Mr Ambrose von Erkel v Solar Station Alpha Pty Ltd T/A Solar Backup
[2018] FWC 2473
•3 MAY 2018
| [2018] FWC 2473 |
| FAIR WORK COMMISSION |
DECISION |
Fair Work Act 2009
s.394 - Application for unfair dismissal remedy
Mr Ambrose von Erkel
v
Solar Station Alpha Pty Ltd T/A Solar Backup
(U2016/2082)
DEPUTY PRESIDENT KOVACIC | CANBERRA, 3 MAY 2018 |
Application for relief from unfair dismissal – dismissal harsh, unjust or unreasonable –jurisdictional objection –Respondent is a small business employer and dismissal consistent with the Small Business Fair Dismissal Code – Respondent found not to be a small business employer: jurisdictional objection dismissed – dismissal found to be unjust – application to be listed for mention and directions regarding remedy.
[1] This matter has a long history with Mr Ambrose von Erkel (the Applicant) on 4 May 2016 filing an application under s.394 of the Fair Work Act 2009 (the Act) alleging that the termination of his employment by Solar Station Alpha Pty Ltd T/A Solar Backup (the Respondent) on 13 April 2016 was unfair.
[2] In a decision handed down on 5 October 2016 1 the Fair Work Commission (the Commission) dealt with the first of two jurisdictional objections made by the Respondent, i.e. that Mr von Erkel’s application had been lodged outside the 21 day statutory timeframe specified in s.394(2)(a) of the Act. Specifically, the Commission found that Mr von Erkel had been dismissed on 13 April 2016 and that his application had therefore been made within the statutory timeframe. That decision was unsuccessfully appealed by the Respondent, with the Full Bench handing down its decision regarding the appeal on 15 December 20162.
[3] Determination of the Respondent’s second jurisdictional objection, i.e. that it was a small business employer and that Mr von Erkel’s dismissal was consistent with the Small Business Fair Dismissal Code (the Code), and the merits of the application was delayed due to the illness of one of the key witnesses in the matter, Mrs Donna-Louise Wilson, a Director of the Respondent. These issues were heard on 30 and 31 October and 23 November 2017. At the conclusion of the hearings a timetable was set for the provision of written closing submissions, with the parties’ submissions in reply filed on 9 February 2018. The timetable was particularly generous in the light of a number of foreshadowed applications for various Orders to produce documents and the coming Christmas/New Year period. The parties also agreed that the issue of remedy should be the subject of subsequent consideration by the Commission in circumstances where it found that Mr von Erkel had been unfairly dismissed.
[4] At the hearings, Mr Peter Hull appeared with permission for Mr von Erkel, while Mr Paul Wilson, the Respondent’s General Manager, appeared for the Respondent. Mr von Erkel gave evidence on his own behalf, while Mr and Mrs Wilson and Mr Gerard Hartog (a Director of another entity Arvio Pty Ltd (Arvio) and an employee of the Respondent at the time of Mr von Erkel’s dismissal), Mr Andrew Bain (Arvio’s Project Coordinator), Mr David Pell (now an employee of Arvio but considered by the Respondent to be a contractor at the time of Mr von Erkel’s dismissal) and Mr David Robertson (Arvio’s Sales Manager) all gave evidence for the Respondent. Mr Richard Rotgans, an employee of Arvio, gave evidence as a result of an Order to attend issued by the Commission on 17 October 2017 following an application by Mr von Erkel. Mr Bain and Mr Rotgans were both employed by the Respondent at the time of Mr von Erkel’s dismissal.
[5] For the reasons set out below, I find that the Respondent and Arvio are associated entities for the purposes of the Act, that at the time of Mr von Erkel’s dismissal the Respondent was not a small business employer for the purposes of the Act, that the Code therefore does not apply and that Mr von Erkel’s dismissal was unjust. Mr von Erkel’s application will now be listed for mention and directions to set a timetable for dealing with the issue of remedy.
Background
[6] The background to this matter is set out in detail in my decision regarding the Respondent’s first jurisdictional objection 3. In brief, Mr von Erkel was dismissed on the basis that in October/November 2015 he bullied Mr Hartog into resigning his directorship of Arvio thereby jeopardising the business. Mr von Erkel disputes this. In the extension of time proceedings, the Respondent submitted that it was one of three associated entities, the other two entities being Arvio and Phase Change Energy Solutions Pty Ltd (Phase Change). However, in the most recent hearings the Respondent contended that the entities were not associated entities.
The Applicant’s case
[7] Mr von Erkel submitted that his dismissal was not consistent with the Code as the Respondent was not a small business employer at the time of his dismissal. In the alternative, Mr von Erkel submitted that if the Respondent was a small business employer at the time of his dismissal it did not comply with the Code as it did not undertake adequate inquiries or investigations to establish its purported belief that he was guilty of serious misconduct justifying immediate dismissal.
[8] As to the merits of his application, Mr von Erkel submitted that absent the operation of the Code his dismissal was harsh, unjust and unreasonable for several reasons, including that:
• he was not guilty of the alleged misconduct;
• there was no other valid reason for his dismissal, describing as entirely without merit the Respondent’s suggestion that remarks he made during the termination meeting on 9 March 2016 (the termination meeting) justified summary dismissal;
• further, he did not force Mr Hartog to resign from his directorship, adding that the decision was made freely by Mr Hartog alone or with his wife and that there was no evidence that he did anything other than express a clear view that Mr Hartog should deal with his concerns by taking charge of his situation, obtain information about Arvio’s affairs, seek professional advice and speak to his wife;
• to the extent he was guilty of any wrongdoing, his dismissal was a disproportionate and unwarranted response;
• he was denied procedural fairness in that he was not given any prior notice that his employment was in jeopardy, highlighting that the Respondent had prepared a letter of termination and a letter of resignation prior to the termination meeting;
• while he was not notified of the reason for his dismissal, he was not given a fair and proper opportunity to respond to the reason;
• he did not have the opportunity to consider the need for a support person;
• he conceded that the Respondent was a small business (as opposed to a small business employer) and that it did not have a dedicated human resource management to advise it;
• the Commission should not ignore the Respondent’s conduct throughout the proceedings;
• the dismissal was exceptionally harsh given his diagnosis of and treatment for cancer shortly before his dismissal; and
• in all the circumstances his dismissal was unreasonable.
[9] Beyond that, Mr von Erkel contended among other things that:
• the evidence of Mr and Mrs Wilson, Mr Robertson and Mr Hartog was unreliable, adding that where their evidence conflicted with his testimony and that of Messrs Rotgans and Bain whose evidence should be preferred;
• the Respondent failed without good reason to call two material witnesses, Ms Hayley Burn (the Respondent’s Office Manager at the time of Mr von Erkel’s dismissal) and Mr Jacobus Schering (who with his wife owned a 50 per cent share in Arvio);
• the Commission should infer that Ms Burn’s evidence would not have assisted the Respondent as to whether he was invited but declined to bring a support person to the termination meeting and in respect of the work performed by Mrs Wilson;
• similarly the Commission should infer that Mr Schering’s evidence would not have assisted the Respondent’s contention that it was small business employer;
• Arvio was a strong contender to be regarded as an associated entity of the Respondent, adding inter alia that the Respondent should be stopped from contending otherwise in circumstances where it vigorously advanced that position in the extension of time proceedings;
• Mr and Mrs Wilson, both separately and as a married couple, constituted a “third entity” that controlled both the Respondent and Arvio in circumstances where the operations, resources and affairs of both entities were plainly material to them individually and as a couple;
• documents submitted by the Respondent showed that as at 13 April 2016 employees of the Respondent and Arvio numbered at least 14 (i.e. Mr Bain, Mr Arda Sander, Mr Wilson, Mr Hartog, Ms Burn, Mr Schering, Mr Kiahma O’Donovan, Mr Richard Murphy, Mr Rotgans, Mr Robert Louey, Mr von Erkel, Mr Robertson, Mr Jake Conci and Mr Jochen Fischer – the last three persons were employed by Arvio while the others were all employed by the Respondent);
• there were in addition three persons, i.e. Mrs Wilson, Mr Pell and Mr Marty Gray, who might be regarded as strong contenders to be counted as employees for the purposes of s.23 of the Act, with further contenders being Messrs Daniel Davenport and Alan Jackson;
• having regard to his evidence and several emails produced by the Respondent under Orders made by the Commission, Mr Wilson’s evidence that Mrs Wilson role in relation to the Respondent and Arvio was that of a non-employed Director and limited to high level governance was plainly false;
• there was persuasive evidence that Mrs Wilson was undertaking work as an employee of Arvio prior to the date of his dismissal;
• the Respondent had failed to show that Mr Pell was at law an independent contractor, highlighting inter alia that Mr Pell was employed by the hour, was subject to directions from Messrs Wilson and Schering, had a designated workspace at the Respondent’s premises, was not able to delegate his work, based on the invoices he produced was in reality paid a fixed wage from 19 January 2016, based on the hours sheet Mr Pell provided he was regularly working full-time hours for the Respondent or Arvio from late 2015 and he was paid superannuation;
• Mr Bain’s evidence that Mr Gray, who ceased working for the Respondent as an employee in mid-2015, when he returned to work for Arvio performed the same work as a contractor as he did when he was an employee gave rise to a rebuttable presumption that in the period leading up to 13 April 2016 he was engaged by the Respondent as an employee;
• with regard to compliance with the Code, the Respondent provided no evidence that Mr Hartog’s resignation as a Director could or did cause it any harm; and
• the Respondent did not comply with the Code, noting that the Respondent was not a small business employer at the time of his dismissal nor did it hold the belief that he was guilty of serious misconduct justifying summary dismissal.
[10] In his submissions in reply, Mr von Erkel submitted inter alia that the Respondent’s evidentiary case on the issue of whether or not it was a small business employer could best be described as a concerted attempt to withhold and avoid evidence that would have assisted the Commission in determining this matter. Other than that, Mr von Erkel disputed a number of aspects of the Respondent’s submissions. For instance, Mr von Erkel contended that he always conceded and maintained that the Respondent, Arvio and Phase Change were related entities pursuant to s.50AAA of the Corporations Act 2001 (the Corporations Act).
