Lepore and Secretary, Department of Employment
[2016] AATA 631
•23 August 2016
Lepore and Secretary, Department of Employment [2016] AATA 631 (23 August 2016)
Division
GENERAL DIVISION
File Number
2015/5938
Re
Michael Lepore
APPLICANT
And
Secretary, Department of Employment
RESPONDENT
DECISION
Tribunal Dr Gordon Hughes, Member
Date 23 August 2016 Place Melbourne The Tribunal determines that:
(a) The Applicant's long service leave entitlements accrued with Universal Forme did not transfer to UFCO but remained with Universal Forme;
(b) The Applicant's long service leave entitlements subsequently accrued during his employment with UFCO transferred to Entegro; and
(c) Accordingly the Applicant is not entitled to an advance under section 14 of the Fair Entitlements Guarantee Act 2012 in respect of his long service leave which had accrued with either Universal Forme or UFCO.
The Tribunal affirms the decision.
[sgd].................................................................
Dr Gordon Hughes, Member
FAIR ENTITLEMENTS GUARANTEE - sale of business - employment contracts transferred to third party - third party became insolvent - whether statutory responsibly for long service leave effectively transferred by original employer to third party - whether Applicant entitled to an advance under the FEG Act in respect of long service leave accrued with the original employer when the third party became insolventLegislation
Fair Entitlements Guarantee Act 2012 sections 5, 6(3), 10, 14
Long Service Leave Act 2012 (Vic) sections 58, 60, 72, 79Cases
Simpson and Department of Employment [2016] AATA 526
REASONS FOR DECISION
Dr Gordon Hughes, Member
23 August 2016
REASONS FOR DECISION
Issues for consideration
The issue before the Tribunal to be determined was whether, upon the Applicant's employer becoming insolvent in December 2014, the Applicant was entitled to an advance under section 14 of the Fair Entitlements Guarantee Act 2012 (Cth) (the "FEG Act") in respect of his long service leave which had accrued not only with that employer but with a previous employer. This in turn required a consideration of whether the previous employer remained liable for the Applicant's long service leave entitlements and, regardless, whether the employer's accrued liability for the Applicant's long service leave had passed to his current employer.
LEGISLATION
For convenience, the relevant legislation can be summarised as set out below.
Section 10 of the FEG Act sets out the conditions of eligibility which entitle a person for an advance of financial assistance under the Act, essentially involving circumstances where the employer becomes insolvent leaving an employee with outstanding "employment entitlements".
Section 5 of the FEG Act defines "employment entitlement" as including a long service leave entitlement.
Section 6(3) of the FEG Act defines what is meant by a person's "long service leave entitlement" by reference to the "governing instrument".
The relevant "law of a State" in this instance is the Long Service Leave Act 1992 (Vic) (the “Long Service Leave Act”).
Section 58 of the Long Service Leave Act sets out an employee's entitlement to long service leave in circumstances where the employee has completed at least 7 years, but less than 15 years, of continuous employment with one employer.
Section 60 of the Long Service Leave Act) describes various situations in which employment by more than one employer is to be regarded as continuous employment with one employer.
Section 72 of the Long Service Leave Act provides that if an employee's employment ends before he or she has taken long service leave, the employee is to be regarded as having started to take his or her leave on the day that employment ended, and on that day the employer become liable to pay the full amount of long service leave owing at that time.
Section 79 of the Long Service Leave Act provides that any employment agreement which purports to annul the above provisions is of no effect.
Background
On 14 February 2005, the Applicant commenced employment with Universal Forme Pty Ltd ("Universal").
On 31 July 2014, Universal entered into a contract of sale of business with Entegro Group Pty Ltd. Special condition 2.2 of the contract of sale required Entegro to "procure that UFCO Pty Ltd….makes an offer in writing to employ each employee" of Universal.
UFCO was a related body corporate of Entegro – UFCO was fully owned by Gaw Pty Ltd and Entegro was 80% owned by Gaw Pty Ltd.
Special condition 2.3 of the contract of sale required Entegro to enter into a deed of indemnity in favour of Universal under which UFCO agreed to assume responsibility of all "Employee Liabilities" applicable to the transferring individuals. The definition of "Employee Liabilities" included long service leave entitlements.
An employee services agreement was also entered into on 31 July 2014 between UFCO and Entegro, pursuant to which UFCO undertook to provide the services of the transferring employees to Entegro. Under clause 3.2, of the agreement UFCO specifically assumed responsibility for the long service leave entitlements of the transferring employees.
