for the period of employment. On that scenario, the submissions of the respondents recognise a liability of at least $19,579.30. Ms Holmes claims $144,767.25. The difference is obviously substantial and derives from the dispute between the parties as to when Ms Holmes was working and what hours she was working. Ms Holmes asserts that she worked full time. Her evidence, which I accept, was that her work was not limited to the office, that she also worked electronically from home and elsewhere. For a period of 12 months she was overseas. There was no agreement between the parties as to what Ms Holmes’ ordinary hours of work would be. In the circumstances, the outcome is that Ms Holmes’ entitlement is to be calculated by reference to a standard 38 hour week[43]. Allowances would need to be made for any unpaid maternity leave taken by Ms Holmes and any other unpaid leave. Ms Holmes is of course due her paid leave entitlements which were not used. The evidence on those matters is not sufficiently clear for me to draw a precise conclusion. The conclusion that I do draw is that Ms Holmes is entitled to receive the national minimum wage for 38 hours a week between 13 November 2006 and 9 May 2012, with deductions for any unpaid leave and with the addition of any unused paid leave. The parties should be able, from the records available to them, to reach agreement on a final figure. My order will reflect that obligation.
[43] Johnson v Monti-Haitsma Enterprises Pty Ltd [2014] FCCA 259 at [38]-[44], affirmed on appeal in Johnson v Monti-Haitsma Enterprises Pty Ltd(in External Administration) [2014] FCA 906
Consistently with the understanding of the parties and the Court, I will defer any consideration of costs and penalties.
I certify that the preceding one hundred and thirty-eight (138) paragraphs are a true copy of the reasons for judgment of Judge Driver
Associate:
Date: 28 August 2015
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