[11] Mr von Erkel tendered four witness statements 4 regarding the merits of his application and the Respondent’s second jurisdictional objection. Those witness statements were dated 6 July 2016, 10 and 24 February 2017 and 21 November 2017 respectively. Among other things, Mr von Erkel deposed that:
• he was not given any prior notice of the termination meeting with Mr Robertson and Ms Burn and was not invited to bring a support person;
• at that meeting Mr Robertson outlined what he had allegedly said to Mr Hartog several months beforehand, with those allegations set out in the termination letter;
• at that meeting he confirmed that he did have a conversation with Mr Hartog but that he could not recall the exact date and stated that the claims of misconduct that were being levelled against him were a complete fiction;
• he explained at that meeting that Mr Hartog had sought his advice when he was in a very distressed state and that he had suggested to Mr Hartog that he needed to gather his own information, get legal advice and speak to his wife about what was best for him;
• when he finished speaking he was handed a resignation letter by Mr Robertson which he refused to sign after which he was given a termination letter and told by Mr Robertson that he had been dismissed;
• he unreservedly denied that he had ever done or said anything to Mr Hartog that was intended to or might cause him to leave the Respondent nor did he say anything that disparaged the Respondent, its business or any of its Directors or employees;
• contrary to what was alleged, Mr Hartog had in fact come to him and was extremely unhappy with Mr Wilson and how the business was being run, observing that at the beginning of his conversation he felt that Mr Hartog had already decided to resign;
• he received two text messages from Mr Rotgan on 9 March 2016, the second of which read “Truth is I remember it is Gerard had his resignation signed and in the envelope convinced he should get clear. He then came to us”;
• he did not believe that he had done anything that warranted censure and certainly nothing that justified dismissal or summary dismissal;
• he recalled that in about the week commencing 29 February 2016 a group email was sent out to all staff informing them that Mrs Wilson would be coming into the office to work on a part-time basis;
• he further recalled that leading up to and including the day of the termination meeting Mrs Wilson had worked for three days in the office, with those days spent at Ms Burn’s desk;
• prior to that he had seen Mrs Wilson a dozen or more times come into the business to visit and/or sign papers, adding that she was often accompanied by one or more of her children and that she would normally stay for less than an hour; and
• he saw Mr Pell in the workplace nearly every day.
[12] Under cross examination Mr von Erkel disagreed with key aspects of Mr Rotgans’, Mr Bain’s and Mr Hartog’s evidence, though he agreed that Mr Rotgans’ and Mr Bain’s evidence was honest. For example, Mr von Erkel disagreed with Mr Rotgans’ evidence that words to the effect “You’ve got to get out, the company’s going down and they’re going to smell the money and follow it all the way back to you” 5 had been discussed in the conversation with Mr Hartog prior to him resigning his directorship. Mr von Erkel also disagreed with that aspect of Mr Bain’s witness statement in which he deposed that “Ambrose … told Gerard to get out of his directorship immediately …”6 With regard to Mr Hartog’s evidence, Mr von Erkel attested that he believed that Mr Hartog had definitely lied7 and that Mr Hartog’s recollection of the discussion was a concoction by him to get rid of him (Mr von Erkel)8.
[13] Also under cross examination, Mr von Erkel accepted that he led the discussion with Mr Hartog toward the end though Mr Hartog led the discussion mostly from the beginning. Mr von Erkel agreed that the idea that Mr Hartog should resign his directorship was canvassed in their discussion, adding that it was canvassed by Mr Hartog. However, Mr von Erkel did not agree that the group (i.e. he and Messrs Rotgans and Bain) had counselled Mr Hartog into resigning, adding that he did not encourage Mr Hartog one way or another but that what he felt he did was to give Mr Hartog the tools he needed to get a little bit more control of the situation so that he could make an informed decision 9.
[14] Mr von Erkel was also extensively cross-examined by Mr Wilson regarding the transcript of the termination meeting 10. Key aspects of Mr von Erkel’s evidence in that regard included that:
• he did want Mr Hartog out of the business but he did not express that in that situation, adding that he was happy that Mr Hartog had resigned and that he had done so on his own impetus and that he thought it was good for Mr Hartog and the company 11
• Mr von Erkel later attested that he did not want Mr Hartog out of the business but that he did not want to see him as “our builder” 12;
• he gave Mr Hartog advice or talked to him, adding that he gave Mr Hartog some direction to get him off the ledge 13;
• he felt that Mr Hartog was incompetent 14; and
• he described Mr Hartog and Mr Bain as “simpletons” as he considered them just “very simple guys” 15.
[15] Beyond that, Mr von Erkel attested inter alia that:
• his actions did not lead to Mr Hartog’s resignation 16;
• he did not counsel Mr Hartog to entice him away from Arvio, adding that Mr Hartog had approached all of those involved in the discussion and said he was leaving and that his advice was to help him stay with the company despite the fact that ultimately he did not want him there 17;
• he did not consider his actions to constitute serious misconduct, adding that his actions were there to help the company and that despite his personal feelings he never felt responsible for pushing Mr Hartog out 18;
• he did not counsel Mr Hartog about his resignation 19;
• he did not suggest to Mr Hartog that he should discuss his concerns with Mr or Mrs Wilson 20;
• he knew about Mr Hartog’s resignation and did nothing about it 21; and
• he had raised with Mr Wilson his concerns about Mr Hartog continuing in the business but Mr Wilson was comfortable with Mr Hartog doing so, acknowledging that he (Mr von Erkel) maintained his views in respect of Mr Hartog until the day he left the business 22.
The Respondent’s case
[16] The Respondent submitted that it employed less than 15 employees as at the date of Mr von Erkel’s dismissal for several reasons including that:
• Mrs Wilson was not employed by it in any capacity at the time of the dismissal let alone on a regular or systematic basis, pointing to Mrs Wilson’s evidence to that effect and that she started to work part-time several months after the dismissal as a replacement for Ms Burn who left for maternity leave;
• Mr von Erkel had failed to provide any meaningful evidence that Mrs Wilson was an employee on a regular or systematic basis;
• Mr von Erkel had erroneously included three employees employed by Arvio, adding that Arvio was not an associated entity, subsidiary or parent of the Respondent at law or otherwise as it had different Directors, different shareholders, operated in a different market and was founded at a different time;
• Mr Pell testified that he was a contractor;
• Mr Pell met all of the definitions of contractors from the Independent Contractors Act 2006(Cth) and the Act;
• Mr von Erkel had failed to make any case that Mr Pell was an employee;
• in the extension of time proceedings Mr von Erkel insisted that Arvio was not connected to it; and
• should the Commission find that it was not a small business employer at the time of Mr von Erkel’s dismissal, his actions had been so damaging to it that to reward him with any success in the matter would be grossly unfair.
[17] As to the issue of merits, the Respondent did not dispute that Mr von Erkel was protected from unfair dismissal and that his dismissal was not due to redundancy. Drawing on the decision in Pinawin v Domingo 23 the Respondent contended that as Mr von Erkel’s dismissal was a summary dismissal the Code deemed the dismissal to be fair if the employer subjectively believed that the employee’s conduct was sufficiently serious to warrant immediate dismissal and had a reasonable basis for the view. The Respondent further submitted that in this case the dismissal was consistent with the Code as Mr Robertson honestly believed that Mr von Erkel had deliberately encouraged Mr Hartog to resign his directorship thereby putting the business in jeopardy. Mr Robertson, the Respondent contended, saw this as very serious and warranting instant dismissal, adding that Mr Robertson came to that view after making reasonable inquiries. As such, the Respondent submitted Mr von Erkel’s application must be dismissed.
[18] Beyond this, the Respondent posited that Mr von Erkel’s dismissal was fair in any event having regard to a number of matters, including that:
• there was a valid reason for the dismissal;
• the Commission should prefer the evidence of Messrs Hartog, Rotgans and Bain and find that Mr von Erkel urged Mr Hartog to resign his directorship, citing Mr von Erkel’s text message to Mr Rotgans at the time of Mr Hartog’s resignation in which he expressed the view that “it was for the best” that Mr Hartog had resigned;
• clause 13 of Mr von Erkel’s employment contract prohibited him from giving advice or counselling another person to resign;
• clause 9.2(b) of Mr von Erkel’s employment contract prohibited him from doing anything to harm the Respondent;
• in his oral evidence Mr von Erkel stated around 20 times that he gave Mr Hartog advice to resign;
• witnesses confirmed that Mr von Erkel was emphatic/firm/convincing and gave strong advice to Mr Hartog to resign;
• Mr von Erkel hid his knowledge of the reason for Mr Hartog’s resignation from Mr Wilson;
• at the termination meeting Mr von Erkel was notified of the allegations against him and given a full opportunity to respond, adding that he was fully able to respond on the spot but that his response was inadequate; and
• Mr von Erkel was offered but declined to have a support person attend that meeting with him.
[19] Mr Wilson tendered four witness statements dated 5 July 2016, 10 and 24 February 2017 and 14 August 2017 24. In those statements Mr Wilson deposed inter alia that:
• the Respondent was incorporated in 2009 to operate as a solar panel installation business, with Phase Change which started later wholesaling energy-efficient building materials;
• Arvio was incorporated in June 2014 for the purpose of conducting a future business building energy efficient homes;
• as at 9 March 2016 the Respondent employed 11 people and Arvio employed three people;
• in about October 2015 he engaged Mr Pell as an independent contractor to provide information technology (IT) services, adding that in about July 2016 the Respondent’s payroll people asked Mr Pell if he wanted to become an employee with Mr Pell agreeing;
• he was not sure why Mr Pell’s employment was backdated to 18 April 2016;
• Mr Hartog resigned his directorship of Arvio effective 16 October 2015;
• Mr Hartog’s resignation was a big problem for Arvio as it could not do any work as a builder unless it had a registered builder on its board of directors;
• until Christmas 2015 he was Mr von Erkel’s manager and found him to be a poor salesman;
• just before Christmas 2015 Mr Roberston took up the role of Sales Manager and in early January 2016 issued Mr von Erkel with a warning letter;
• he considered moving Mr von Erkel into a Project Manager role, however when he put the proposal to the Arvio board it was rejected fervently by one of the Directors, Mr Hartog;
• Mr von Erkel was never told by him or any members of staff that he would be a Project Manager;
• in late February or early March 2016 Mr Hartog, after being told of the proposition of Mr von Erkel working with him as a Project Manager, told him why he had resigned his directorship in 2015, with Mr Hartog indicating that Mr von Erkel had forced him to resign by telling him that Arvio was about to go bust and that he could be personally sued;
• he subsequently asked Mr Robertson to investigate matter;
• Mr Roberston spoke with both Mr Hartog and Mr Bain, with both confirming what Mr Hartog had told him;
• he then told Mr Roberston to meet with Mr von Erkel to get him to explain himself, adding that he told Mr Robertson that he could decide what should happen;
• Mr Roberston made the decision to dismiss Mr von Erkel in the course of their meeting on 9 March 2016;
• neither the Respondent nor Arvio employ or engage any human resource professionals;
• the Respondent and Arvio were separate companies;
• the Respondent was essentially a vehicle for his family’s interest in the Respondent and Phase Change businesses, whereas Arvio was a vehicle for the Schering and Wilson families’ interest in the Arvio business;
• until late June 2016 Mrs Wilson’s role in relation to the Respondent and Arvio was as a non-employee Director, adding that her role was limited to high level governance and that this changed in June 2016 when she decided to start working semi full-time in the businesses;
• from 27 June 2016 Mrs Wilson had been employed by Arvio as its Managing Director; and
• Mrs Wilson did spend about two or three half days in the office in early March 2016, adding that she attended in a voluntary capacity and not as a paid employee.