The Applicant commenced employment with UFCO on 1 August 2014.
UFCO became insolvent on 23 December 2014. On 12 January 2015, the Applicant commenced employment direct with Entegro. The letter of employment of the same date contained a paragraph headed "Prior Service" and stated as follows:
"Subject to any prevailing legislative obligation and any expressed terms in this letter of offer that provide otherwise, you acknowledge that any service you may have had with Universal Forme Pty Ltd and UFCO Pty Ltd will not be recognised by the Company for the purposes of service related entitlements and/or benefits that include, but are not limited to, notice of termination, redundancy and/or annual leave."
At the time his employment with UFCO terminated, the Applicant had accrued $21,999.00 in long service leave entitlements.
The Applicant sought an advance on his unpaid employment entitlements pursuant to section 10 of the FEG Act on the basis that his employer had become insolvent. On 13 April 2015, a delegate of the Respondent determined that the Applicant was not eligible for an advance in respect of his long service leave entitlements because liability for any such entitlements had been transferred to Entegro, a decision which was affirmed on 19 October 2015.
The requirement to pay long service leave derives from the Long Service Leave Act 1992 (Vic) (“the Long Service Leave Act”). The Applicant submitted that section 60 of that Act failed to impose an obligation on Entegro to pay the Applicant's long service leave to the extent that leave entitlements were accrued during the course of his employment with Universal.
Specifically, the Applicant asserted that under section 60(2), Entegro was required to accept an obligation for payment of long service leave which had accrued during the course of employment with a related company but this would only apply to the Applicant's employment with UFCO and not with Universal which was not a related entity.
The Applicant also referred to section 60(3) which provides that where 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 a new owner – in this case, however, the "new owner" was Entegro whilst the Applicant had commenced new employment with UFCO and, as a consequence, the chain of continuity was broken.
The Respondent contended, in broad terms, that the Applicant's transfer of employment from UFCO to Entegro was not relevant because responsibility for the Applicant's long service leave entitlements had not been validly transferred from Universal to UFCO in the first place. At most, the Applicant was entitled to a transfer of employment entitlements accrued with UFCO, but not previously with Universal.
The Respondent accordingly contended that it had not been open to Universal to avoid its long service leave obligations, and that accrued long service leave was payable by Universal as at 31 July 2014.
The Respondent also pointed to section 79 of the Long Service Leave Act which prohibits the "contracting out" of entitlements.
The Respondent further contended that even if liability for long service leave had transferred from Universal to UFCO, the Applicant's cause would not be assisted because liability would have transferred to Entegro by virtue of section 60(2).
The Applicant's response to the Respondent's argument was that whilst there was no statutory obligation in relation to the acquisition of the Applicant's long service leave entitlements by UFCO (and correspondingly Entegro), the fact was that UFCO assumed a legal responsibility for making those payments because it was bound to do so by virtue of its arrangement with Universal Forme. Entegro was not liable for the payments relating to Universal by virtue of section 60 of the Long Service Leave Act.
Discussion
The "governing instruments" relevant to the Applicant's employment were the Long Service Leave Act and the employment agreement between the Applicant and UFCO. It was not in contention that the Applicant's employment agreement with UFCO was governed by Victorian law, hence activating the Long Service Leave Act.
The Applicant was employed by Universal for 9 years, between 2005 and 2014. This being the case, his entitlement to long service leave is to be determined by reference to section 58(2) of the Long Service Leave Act.
Pursuant to section 72(1) of the Long Service Leave Act, the Applicant "is to be regarded as having started to take his…. leave on the day the employment ended", being 31 July 2014. Pursuant to section 72(2), "on that day [Universal] must pay [the Applicant] the full amount of [the Applicant's] long service leave entitlement as at that day". Universal was not insolvent at that time and winding up proceedings had not been commenced.
It follows that liability for long service leave in these circumstances would have vested in Universal on 31 July 2014 unless legal responsibility had been effectively transferred to a third party as at that date.
The Applicant points to a letter dated 28 July 2014, on a Universal letterhead but purporting to constitute an offer from UFCO, pursuant to which it was stated inter alia, that "your continuous service with Universal Forme will be regarded as continuous service with UFCO for the purposes of all service related benefits, including leave accruals and length of service awards". The Applicant asserts that regardless of Universal's statutory liability, this letter created a contractual obligation on UFCO to discharge Universal's statutory entitlement, an obligation which had the dual effect of removing responsibility from Universal but not being such as would pass to Entegro.