[20] In his oral evidence, Mr Wilson reiterated aspects of his witness statements and attested among other things that:
• Arvio was the only business that was currently operating, with the Respondent having no assets and no money 25;
• Arvio purchased the Respondent’s assets, which were primarily stock and computers, with the sale proceeds used to satisfy creditors 26;
• the respective boards of Directors were running the businesses, later adding that while he was involved in many decisions the relevant board directed the Respondent 27;
• Mrs Wilson came into the office for two to three half-days in early March 2016 to see what Ms Burns, who was about to go on maternity leave, did in her job and to see if there was some way the procedures could be documented, adding that Mrs Wilson commenced paid employment with Arvio in June 2016 28;
• after that and prior to commencing full-time duties, Mrs Wilson came into the office for one day late in April to help out with an insurance claim 29;
• with regard to his email of 1 March 2016 which he sent to “Everyone” 30, at that time Mrs Wilson did no work from home as an employee though she may have done so as a Director31;
• payments to Mr Pell were reflected in the Respondent’s payroll system because the Respondent added superannuation to his contractor payments and the only way to do that in QuickBooks was to list the person in the employment category 32;
• Ms Romana Redpath, Ms Burn’s replacement as Office Manager, was probably employed in May or June 2016 33;
• he thought that Mrs Wilson had asked Ms Redpath to create an employment contract for Mr Pell around June or July 2016, adding that Ms Nicole Koek was also involved 34;
• Mr Pell’s duties changed significantly between the time prior to him being made an employee and after, including that he came to company meetings after he became an employee 35;
• when Mr Pell became an employee his duties changed such that he did a lot more internal work because before that he did not have that much involvement with staff, adding that Mr Pell’s duties changed both in nature and amount 36;
• he would occasionally ask Mr Pell to do something which would be considered a direction but that the majority of time Mr Pell would do what he needed to do 37;
• Mr Pell did have a desk at the Respondent’s premises prior to 13 April 2016 38;
• based on the record of hours worked attached to Mr Pell’s witness statement 39 it sounded like Mr Pell effectively worked full-time for the Respondent40;
• the Respondent could bring the arrangement with Mr Pell to an end 41;
• he could not explain why the invoices provided by Mr Pell were all made out to the Respondent despite Mr Pell performing work for Arvio 42;
• as General Manager he had some ability to control the affairs of the Respondent and Arvio 43;
• the Respondent and Arvio were not related companies in the sense of the law, later adding that the entities and Phase Change were not associated in any way except for the fact that one of the Directors was on two of the boards 44; and
• the affairs of the Respondent and Arvio and their operations did affect him 45.
[21] Mr Hartog provided two witness statements, the first dated 8 March 2016 46 and the second dated 24 February 201747.
[22] In his first witness statement Mr Hartog deposed that he and Mr Bain were upstairs at the Respondent’s premises when Mr von Erkel called them over and advised him to get out of his directorship as Arvio was “going down”. Specifically Mr Hartog deposed that Mr von Erkel had said “Gerard, get out of the directorship, this company (Arvio) is going down. People are going to start suing the company and wanting money and they are going to come after you. They are going to smell where the money is and take it off you.” Mr Hartog further deposed that he resigned straight away and told Mr Wilson, adding that he had the Australian Securities and Investments Commission (ASIC) notice in his hand.
[23] In his second statement Mr Hartog detailed a previous encounter with Mr von Erkel over work he was undertaking on a new reception bench at the Respondent’s premises and provided further detail regarding their encounter in late October 2015. Regarding the latter issue Mr Hartog reiterated aspects of his initial statement, deposing that Mr von Erkel had said very loudly and forcibly that he should get out as a Director of Arvio. Mr Hartog also deposed that he assumed that it was imminent that Arvio would collapse in the next few days as Mr von Erkel’s desk was located next to Mr Wilson’s desk in an open plan area and he thought that Mr von Erkel had heard something and knew what he was talking about. Mr Hartog further deposed that he resigned that night as a Director on the basis that Mr von Erkel had convinced him that what he had said was true. Finally, Mr Hartog opined in his statement that after discussing events with Mr Wilson he formed the view that Mr von Erkel had encouraged him to resign as a ploy to push him out of the directorship to create room for Arvio to use another building licence.
[24] In his oral evidence Mr Hartog attested among other things that:
• while Mr von Erkel was very affirmative in their conversation, the conversation was not confrontational;
• it was Mr von Erkel who raised the issue of him resigning his directorship;
• he was a silent Director, adding that he was a signatory to certain things and a necessity for the company to operate as he had to be a Director to be the licence bearer of the building company (i.e. Arvio) and that it was explained to him that he was not an actively involved Director in the running of the company 48;
• his employment contract provided that he was a Director;
• he considered Mr and Mrs Wilson to be the main players in the business, later adding that it was fair to say that it was Mr Wilson’s business;
• it was possible that he had concerns about the viability of Arvio before speaking to Mr von Erkel and that he had expressed those concerns to others, though any such concerns were nowhere as bad as his concerns after speaking with Mr von Erkel;
• it was possible that Mr Rotgans was present at his conversation with Mr von Erkel though he did not remember him being there;
• he resigned from his directorship solely on the basis of what Mr von Erkel had said to him, adding that Mr von Erkel had coerced him into deciding to resign his directorship 49;
• with regard to his first witness statement in which he deposed that he had the ASIC notice in his hand, he did come to the Respondent’s premises that day with the notice in his pocket, later retracting that evidence after an interjection from Mr Wilson on the basis that the question was put to him in such a way that he was confused 50;
• he disagreed that he resigned because he was already disposed towards doing so rather than because of anything Mr von Erkel had said to him 51;
• he did not have any evidence to substantiate his contention that the incident was ploy by Mr von Erkel to push him out of his directorship and create room for Arvio to use another building licence 52;
• everything he put in his testimony was correct 53; and
• he would not have resigned his directorship but for what Mr von Erkel had said to him, adding that he would have spoken to Mr Wilson first 54.
[25] Mr Bain deposed in his witness statement 55 that after returning late from a job with Mr Hartog they met Mr von Erkel who told Mr Hartog among other things that he should “get out of his directorship immediately as the company (Arvio) was going to collapse.”
[26] Key aspects of Mr Bain’s oral evidence included that:
• he was a good friend of Mr Hartog;
• Mr Rotgans was also present at the some point of the conversation between Mr Hartog and Mr von Erkel;
• he did not believe that the discussion was heated;
• he could not recall how the conversation started but believed that as the conversation went on Mr Hartog was concerned about his position as a Director of Arvio;
• he recalled that Mr von Erkel was emphatic in the conversation 56;
• from what he recalled of the conversation he knew that Mr von Erkel had concerns about Arvio and Mr Wilson and that he basically told Mr Hartog that it might be good were he to resign as a Director 57;
• he could not recall the word-for-word conversation that occurred;
• Mr Robertson assisted him in preparing his statement, adding that he told Mr Robertson what he had said with Mr Robertson writing it up and he then agreeing to the statement and signing it;
• he could not recall if it was Mr Hartog or someone else who had first raised the issue of resignation; and
• Mr Gray after being let go in mid-2015 returned at some later point to work for the business as a contractor doing the exact same work he had previously done as an employee 58.
[27] Mr Pell provided two witness statements 59 dated 6 July 2016 and 10 February 2017 respectively. In his second statement Mr Pell deposed that in the early 1980’s he set up a company to run his own computer business, Automation Electronics. Mr Pell stated that he started working at Arvio shortly after bumping into Mr Wilson at a trade show in mid-2015, deposing that he considered himself a contractor rather than an employee as among other things he worked the hours that he wanted to work. While in the first few weeks Mr Pell continued to service his business’s other clients he deposed that he gradually stopped doing so as he was devoting most of his time to Arvio. Mr Pell further deposed that by about July 2016 he had not invoiced Arvio for his work and he was happy living off his savings. Mr Pell also deposed that at that time Ms Redpath asked him if he wanted to be made an employee. Mr Pell’s evidence was that he indicated that he would prefer that and that he would be employed at $75 per hour for 38 hours per week. Mr Pell stated that Ms Redpath indicated that the arrangement was backdated to 18 April 2016 and that he did not know why Ms Redpath chose that date. Mr Pell also deposed that Ms Redpath generated a set of invoices for his services covering the period 19 January to 18 April 201660, adding that he paid the goods and services tax (GST) on the amounts paid to him. By way of background, all but one of those invoices was for the amount of $1816.82, with the other invoice being for the amount of $1816.78.
[28] Mr Pell’s oral evidence largely traversed the issues canvassed in his second witness statement. Among other things Mr Pell attested that he commenced working with the Respondent as a consultant and that during the period he worked as a consultant he worked for other people as well 61, he did not work under direct instruction and was basically his own boss62, he decided what hours he should work63, he paid his own superannuation64, he used his own tools and equipment65, he paid GST and submitted business activity statements66, he still helped other clients who called him about issues with that work being an hour or two a week at the most67, he had never needed to advertise his business as word of mouth provided him more work than he could do68 and he never used business cards or anything that referenced him to the Respondent69.
[29] Other key aspects of Mr Pell’s oral evidence included that:
• Mr Wilson deposited $5000 into his account around Christmas 2015 in circumstances where he had not invoiced the Respondent, with that payment not the subject of an invoice 70;
• his business’ registration for GST ceased around mid-2016 following advice from his accountant 71;
• the work he performed as an employee was the same work he performed as a contractor 72;
• the invoices attached to his second statement were not tax invoices, adding that he believed supplementary invoices which were not in evidence had been prepared and that his accountant sorted out the tax for him;
• he did not recall how the amounts he invoiced the Respondent had been derived or whether tax had been withheld from the payments as his accountants sorted out the tax for him 73;
• Mrs Wilson sat at Mr von Erkel’ former desk 74; and
• he did not have a strong recollection of how much time Mrs Wilson spent in the Respondent’s premises in the period leading up to March/April 2016, adding that in recent times she had been attending every second day 75.
[30] Mrs Wilson also provided two witness statements 76. In her statements Mrs Wilson deposed among other things that:
• as a Director of the Respondent she held the non-executive position of Director and was not employed as Managing Director, nor any other position of employment with the Respondent or Arvio on or before 9 March 2016;
• Mr Pell was a contractor for a number of reasons including that he had a business and an ABN, he could work for other clients, he directed his own work, he used his own tools, and he decided when and how he worked;
• on 9 March 2016 the Respondent employed 11 staff and Arvio employed three staff;
• Arvio was the Respondent with a building licence, with the entities managed as one;
• Mr Hartog was required as a Director of Arvio as he was the builder who held the building licence under which Arvio was trading;
• as a non-executive Director, she did not manage the employees of the Respondent or Arvio;
• she had been a Director of the Respondent since 2011 and of Arvio since its incorporation in June 2014;
• in June 2016 she decided to start working semi full-time in the businesses and from 27 June 2016 she had been employed by Arvio as its Managing Director;
• at all relevant times she owned all the shares in the Respondent and half of the shares in Arvio, adding that she held those shares in trust for her family trust;
• the other half of the shares in Arvio were owned by Mr Schering as trustee for his family trust; and
• the Respondent and Arvio were separate companies, adding that the Respondent did not have any legal right or practical ability to control the affairs of Arvio and vice versa and that the Respondent did not have any investments in Arvio, or any beneficial interest in any third party’s investment in Arvio, and vice versa.
[31] Key aspects of Mrs Wilson’s oral evidence included that:
• the Respondent had ceased trading in July 2016, adding that it had not been wound up and that it did not have any assets or debts 77;
• she and Mr Wilson held 50 per cent of the shares in Arvio, with the other 50 per cent of shares held by the Schering family who had an equal say in the company and how it was run 78;
• she did not have an employment contract with the Respondent in the period 1 January to 13 April 2016 nor did she work as an employee at either the Respondent’s premises or at home during that period, later adding that she did not have a designated desk at the Respondent’s premises to sit at during this period because she did not work at the office 79;
• there were a couple of occasions in March or April 2016 when she called into the Respondent’s premises to sign paperwork in her capacity as a Director, adding that she would never have spent half or whole days in the office because she would have had at least one child with her at all times at that point as a result of not having childcare 80;
• she worked for the Respondent in late May and June 2016 though she would need to refer to her diary to see precisely what days and how many hours she worked 81;
• with regard to her tax return for the financial year 2015/2016, any payments related to her employment by the Respondent would have only been for the May-June 2016 period 82;
• the Respondent, Arvio and Phase Change were not associated entities because they had different shareholders, different directors and all had their own set of books, adding that when she referred to the businesses as associated entities in her witness statement 83 she did so because they were all residing at the one premises as opposed to being associated entities at law84;
• the Respondent’s assets were transferred or sold to Arvio though she did not know what happened to the proceeds of that sale or have any idea as to the value of those assets, adding that the accountant had that in hand 85;
• with regard to the email addressed to “Everyone” which Mr Wilson sent on 1 March 2016 86 which referred to her coming into the office to work “Rather than working from the Home Office”, she was not doing any work from the home office other than that as a Director87;
• she was not in the office prior to April or the end of April 2016, adding that that need first arose around May, June or July when Ms Burn gave notice that she was leaving 88; and
• she had no involvement in Mr von Erkel’s dismissal 89.
[32] Mr Robertson provided three witness statements in respect of the Respondent’s second jurisdictional objection and the merits of Mr von Erkel’s application. Those statements were dated 22 September 2016 and 24 February and 17 November 2017 respectively 90. In those statements, Mr Robertson deposed among other things that:
• just before Christmas 2015 Mr Wilson asked him to become Sales Manager and manage Mr von Erkel;
• on two occasions between 11 January and 2 March 2016 he gave Mr von Erkel a verbal warning that unless he started looking to meet his sales targets he would get an official warning letter;
• at no stage did he say to Mr von Erkel that he had been offered the job of Project Manager or congratulate him regarding that role;
• in early March Mr Wilson told him that Mr von Erkel had frightened Mr Hartog into resigning as a Director and asked him to speak with both Mr Hartog and Mr Bain to find out what happened;
• Mr Wilson also said to him that it was up him to decide what to do about it and that he would support whatever decision he took;
• both Mr Hartog and Mr Bain told him that Mr von Erkel had called Mr Hartog over and told him that Arvio was about to go under and yelled at him to get out or the creditors would take everything;
• he asked Mr Hartog and Mr Bain to make signed statements which they did, adding that Mr Hartog dictated his statement to him, that he put together a statement for Mr Bain based on his notes of their conversation and that at no point did he influence or in any way colour their statements with his own thoughts on the matter;
• at the time and subject to anything Mr von Erkel might say in his defence, he considered what Mr von Erkel had done to be both serious misconduct under his contract of employment and conduct that was likely to injure the reputation of the company;
• accordingly he took the view that unless Mr von Erkel had a good answer to give that he would invite him to resign and if he did not that he would dismiss him, particularly as Mr von Erkel had been given a warning letter in the previous week which warned that any further transgressions may result in his dismissal;
• he and Ms Burn met with Mr von Erkel on the morning of 9 March 2016 to discuss the matter, with Ms Burn asking Mr von Erkel prior to the meeting whether he wanted to have another staff member present which he declined;
• the meeting was taped and later transcribed by Ms Burn 91;
• at the meeting he considered Mr von Erkel evasive in responding to the allegation that he had encouraged Mr Hartog to resign his directorship, adding that he did not believe Mr von Erkel was telling the truth when he denied telling Mr Hartog to resign;
• he considered Mr von Erkel’s action inconsistent with clause 9.2 of his employment contract;
• during the course of the meeting Mr von Erkel said some things which he thought were completely unacceptable and constituted grounds for instant dismissal, e.g. describing Mr Hartog as a “weak note” and a “simpleton”;
• he showed Mr von Erkel both the resignation and termination letters and asked him to choose;
• after Mr von Erkel had left the premises he received a text message from him which again called Mr Hartog a simpleton and a “puppet” of Mr Wilson; and
• he was aware of Mr von Erkel’s treatment for cancer when he decided to dismiss him.
[33] Key aspects of Mr Robertson’s oral evidence were that:
• he found Mr von Erkel’s performance to be substandard 92;
• he interviewed both Mr Hartog and Mr Bain with a view to finding out what had happened, adding that he had done so in a fair and open way and that he believed their statements were factually correct 93;
• when he interviewed Mr von Erkel on 9 March 2016 he thought his responses were uneven and not credible as he was contradicting himself and overall he doubted the veracity of Mr von Erkel’s statements 94;
• on the basis of Mr von Erkel’s statement he did not believe that he should have been able to retain his employment as he thought Mr von Erkel was insulting of Mr Hartog and highly disparaging of his abilities, adding that this led him to believe that it was highly probable that Mr von Erkel had done what he was accused of, i.e. bullying Mr Hartog into resigning his directorship 95;
• he did not enter the meeting with Mr von Erkel with the intention of dismissing him but rather to find out from Mr von Erkel what had occurred from his perspective, adding that at the end of the meeting he had formed the opinion that it was highly likely Mr von Erkel had in fact done what he was accused of 96;
• he formed the view that Mr von Erkel had bullied Mr Hartog into resigning after speaking with Mr Hartog, Mr Bain and Mr von Erkel, adding that he did not believe Mr von Erkel’s story over Mr Hartog’s or Mr Bain’s 97;
• he had not approached the matter with a coloured disposition against Mr von Erkel 98;
• while he wrote Mr Hartog’s and Mr Bain’s witness statements his role was more of a notary, adding that he was not writing their witness statements as such and that the statements were theirs 99;
• he did not interview Mr Rotgans as he did not know he was there, adding that no one had indicated that a fourth person was present 100;
• he had used the words “Father, Son and Holy Ghost” in the extension of time proceedings to describe the companies as being one and the same 101;
• he generally got on pretty well with Mr von Erkel 102;
• in concluding that Mr von Erkel had bullied Mr Hartog into resigning his directorship he also relied on his belief that Mr Hartog and Mr Bain were inherently more honest than Mr von Erkel 103; and
• he did not get any legal advice to support the view expressed in his first witness statement that the companies were associated entities 104.
Mr Rotgans’ evidence
[34] As previously mentioned, Mr Rotgans gave evidence as a result of an Order to attend issued by the Commission.
[35] Key aspects of Mr Rotgans’ evidence were that:
• he was present at the discussion between Mr Von Erkel and Mr Hartog in which it is alleged that Mr von Erkel bullied Mr Hartog into resigning his directorship with Arvio;
• Mr Hartog and Mr Bain came upstairs at the Respondent’s premises to talk to he and Mr von Erkel, adding that they were talking about Mr Hartog’s desire to resign his directorship and that they sought their advice on that matter;
• Mr Hartog’s opinion was that he needed to resign and the conversation resulted in him probably feeling like he need to resign;
• Mr von Erkel’s demeanour was “nothing too out of the ordinary” and “A little more emphatic than me”, later attesting when asked what he meant when he referred to Mr von Erkel as being emphatic that “I don’t remember the conversation – it was two years ago” 105;
• Mr Hartog was his uncle;
• Mr Hartog’s demeanour was “Stressed - visibly stressed, frantic almost, trapped, emotionally strung out – I don’t know”, adding that he thought Mr Hartog felt stressed because he inter alia “didn’t feel like the decision-making process was one that he had input into” 106;
• it was hard for him to say whether Mrs Wilson was working at the Respondent’s premises prior to when Mr von Erkel was dismissed as it was “so long ago” 107;
• he did not believe that Mr von Erkel counselled Mr Hartog to resign on the night in question, adding that he thought the end result of the discussion between those involved was that Mr Hartog should resign and the outcome was not a directive from Mr von Erkel but rather an output of the group discussion 108;
• he described Mr Hartog’s statement to Mr Wilson outlining what Mr von Erkel had said in their discussion (see paragraph [12] above) as possibly being “close to the truth”, later attesting that “… words to that effect, definitely not that dramatic but to that effect had been discussed throughout the conversation” 109;
• he was well aware of Mr Hartog’s desire to resign his directorship “a good six to eight months prior to that discussion” 110; and
• he knew of emails from Mrs Wilson to staff of the Respondent and Arvio prior to the time of Mr von Erkel’s dismissal, adding that he would be able to produce those emails if it was required or ordered by the Commission 111.
The Statutory framework
[36] The Commission exercises its powers in relation to an application for an unfair dismissal remedy pursuant to Part 3-2 of the Act. The relevant provisions from Part 3-2 of the Act are set out below together with the definition of the term “associated entity” set out in s.12 of the Act and s.23 which deals with the meaning of small business employer.
“12 The Dictionary
In this Act:
…
associated entity has the meaning given by section 50AAA of the Corporations Act 2001.
23 Meaning of small business employer
(1) A national system employer is a small business employer at a particular time if the employer employs fewer than 15 employees at that time.
(2) For the purpose of calculating the number of employees employed by the employer at a particular time:
(a) subject to paragraph (b), all employees employed by the employer at that time are to be counted; and
(b) a casual employee is not to be counted unless, at that time, he or she has been employed by the employer on a regular and systematic basis.
(3) For the purpose of calculating the number of employees employed by the employer at a particular time, associated entities are taken to be one entity.
(4) To avoid doubt, in determining whether a national system employer is a small business employer at a particular time in relation to the dismissal of an employee, or termination of an employee’s employment, the employees that are to be counted include (subject to paragraph (2)(b)):
(a) the employee who is being dismissed or whose employment is being terminated; and
(b) any other employee of the employer who is also being dismissed or whose employment is also being terminated.
382 When a person is protected from unfair dismissal
A person is protected from unfair dismissal at a time if, at that time:
(a) the person is an employee who has completed a period of employment with his or her employer of at least the minimum employment period; and
(b) one or more of the following apply:
(i) a modern award covers the person;
(ii) an enterprise agreement applies to the person in relation to the employment;
(iii) the sum of the person’s annual rate of earnings, and such other amounts (if any) worked out in relation to the person in accordance with the regulations, is less than the high income threshold.