The Applicant's representative focussed on the apparent practical intent of the parties, including assertions that the Applicant's employment with Universal Forme and UFCO should be "deemed" continuous and that UFCO agreed to assume responsibility for Universal Forme's debt relating to the Applicant's long service leave entitlement.
The Respondent asserted (and the Tribunal agrees with the Respondent) that this contractual provision did not amount to an indemnity by UFCO in respect of Universal's long service leave obligations. Nowhere was it stipulated that UFCO is adopting the Universal debt. No deed of indemnity had been tabled in evidence. There was, according to the Respondent, a difference between an "indemnity" and a situation in which the Applicant "assumed liability".
Whilst UFCO undertook a contractual obligation to account to the employee for Universal's statutory long service leave obligations, it did not – and by virtue of section 79 of the Long Service Leave Act could not – assume Universal's statutory obligations in this regard. I turn now to the relevance of section 60 of the Long Service Leave Act.
On 31 July 2014, Universal entered into a Contract of Sale of Business with Entegro.
Special condition 2.2(b) of the contract provided that Entegro was to procure UFCO to make an offer in writing to each employee (including the Applicant) "on terms and conditions of employment substantially similar to, and considered overall, no less favourable to [the Applicant] than the terms and conditions of [the Applicant's] employment with [Universal]".
Special condition 2.3 provided:
[Entegro] must procure that before [31 July 2014] UFCO enters into a Deed of Indemnity in favour of [Universal] and its Director by which the said UFCO…..agrees to assume responsibility for all Employee Liabilities applicable to all of the employees who accept the offer of employment made to them by UFCO…in accordance with Special Condition 2.2 and indemnifies [Universal] and its Director from any claim by any such employee.
As asserted by the Respondent, this is an offer of an indemnity and not a deed of assumption of debt. The effect of the contractual undertaking by Entegro was that if Universal were to become liable to pay the Applicant's long service leave entitlement, then Universal must do so but it would be indemnified by UFCO. The debt itself did not pass to UFCO.
Section 60 of the Long Service Leave Act deals in effect with circumstances in which an employee's employment with one corporation is deemed to be continuous with another corporation.
Of particular relevance to the present proceedings, section 60(2) addresses employment by an employee with related bodies corporate and section 60(3) addresses circumstances where "ownership of a business employing someone changes but the employment of the employee continues".
Universal and UFCO were not related bodies corporate, and hence section 60(1) does not apply to the Applicant's transfer of employment as of 1 August 2014.
Whilst the ownership of Universal changed on 31 July 2014, the employment of the Applicant did not continue with the same entity. Ownership of the business passed to Entegro but the Applicant was employed by UFCO. Accordingly section 60(3) is not engaged.
As between UFCO and Entegro, section 60(2) would capture the fact that the Applicant was transferred to a related body corporate in January 2015 and hence his accrued long service leave entitlement with UFCO would likewise transfer to Entegro. Any such entitlement is relevant only, however, to the period of the Applicant's employment with UFCO from 1 August 2014 to 23 December 2014 and would not embrace the Applicant's accrued long service leave with Universal.
The Respondent's representative referred the Tribunal to a recent decision of the Tribunal in Simpson and Department of Employment [2016] AATA 526. That decision does not however appear to address issues of direct relevance to the matter currently before the Tribunal, and has not been considered further by the Tribunal in formulating this determination.
DECISION
For the reasons stated above, the Tribunal determines that:
(d)The Applicant's long service leave entitlements accrued with Universal Forme did not transfer to UFCO but remained with Universal Forme;
(e)The Applicant's long service leave entitlements subsequently accrued during his employment with UFCO transferred to Entegro; and
(f)Accordingly the Applicant is not entitled to an advance under section 14 of the Fair Entitlements Guarantee Act 2012 in respect of his long service leave which had accrued with either Universal Forme or UFCO.
The Tribunal affirms the decision.
I certify that the preceding 47 (forty-seven) paragraphs are a true copy of the reasons for the decision herein of:
Dr Gordon Hughes, Member........................................................................
Associate
Dated 23 August 2016
Date of hearing 27 July 2016
Advocate for the Applicant David Miller Solicitors for the Applicant The Australian Industry Group Advocate for the Respondent Lex Holcombe Solicitors for the Respondent HWL Ebsworth Lawyers
Key Legal Topics
Areas of Law
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Employment Law
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Administrative Law
Legal Concepts
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Statutory Construction
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Remedies
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Appeal
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Judicial Review
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Standing
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