383 Meaning of minimum employment period
The minimum employment period is:
(a) if the employer is not a small business employer—6 months ending at the earlier of the following times:
(i) the time when the person is given notice of the dismissal;
(ii) immediately before the dismissal; or
(b) if the employer is a small business employer—one year ending at that time.
Division 3 – What is an unfair dismissal
385 What is an unfair dismissal
A person has been unfairly dismissed if the FWC is satisfied that:
(a) the person has been dismissed; and
(b) the dismissal was harsh, unjust or unreasonable; and
(c) the dismissal was not consistent with the Small Business Fair Dismissal Code; and
(d) the dismissal was not a case of genuine redundancy.
Note: For the definition of consistent with the Small Business Fair Dismissal Code: see section 388.
387 Criteria for considering harshness etc.
In considering whether it is satisfied that a dismissal was harsh, unjust or unreasonable, the FWC must take into account:
(a) whether there was a valid reason for the dismissal related to the person’s capacity or conduct (including its effect on the safety and welfare of other employees); and
(b) whether the person was notified of that reason; and
(c) whether the person was given an opportunity to respond to any reason related to the capacity or conduct of the person; and
(d) any unreasonable refusal by the employer to allow the person to have a support person present to assist at any discussions relating to dismissal; and
(e) if the dismissal related to unsatisfactory performance by the person—whether the person had been warned about that unsatisfactory performance before the dismissal; and
(f) the degree to which the size of the employer’s enterprise would be likely to impact on the procedures followed in effecting the dismissal; and
(g) the degree to which the absence of dedicated human resource management specialists or expertise in the enterprise would be likely to impact on the procedures followed in effecting the dismissal; and
(h) any other matters that the FWC considers relevant.
388 The Small Business Fair Dismissal Code
(1) The Minister may, by legislative instrument, declare a Small Business Fair Dismissal Code.
(2) A person’s dismissal was consistent with the Small Business Fair Dismissal Code if:
(a) immediately before the time of the dismissal or at the time the person was given notice of the dismissal (whichever happened first), the person’s employer was a small business employer; and
(b) the employer complied with the Small Business Fair Dismissal Code in relation to the dismissal.”
[37] The Code declared by the Minister pursuant to s.388(1) of the Act is as follows:
“Summary Dismissal
It is fair for an employer to dismiss an employee without notice or warning when the employer believes on reasonable grounds that the employee’s conduct is sufficiently serious to justify immediate dismissal. Serious misconduct includes theft, fraud, violence and serious breaches of occupational health and safety procedures. For a dismissal to be deemed fair it is sufficient, though not essential, that an allegation of theft, fraud or violence be reported to the police. Of course, the employer must have reasonable grounds for making the report.
Other Dismissal
In other cases, the small business employer must give the employee a reason why he or she is at risk of being dismissed. The reason must be a valid reason based on the employee’s conduct or capacity to do the job.
The employee must be warned verbally or preferably in writing, that he or she risks being dismissed if there is no improvement.
The small business employer must provide the employee with an opportunity to respond to the warning and give the employee a reasonable chance to rectify the problem, having regard to the employee’s response. Rectifying the problem might involve the employer providing additional training and ensuring the employee knows the employer’s job expectations.
Procedural Matters
In discussions with an employee in circumstances where dismissal is possible, the employee can have another person present to assist. However, the other person cannot be a lawyer acting in a professional capacity.
A small business employer will be required to provide evidence of compliance with the Code if the employee makes a claim for unfair dismissal to Fair Work Australia, including evidence that a warning has been given (except in cases of summary dismissal). Evidence may include a completed checklist, copies of written warning(s), a statement of termination or signed witness statements.”
Consideration of the issues
[38] It was not disputed that Mr von Erkel was protected from unfair dismissal. With regard to s.385 of the Act, there is no dispute that Mr von Erkel was dismissed, so s.385(a) of the Act is satisfied. Mr von Erkel contended that his dismissal was harsh, unjust or unreasonable, so s.385(b) is relevant. The Respondent contended that it was a small business employer and that the dismissal was consistent with the Code, so s.385(c) is also relevant. The termination was not a case of redundancy, so s.385(d) does not apply.
[39] Therefore, in determining whether or not Mr von Erkel was unfairly dismissed, I must determine the following disputed factual issues:
• whether the Respondent is a small business employer, with a related issue being whether the Respondent and Arvio are associated entities for the purposes of the Act;
• if the Respondent is a small business employer whether Mr von Erkel’s dismissal was consistent with the Code as per s.385(c) of the Act;
• if the Respondent is not a small business employer and/or the dismissal was not consistent with the Code, whether Mr von Erkel’s dismissal was harsh, unjust or unreasonable as per s.385(b) of the Act.
[40] I will deal with each of those issues separately starting with the associated entity issue.
Are the Respondent and Arvio associated entities for the purposes of the Act?
[41] Section 12 of the Act defines an associated entity by reference to s.50AAA of the Corporations Act. Sections 50AAA and 50AA (which sets out the meaning of control) of the Corporations Act provide as follows:
“50AAA Associated entities
(1) One entity (the associate) is an associated entity of another entity (the principal) if subsection (2), (3), (4), (5), (6) or (7) is satisfied.
(2) This subsection is satisfied if the associate and the principal are related bodies corporate.
(3) This subsection is satisfied if the principal controls the associate.
(4) This subsection is satisfied if:
(a) the associate controls the principal; and
(b) the operations, resources or affairs of the principal are material to the associate.
(5) This subsection is satisfied if:
(a) the associate has a qualifying investment (see subsection (8)) in the principal; and
(b) the associate has significant influence over the principal; and
(c) the interest is material to the associate.
(6) This subsection is satisfied if:
(a) the principal has a qualifying investment (see subsection (8)) in the associate; and
(b) the principal has significant influence over the associate; and
(c) the interest is material to the principal.
(7) This subsection is satisfied if:
(a) an entity (the third entity) controls both the principal and the associate; and
(b) the operations, resources or affairs of the principal and the associate are both material to the third entity.
(8) For the purposes of this section, one entity (the first entity) has a qualifying investmentin another entity (the second entity) if the first entity:
(a) has an asset that is an investment in the second entity; or
(b) has an asset that is the beneficial interest in an investment in the second entity and has control over that asset.
50AA Control
(1) For the purposes of this Act, an entity controls a second entity if the first entity has the capacity to determine the outcome of decisions about the second entity's financial and operating policies.
(2) In determining whether the first entity has this capacity:
(a) the practical influence the first entity can exert (rather than the rights it can enforce) is the issue to be considered; and
(b) any practice or pattern of behaviour affecting the second entity's financial or operating policies is to be taken into account (even if it involves a breach of an agreement or a breach of trust).
(3) The first entity does not control the second entity merely because the first entity and a third entity jointly have the capacity to determine the outcome of decisions about the second entity's financial and operating policies.
(4) If the first entity:
(a) has the capacity to influence decisions about the second entity's financial and operating policies; and
(b) is under a legal obligation to exercise that capacity for the benefit of someone other than the first entity's members;
the first entity is taken not to control the second entity.”
[42] In this case the Respondent is considered to be the principal for the purposes of s.50AAA of the Corporations Act, on the basis that it was established first, while Arvio is considered the associate.
[43] An ASIC Current and Historical Company Extract in respect of Arvio which was tendered by Mr von Erkel 112 states that at the date of his dismissal, Arvio had two Directors, Mrs Wilson and Mr Hartog. The Extract further states that Mrs Wilson and Mr Schering each held half of the ordinary shares in Arvio, with those shares not beneficially held. The Extract is dated 28 June 2016.
[44] Mrs Wilson’s evidence included that:
• Arvio was the Respondent with a building licence, with the entities managed as one;
• at all relevant times she owned all the shares in the Respondent and half of the shares in Arvio adding that she held those shares in trust for her family trust;
• she had been a Director of the Respondent since 2011 and of Arvio since its incorporation in June 2014; and
• she and Mr Wilson held 50 per cent of the shares in Arvio, with the other 50 per cent of shares held by the Schering family who had an equal say in the company and how it was run; and
• the Respondent and Arvio were separate companies, adding that the Respondent did not have any legal right or practical ability to control the affairs of Arvio and vice versa and that the Respondent did not have any investments in Arvio, or any beneficial interest in any third party’s investment in Arvio, and vice versa.
[45] Mr Hartog’s evidence was that he was a silent Director in Arvio, adding that he was a signatory to certain things and a necessity for it to operate as he had to be a Director to be the licence bearer of the building company (i.e. Arvio) and that it was explained to him that he was not an actively involved Director in the running of the company. Mr Hartog also attested that he considered Mr and Mrs Wilson to be the main players in the business and that it was fair to say that it was Mr Wilson’s business.
[46] Mr Wilson attested that the respective boards of Directors were running the businesses, that while he was involved in many decisions the relevant board directed the Respondent and that the affairs of the Respondent and Arvio and their operations did affect him.
[47] The above evidence supports a finding that in circumstances where Mrs Wilson owned all the shares in the Respondent (i.e. the principal), was a Director of the Respondent (the principal), was one of two Directors in Arvio (i.e. the associate) with the other Director, Mr Hartog, describing himself as a silent Director who as a Director was not actively involved in the running of the company, that she controlled both the Principal and the associate at the time of Mr von Erkel’s dismissal. This in turn supports a finding that s.50AAA(7) of the Corporations Act is satisfied on the basis that Mrs Wilson is an entity for the purposes of the provision. By way of background, s.64A of the Corporations Act defines entities as follows:
“64A Entities
Except in Chapter 2E, a reference to an entity:
(a) is a reference to a natural person, a body corporate (other than an exempt public authority), a partnership or a trust; and
(b) includes, in the case of a trust, a reference to the trustee of the trust.” (Underlining added)
[48] In other words, the material before the Commission supports a finding that the Respondent and Arvio are associated entities for the purposes of the Act. In circumstances where it is not disputed that Phase Change did not employ any staff, it is not necessary to determine the issue of whether it also is an associated entity of the Respondent.
Is the Respondent a small business employer?
[49] It is not disputed that at the time of Mr von Erkel’s dismissal that the Respondent employed 11 staff and that Arvio employed three staff. However, what is disputed is whether Mrs Wilson, Mr Pell and Mr Gray should be considered employees. As previously noted, Mr von Erkel contended that Messrs Davenport and Jackson might also be employees. However, the only material before the Commission relating to these two individuals is the record of superannuation contributions made by the Respondent or Arvio to all persons employed or contracted for the period 1 January to 30 April 2016 113. The material indicates that one contribution was made in respect of Mr Davenport and that four contributions were made in respect of Mr Jackson but does not specify the dates on which the contributions were made/paid. There is no record of any other payments made to either person. As such, there is insufficient material before the Commission to conclude that either person was an employee or that they were working for the Respondent at the time of Mr von Erkel’s dismissal. Accordingly, they will not be taken into consideration in determining whether or not the Respondent is a small business employer for the purposes of the Act.
[50] Similarly, with regard to Mr Gray there is no material before the Commission which points to him working for either the Respondent or Arvio at the time of Mr von Erkel’s dismissal. Documents produced to the Commission by the Respondent as a result of an Order issued by the Commission on 4 December 2017 indicate that the last payment made to Mr Gray was made on 19 October 2015 and that Mr Gray’s employment with the Respondent ceased in late July 2015. There was no record of Mr Gray having been re-engaged by either the Respondent or Arvio prior to 30 June 2016 (the period specified in the Order to produce issued by the Commission). Therefore Mr Gray will also not be taken into consideration in determining whether or not the Respondent is a small business employer for the purposes of the Act.
[51] With regard to Mrs Wilson, in accordance with an Order made by the Commission on 4 December 2017 Mr Rotgans produced copies of emails that were sent by, addressed to or copied to Mrs Wilson or were about Mrs Wilson over the period 1 January to 30 June 2016. There are a number of emails which do not appear to be related to her role as a Director of the Respondent and Arvio. Those emails are detailed below.
[52] The first email is the previously mentioned email sent by Mr Wilson to “Everyone” on 1 March 2016 114. Also on 1 March 2016 Mrs Wilson sent an email to Ms Burn in the following terms:
“Hi Hayley,
My PC doesn’t have server access yet, so could I trouble you to email me a copy of the current organisational chart …
We are just looking to review and update it with regards to the employees under the different entities etc. Perhaps you could note just the name of the employee is not reflected on the chart yet.”
[53] On 2 March 2016 Mrs Wilson responded as follows to the abovementioned 1 March 2016 email sent by Mr Wilson:
“Thank you Paul.
I will be in the office next Tuesday from 9am – 2:30pm, so please come and see me if you have feedback or ideas regarding your role as Arvio moves into the construction phase. If you are not in the office on that day please feel free to email me your ideas and or comments or call me anytime on my mobile …
Please be visionary in your thinking and if there are any uniform items you think you may need as we move forward into the construction phase, please let me know so we can determine what may need branding with a logo. For example, safety vests with Arvio branding etc.”
[54] On 8 March 2016 Mrs Wilson sent an email to “Everyone” with the subject heading “Office Administration – Job Files”. The email read:
“Hello Everyone,
This morning I have archived ALL customer job files that were created and closed as at end 2015. These were filed in the white cabinet in Rob and Hayley’s office. They have been archived in 4 small brown boxes, clearly labelled ARCHIVE and in alphabetical order. All job folders are included, ie PCM and Solar. These will be stored in the warehouse by Andrew.
All incomplete jobs, even if it is installed but awaiting payment processing etc are considered CURRENT or active jobs. These have not been archived.
However, please ensure all current job folders are where they should be so that they can be processed and closed once installation is complete.
Please use the bright yellow folders for all new jobs so that all 2016 Jobs are in Bright Yellow ...
Once current or active jobs are completed they will be filed in the white cabinet in Rob/Hayley’s office ...”
[55] Beyond that, there are a series of emails over a period of 7 to 10 days in late April relating to a matter involving the Respondent in the NSW Civil and Administrative Tribunal. I note that these emails were all sent after Mr von Erkel’s dismissal.
[56] The Respondent, Arvio and Phase Change also produced a copy of Mrs Wilson’s Outlook calendar for the period March to June 2016 in accordance with an Order Requiring Production of Documents etc. to the Fair Work Commission made on 22 November 2017. In respect of March it indicates that Mrs Wilson had board meetings scheduled for 3 and 23 March 2016. These are the only business related commitments shown in the document for March 2016. As to April 2016, the document does not show Mrs Wilson as having any business related commitments.
[57] Also produced to the Commission were copies of Mrs Wilson’s individual tax return for 2015/2016 and her associated PAYG payment summary issued by the Respondent. The latter document indicates that Mrs Wilson was paid gross payments of almost $7000 with the period of payment specified as 01/07/2015 to 30/06/2016. The documents are of little assistance in determining whether or not Mrs Wilson was an employee at the time of Mr von Erkel’s dismissal.
[58] Finally, as previously noted Mr Wilson’s evidence was that until late June 2016 Mrs Wilson’s role in relation to the Respondent and Arvio was limited to high level governance (I note that the emails set out above do not support that contention) and that Mrs Wilson did spend about two or three half days in the office in early March 2016 in a voluntary capacity as opposed to as a paid employee.
[59] Having regard to all of the material before the Commission regarding Mrs Wilson, there is no evidence that Mrs Wilson performed paid work for the Respondent over the period March/April 2016 either at the Respondent’s premises or at home. In short, there is insufficient evidence to conclude that Mrs Wilson was an employee at the time of Mr von Erkel’s dismissal.
[60] With regard to Mr Pell, the approach to distinguishing between employees and subcontractors was summarised by the Full Bench in Jiang Shen Cai trading as French Accent v Do Rozario 115 (Cai) as follows:
“[30] The general law approach to distinguishing between employees and independent contractors may be summarised as follows:
(1) In determining whether a worker is an employee or an independent contractor the ultimate question is whether the worker is the servant of another in that other’s business, or whether the worker carries on a trade or business of his or her own behalf: that is, whether, viewed as a practical matter, the putative worker could be said to be conducting a business of his or her own of which the work in question forms part? This question is concerned with the objective character of the relationship. It is answered by considering the terms of the contract and the totality of the relationship.
(2) The nature of the work performed and the manner in which it is performed must always be considered. This will always be relevant to the identification of relevant indicia and the relative weight to be assigned to various indicia and may often be relevant to the construction of ambiguous terms in the contract.
(3) The terms and terminology of the contract are always important. However, the parties cannot alter the true nature of their relationship by putting a different label on it. In particular, an express term that the worker is an independent contractor cannot take effect according to its terms if it contradicts the effect of the terms of the contract as a whole: the parties cannot deem the relationship between themselves to be something it is not. Similarly, subsequent conduct of the parties may demonstrate that relationship has a character contrary to the terms of the contract.
(4) Consideration should then be given to the various indicia identified in Stevens v Brodribb Sawmilling Co Pty Ltd and the other authorities as are relevant in the particular context. For ease of reference the following is a list of indicia identified in the authorities:
• Whether the putative employer exercises, or has the right to exercise, control over the manner in which work is performed, place or work, hours of work and the like.
Control of this sort is indicative of a relationship of employment. The absence of such control or the right to exercise control is indicative of an independent contract. While control of this sort is a significant factor it is not by itself determinative. In particular, the absence of control over the way in which work is performed is not a strong indicator that a worker is an independent contractor where the work involves a high degree of skill and expertise. On the other hand, where there is a high level of control over the way in which work is performed and the worker is presented to the world at large as a representative of the business then this weighs significantly in favour of the worker being an employee.
“The question is not whether in practice the work was in fact done subject to a direction and control exercised by an actual supervision or whether an actual supervision was possible but whether ultimate authority over the man in the performance of his work resided in the employer so that he was subject to the latter’s order and directions.” “[B]ut in some circumstances it may even be a mistake to treat as decisive a reservation of control over the manner in which work is performed for another. That was made clear in Queensland Stations Pty. Ltd v Federal Commissioner of Taxation, a case involving a droving contract in which Dixon J observed that the reservation of a right to direct or superintend the performance of the task cannot transform into a contract of service what in essence is an independent contract.”
• Whether the worker performs work for others (or has a genuine and practical entitlement to do so).
The right to the exclusive services of the person engaged is characteristic of the employment relationship. On the other hand, working for others (or the genuine and practical entitlement to do so) suggests an independent contract.
• Whether the worker has a separate place of work and or advertises his or her services to the world at large.
• Whether the worker provides and maintains significant tools or equipment.
Where the worker’s investment in capital equipment is substantial and a substantial degree of skill or training is required to use or operate that equipment the worker will be an independent contractor in the absence of overwhelming indications to the contrary.
• Whether the work can be delegated or subcontracted.
If the worker is contractually entitled to delegate the work to others (without reference to the putative employer) then this is a strong indicator that the worker is an independent contractor. This is because a contract of service (as distinct from a contract for services) is personal in nature: it is a contract for the supply of the services of the worker personally.
• Whether the putative employer has the right to suspend or dismiss the person engaged.
• Whether the putative employer presents the worker to the world at large as an emanation of the business.
Typically, this will arise because the worker is required to wear the livery of the putative employer.
• Whether income tax is deducted from remuneration paid to the worker.
• Whether the worker is remunerated by periodic wage or salary or by reference to completion of tasks.
Employees tend to be paid a periodic wage or salary. Independent contractors tend to be paid by reference to completion of tasks. Obviously, in the modern economy this distinction has reduced relevance.
• Whether the worker is provided with paid holidays or sick leave.
• Whether the work involves a profession, trade or distinct calling on the part of the person engaged.
Such persons tend to be engaged as independent contractors rather than as employees.
• Whether the worker creates goodwill or saleable assets in the course of his or her work.
• Whether the worker spends a significant portion of his remuneration on business expenses.
It should be borne in mind that no list of indicia is to be regarded as comprehensive or exhaustive and the weight to be given to particular indicia will vary according to the circumstances. Features of the relationship in a particular case which do not appear in this list may nevertheless be relevant to a determination of the ultimate question.
(5) Where a consideration of the indicia (in the context of the nature of the work performed and the terms of the contract) points one way or overwhelmingly one way so as to yield a clear result, the determination should be in accordance with that result. However, a consideration of the indicia is not a mechanical exercise of running through items on a check list to see whether they are present in, or absent from, a given situation. The object of the exercise is to paint a picture of the relationship from the accumulation of detail. The overall effect can only be appreciated by standing back from the detailed picture which has been painted, by viewing it from a distance and by making an informed, considered, qualitative appreciation of the whole. It is a matter of the overall effect of the detail, which is not necessarily the same as the sum total of the individual details. Not all details are of equal weight or importance in any given situation. The details may also vary in importance from one situation to another. The ultimate question remains as stated in (1) above. If, having approached the matter in that way, the relationship remains ambiguous, such that the ultimate question cannot be answered with satisfaction one way or the other, then the parties can remove that ambiguity a term that declares the relationship to have one character or the other.
(6) If the result is still uncertain then the determination should be guided by “matters which are expressive of the fundamental concerns underlying the doctrine of vicarious liability” including the “notions” referred to in paragraphs [41] and [42] of Hollis v Vabu.” 116 (Endnotes not included)
[61] The evidence in this case regarding Mr Pell indicates that he did not invoice the Respondent until after Ms Redpath had commenced employment with Arvio on 14 June 2016 117. In terms of payments Mr Pell received a payment of $5000 around Christmas 2015 with the invoices prepared by Ms Redpath on his behalf backdated to cover the period 19 January to 18 April 2016. As to how the amount invoiced was derived, Mr Pell was unable to shed any light though he later disagreed that one inference which could be drawn from the invoices was that he was an employee, attesting instead that it was a regular amount just because “the accountants wanted to have a uniform figure ... so they can plan and know exactly what it is going to be.”118Mr Pell also attested that while he was invoicing his other clients he did not invoice the Respondent as he was “too busy working” and that his other clients would confirm that he was very poor at producing invoices such that those clients would need to chase him to pay him119.
[62] The work performed by Mr Pell was a mix of what was described as in-house IT work and development work on major projects such as Emax and Automation Development and DC lighting control, with the development work on average representing about 90 per cent of his work 120. Mr Pell’s evidence in respect of the major projects was that Mr Schering was his main contact at the Respondent, with the delineation of work being that Ms Schering looked after the software aspects of the major projects while Mr Pell was responsible for the hardware side of those projects121. Significantly, Mr Pell attested that the work he performed as an employee was the same work he performed as a contractor. Conversely, Mr Wilson’s evidence was that Mr Pell’s duties changed significantly on becoming an employee. I prefer Mr Pell’s evidence on this issue. As to Mr Pell’s hours of work, over the period 19 October 2015 to 15 April 2016 they ranged from 18 per week up to 52 hours per week, with 7 out of the 25 weeks worked over this period involving a total of less than 38 hours per week and 14 out of the 25 weeks involving 40 or more hours per week122. As previously noted, Mr Pell attested that he decided what hours he should work.
[63] I note also that the invoices provided by Mr Pell were made out to the Respondent despite the fact that he performed work for Arvio as well, describe the work he performed as “Professional Services” and do not identify any deduction for tax purposes or any GST amount. Mr Pell also attested that the invoices attached to his second witness statement were not tax invoices, that he believed supplementary invoices which were not in evidence had been prepared and that his accountant sorted out the tax for him. However, in response to an Order to produce made by the Commission on 22 November 2017 which among other things ordered that copies of those supplementary invoices be produced Mr Pell advised that all invoices from his business to the Respondent or Arvio had been provided to the Commission and that there were no further invoices. That Order also required the production of all business activity statements submitted by or for Mr Pell or any entity associated with Mr Pell to the Australian Taxation Office (ATO) for the financial years ending 30 June 2015 and 30 June 2016. However, what was produced was a letter from the ATO to Mr Pell’s company Automation Electronics stating that its GST registration had been cancelled with effect from 30 June 2015, i.e. no business activity statements were produced. This raises doubts about the reliability of aspects of Mr Pell’s evidence regarding his financial/taxation arrangements.
[64] Turning to the relevant considerations set out in Cai I would highlight that one of the practical difficulties in this case is the absence of any contract setting out the nature of the relationship between the Respondent and Mr Pell prior to Mr Pell being engaged as an employee. The only document which sets out the nature of the relationship is a copy of Mr Pell’s employment agreement with Arvio which specifies a commencement date of 1 July 2016 123. That document is of no assistance in determining whether Mr Pell was an independent contractor at the time of Mr von Erkel’s dismissal.
[65] With regard to the indicia as summarised in Cai, there are a number of indicia that point to Mr Pell being a contractor. Those indicia are that:
• other than identifying the tasks to be performed by Mr Pell, the Respondent exercised no control over Mr Pell in terms of how and when the task was performed;
• Mr Pell maintained his own tools and equipment;
• there was no evidence that Mr Pell was presented to the world as an emanation of the Respondent’s business;
• there was no evidence that income tax was deducted from Mr Pell’s payments – Mr Pell attested that he paid GST and submitted business activity statements but as noted above he did not produce any documentary evidence to substantiate his evidence in this regard;
• Mr Pell was not provided with paid leave;
• Mr Pell performed work for other clients, though the volume of that work declined as his engagement with the Respondent continued; and
• as an IT professional Mr Pell had a calling which differed from the respondent’s business.
[66] Conversely, there are also a number of indicia that point to Mr Pell being an employee. Those indicia are that:
• Mr Pell did not advertise his services to the world at large, preferring word of mouth referrals;
• while Mr Pell performed some work at home, the majority of his work for the Respondent was performed at the Respondent’s premises;
• there was no evidence that Mr Pell had the ability to delegate or subcontract his work;
• Mr Wilson acknowledged that he could bring the arrangement with Mr Pell to an end;
• the invoices provided by Mr Pell were for a regular amount which had the appearance of a wage or salary, though in his evidence Mr Pell indirectly characterised the arrangement as somewhat akin to the payment of a regular retainer to comply with his clients’ budgeting practices;
• there was no evidence that Mr Pell’s efforts created goodwill or saleable assets for his business; and
• there was no evidence that Mr Pell spent a significant portion of his remuneration on business expenses.
[67] Drawing on the above summary and having regard to the totality of the relationship between the Respondent and Mr Pell points to Mr Pell working in the Respondent’s business for the benefit of the Respondent as opposed to his own business. The fact that Mr Pell had a significant degree of control over his work is, in my view, reflective of his expertise/specialist skills rather than the nature of his engagement. Particularly compelling in my view was Mr Pell’s evidence that his work as an employee was no different from the work he performed as an employee. Accordingly, the material before the Commission supports a finding that Mr Pell was an employee as opposed to an independent contractor at the time of Mr von Erkel’s dismissal.
[68] That finding results in the Respondent having 15 employees as at the date of Mr von Erkel’s dismissal. Accordingly, the Respondent is not a small business employer for the purposes of the Act.
Was Mr von Erkel’s dismissal consistent with the Code?
[69] As the Respondent is not a small business employer for the purposes of the Act, the Code does not apply. Therefore the Commission does not need to determine the issue of whether or not Mr von Erkel’s dismissal was consistent with the Code.
Was Mr von Erkel’s dismissal harsh, unjust of unreasonable?
[70] In circumstances where the Commission has determined that the Respondent was not a small business employer for the purposes of the Act and the Code does not apply, it is necessary for the Commission to determine whether Mr von Erkel’s dismissal was harsh, unjust or unreasonable as per s.387 of the Act. In considering that issue, the Act requires the Commission to have regard to the criteria set out in s.387. I will now address each of those criteria.
(a) Whether there was a valid reason for the dismissal related to the person’s capacity or conduct (including its effect on the safety and welfare of other employees)
[71] In Rode v Burwood Mitsubishi 124 (Rode) a Full Bench of the then Australian Industrial Relations Commission (AIRC) canvassed the meaning of valid reason in the context of the relevant provisions of the Workplace Relations Act 1996 citing Selvachandran v Peteron Plastics Pty Ltd125. The following is an extract from the Full Bench’s decision in Rode.
“[17] In relation to the meaning of “valid reason” the following remarks of Northrop J in Selvachandran v Peteron Plastics Pty Ltd are relevant:
“Section 170DE(1) refers to a ‘valid reason, or valid reasons’, but the Act does not give a meaning to those phrases or the adjective ‘valid’. A reference to dictionaries shows that the word ‘valid’ has a number of different meanings depending on the context in which it is used. In The Shorter Oxford Dictionary, the relevant meaning given is: ‘2. Of an argument, assertion, objection, etc; well founded and applicable, sound, defensible: Effective, having some force, pertinency, or value.’ In The Macquarie Dictionary the relevant meaning is ‘sound, just or wellfounded; a valid reason’.
In its context in s 170DE(1), the adjective ‘valid’ should be given the meaning of sound, defensible or wellfounded. A reason which is capricious, fanciful, spiteful or prejudiced could never be a valid reason for the purposes of s 170DE(1). At the same time the reason must be valid in the context of the employee’s capacity or conduct or based upon the operational requirements of the employer’s business. Further, in considering whether a reason is valid, it must be remembered that the requirement applies in the practical sphere of the relationship between an employer and an employee where each has rights and privileges and duties and obligations conferred and imposed on them. The provisions must ‘be applied in a practical, commonsense way to ensure that’ the employer and employee are each treated fairly, see what was said by Wilcox CJ in Gibson v Bosmac Pty Ltd, when considering the construction and application of a s 170DC.”
[18] While Selvachandran was decided under the former statutory scheme the above observations remain relevant in the context of s.170CG(3)(a). A valid reason is one which is sound, defensible or well founded. A reason for termination which is capricious, fanciful, spiteful or prejudiced is not a valid reason for the purpose of s.170CG(3)(a).
[19] We agree with the appellant’s submission that in order to constitute a valid reason within the meaning of s.170CG(3)(a) the reason for termination must be defensible or justifiable on an objective analysis of the relevant facts. It is not sufficient for an employer to simply show that he or she acted in the belief that the termination was for a valid reason.” (Underlining added)
[72] The issue of whether there was a valid reason for dismissal in circumstances where the dismissal relates to the conduct of an employee was canvassed by a Full Bench of the AIRC in King v Freshmore (Vic) Pty Ltd (King) 126. In King the Full Bench, drawing on Moore J’s comments in Edwards v Guidice127, stated:
“[23] When a reason for a termination is based on the conduct of the employee, the Commission must, if it is an issue in the proceedings challenging the termination, determine whether the conduct occurred. The obligation to make such a determination flows from s.170CG(3)(a). The Commission must determine whether the alleged conduct took place and what it involved.
[24] The question of whether the alleged conduct took place and what it involved is to be determined by the Commission on the basis of the evidence in the proceedings before it. The test is not whether the employer believed, on reasonable grounds after sufficient enquiry, that the employee was guilty of the conduct which resulted in termination.”
[73] In this case it was not disputed that Mr von Erkel had discussed the issue of Mr Hartog resigning his directorship with him. However, what is disputed is whether Mr von Erkel bullied Mr Hartog into resigning his directorship. Initially, I should note that at the hearing the recollection of that discussion by those involved was affected by the passage of time given that at the time of the hearing almost two years had elapsed since the discussion occurred. As such, I consider the statements provided by Mr von Erkel, Mr Hartog and Mr Bain in early March 2016 as likely to more accurately reflect the discussion on the basis that they were made closer to the actual date of the discussion.
[74] The thrust of Mr von Erkel’s evidence in this matter is that he did not counsel Mr Hartog to resign his directorship or encourage him one way or the other but rather that he pointed out to Mr Hartog some things he might do to assist him in coming to a decision. Mr von Erkel’s evidence is contradicted by both Mr Hartog’s and Mr Bain’s March 2016 statements 128. Their evidence is that Mr von Erkel had told Mr Hartog to, as Mr Bain deposed, “get out of his directorship immediately as the company (Arvio) was going to collapse.”129Mr Hartog’s further evidence was that he would not have resigned his directorship but for what Mr von Erkel had said to him. Mr Hartog’s and Mr Bain’s evidence is supported to some extent by Mr Rotgans’ evidence. Particularly noteworthy in that regard is Mr Rotgans’ evidence that the wording set out in Mr Hartog’s March 2016 statement could be “close to the truth” and that “… words to that effect, definitely not that dramatic but to that effect had been discussed throughout the conversation”130. The evidence also points to Mr Hartog considering his position as a Director for some time prior to the discussion with Mr von Erkel, that Mr von Erkel was emphatic in the discussion with Mr Hartog and that Mr von Erkel led the discussion with Mr Hartog toward the end.
[75] While I note that Mr Robertson assisted both Mr Hartog and Mr Bain in preparing their respective March 2016 statements, the language used in those statements to describe the discussion between Mr von Erkel and Mr Hartog is sufficiently different in my view so as not to raise doubts as to the credibility of their statements. In other words, I consider the statements to reflect their respective views of the discussion.
[76] Having regard to the evidence, particularly Mr Rotgans’ evidence, supports a finding that on the balance of probability Mr von Erkel did prompt Mr Hartog to resign his directorship with Arvio. However, the evidence does not support a finding that Mr von Erkel bullied Mr Hartog into resigning his directorship. While the evidence indicates that Mr von Erkel was emphatic, the evidence is also that the discussion was not confrontational or heated and that Mr von Erkel’s demeanour was nothing too out of the ordinary.
[77] Turning to whether Mr von Erkel’s conduct constituted a valid reason for his dismissal.
[78] The termination letter issued to Mr von Erkel included the following:
“On Thursday, 5th November 2015, you
• deliberately attempted to have Arvio director Gerard Hartog resign his directorship in Arvio Pty Ltd.
• stated to Gerard Hartog, and witnessed by Andrew Bain, that Arvio would fail as a business
• told Gerard Hartog that being a director of Arvio he had "better get out" otherwise creditors will "take all your money".
• stated on this day that Arvio will fail if Paul Wilson, General Manager remains in that position.
• had a full understanding of the broader ramifications and detrimental effect to Arvio should Gerard Hartog resign his directorship.
• had full understanding Arvio would lose its commercial building license should Gerard Hartog resign his directorship.
• had a full understanding Gerard Hartog resign it would jeopardize existing building contracts.
• Understood fully such statements could jeopardize the employment of all other Arvio employees.
Separate signed statements have been forwarded to Management by both Andrew Bain and Gerard Hartog supporting these facts. It was admitted by Gerard Hartog this should have been brought to management's attention at the time. While Arvio encourages employees to share their opinion and offer ideas on how to improve business, these statement are highly destructive to Arvio's reputation. It clearly has the potential to undermine company stability and is misconduct contrary to Section 9.2 of your signed work agreement.
Arvio also view your actions and statements to Gerard Hartog as fallacious, intimidating and ultimately damaging to morale for all employees working in Arvio. In bullying a director to relinquish his directorship endangers the entire business and is considered a serious misconduct. That these statements are mendacious and stated loudly in front of fellow employees leave Arvio management with only one course of action.
Following your first warning letter, unsatisfactory sales history with this company and extremely poor and damaging attitude towards Arvio's continuing financial viability, your employment will cease immediately for misconduct.” 131 (Underlining added)
[79] While the termination letter refers to both serious misconduct and misconduct, as Mr von Erkel was summarily dismissed (i.e. dismissed without notice) this points to him being dismissed for serious misconduct.
[80] The Respondent posited that Mr von Erkel’s dismissal was fair having regard to clauses 9.2(b) and 13 of his employment agreement. Those clauses provide as follows:
“9.2 Resignation and Termination
(a) …
(b) If at any time during the term of this agreement you:
(i) engage in serious misconduct;
(ii) commit a serious breach of this agreement which is not capable of being remedied;
(iii) conduct yourself in such a way as to injure or be likely to injure the reputation of the Company;
(iv) are convicted of an offence punishable by imprisonment,
the Company will in its sole discretion, be entitled to terminate this agreement without notice effective immediately, at any time it becomes aware of any of these events and shall not be liable to pay any compensation in consequence of the termination, other than any entitlements (excluding personal leave) that have accrued but have not yet been paid to you as at the date of termination.
13 Employment and Post-Employment Restriction
During your employment and for a period of six months following the end of your employment, you must not:
(a) canvas, solicit or entice, or counsel, procure or otherwise assist any person to canvass, solicit or entice, any client, customer or supplier, purchaser or agent of the Company to leave the Company;
(b) …” 132 (Underlining added)
[81] With regard to the references to “the Company” in the above clauses, clause 1 of Mr von Erkel’s employment agreement states that “You will commence your employment at Solar Station Alpha Pty Ltd trading as Solar Backup (“the Company”) …” Further, Mr von Erkel’s employment agreement does not define or set out what constitutes serious misconduct.
[82] The Respondent’s contention regarding clause 9.2(b) of Mr von Erkel’s employment agreement further supports a finding that he was dismissed for serious misconduct.
[83] By way of background, Regulation 1.07 of the Fair Work Regulations 2009 (the Regulations) sets out the meaning of serious misconduct as follows:
“1.07 Meaning of serious misconduct
(1) For the definition of serious misconduct in section 12 of the Act, serious misconduct has its ordinary meaning.
(2) For subregulation (1), conduct that is serious misconduct includes both of the following:
(a) wilful or deliberate behaviour by an employee that is inconsistent with the continuation of the contract of employment;
(b) conduct that causes serious and imminent risk to:
(i) the health or safety of a person; or
(ii) the reputation, viability or profitability of the employer’s business.
(3) ...” (Underlining added)
[84] Other relevant evidence before the Commission as a building company Arvio could not perform building work unless it had a registered builder on the board of Directors 133.
[85] While Mr von Erkel’s conduct had potentially significant implications for Arvio, as is clear from clause 1 of his employment agreement, Mr von Erkel was employed by the Respondent and not Arvio. There was no evidence before the Commission as to the implications, if any, for the Respondent stemming from Mr von Erkel’s conduct. In those circumstances, his conduct was not in breach of either clause 9.2(b)(iii) or clause 13 of his employment agreement as those provisions specifically relate to “the Company” (i.e. the Respondent). As to clause 9.2(b)(i) of Mr von Erkel’s employment agreement I do not consider that his conduct comes within the definition of serious misconduct as per the Regulations. This is because his conduct could not cause serious and imminent risk to the reputation, viability or profitability of his employer’s business, i.e. the Respondent’s business. While, Mr von Erkel’s comments regarding Arvio and Mr Hartog and Mr Wilson raise doubts as to his ability to work effectively with either Mr Hartog or Mr Wilson they do not in my view of themselves warrant dismissal given the context in which they were made.
[86] The above analysis does not support a finding that there was a valid reason for Mr von Erkel’s dismissal.
[87] Finally, I would note that the fact that I have determined that the Respondent and Arvio are associated entities for the purposes of s.23 of the Act that finding is not relevant in given that neither Mr von Erkel’s employment agreement or the Regulations define “the Company” or “the employer’s business” respectively as also including associated entities.
(b) Whether the person was notified of that reason
[88] Mr von Erkel acknowledged in his submissions that he was notified of the reason for his dismissal. This is clear from both the above extract from the termination letter and the extract from the transcript of the termination meeting set out below.
[89] The Respondent did not address this factor in its submissions.
[90] Accordingly, this factor does not point to Mr von Erkel’s dismissal being harsh, unjust or unreasonable.
(c) Whether the person was given an opportunity to respond to any reason related to the capacity or conduct of the person
[91] Mr von Erkel submitted that he was not given a fair and proper opportunity to respond to any reason related to his conduct.
[92] The Respondent submitted that at the termination meeting Mr von Erkel was notified of the allegations against him and given a full opportunity to respond, adding that he was fully able to respond on the spot but that his response was inadequate.
[93] The following is an extract from the transcript of the termination meeting 134 in which the allegations regarding Mr von Erkel’s conduct are put to him by Mr Robertson:
“9. David [Mr Robertson]: Now what we have said to you then is that because you’re going from one position from sales, where you have been underperforming to another we had to obviously run this by both the board and the operations team to which you would be working with. Is that fair enough?
10. Ambrose [Mr von Erkel]: Sure
11. David: Now in actually doing that, a couple of things have come out. Some really serious allegations and I need to ask you point-blank if these allegations are true. Firstly, have you ever while you have been here, try to advise any other employee to leave the business?
12. Ambrose: No
13. David: Ok. In your time here have you ever advised or have you ever tried to have somebody leave their directorship of this business?
14. Ambrose: Leave their directorship. Gerard and I discussed the risk vulnerability of his position. Whether or not he deemed that as deciding to leave the business
15. David: So what did you say?
16. Ambrose: I can’t recall exactly what I said, we just, he was talking about how he was feeling that he didn’t have any control and he didn’t understand what was going on and I said “well you sit on the board” and he said he didn’t, I said “well you really should” and I explained to him that if anything came down that he is the person who will be held responsible.
17. David: What do you mean “come down”?
18. Ambrose: well just if there is any financial crisis, if there is any sort of litigation, if there anything like that it was the things that he was bringing up. He was concerned about the company not making it, I said: well you’re the responsible person, you’re the director, you’re the builder, you will be the responsible person”
19. David: Right well a couple things
20. Ambrose: It was basically Gerard bringing it up to me.
21. David: Right
22. Ambrose: Gerard is loose cannon, we have always known that. He’s a weak note that Paul controls and that’s why he is in that position here.
23. David: He’s a what?
24. Ambrose: A weak note. Everyone thinks it. No one has confidence in him as a director that’s why he wasn’t included on the board; no one has confidence in him as a builder that’s why he isn’t in any of the meetings which is highly inappropriate for a building company, we have a builder that doesn’t participate in the process of design and preparing for a build. So you’re coming to me with someone who’s, with serious allegations about someone who no one in the business really has confidence in, he is in here because he is a convenience. I find this entirely inappropriate.
25. David: Ok, Ambrose I need you to sight this statement from Gerard
26. Ambrose: Wow, why would he do this?
27. David: Well because it actually hasn’t come out until we stared [sic] exploring the possibilities of you becoming a project manager.
28. Ambrose: So, Gerard is sniping me. If I gave Gerard advice and was considered an ally to him why would he do this?
29. David: Because it’s detrimental to the business. That is why Ambrose.
30. Ambrose: Ok. Well, that’s just a complete fiction. Okay there you go.
31. David: Ok. Now this is the statement of Andrew Bain who was witness to this conversation and he corroborates what Gerard has actually stated
32. Ambrose: I don’t even remember him being there when I discussed things with Gerard but my memory wasn’t the best.
33. David: So I ask you again, have you at any stage suggested to a Director of this company that he should leave his directorship?
34. Ambrose: No, no, absolutely not we did talk about his concerns; we talked about what would happen if things did go belly up because these were the issues that he was raising with me. I found it shocking that he wasn’t on the board and he had no knowledge of what was happening
35. David: Why would you find that shocking?
36. Ambrose: Because he is the responsible person, I told him he must know what is going on because he was concerned, because he wasn’t happy, because he was out of his mind with stress and frustration. I’m just trying to give this man some I don’t know, some sense of direction and control so that he can continue to do what he needs to do and I wasn’t pushing him in one direction or another. I said if I was you and you’re not happy with how things are you need to drill down into it, you need to get some legal advice, you need to do whatever you need to do to feel confident in your position. He was the one who was bringing up all of the negative stuff
37. David: So you believe you encouraged him to stay in his directorship?
38. Ambrose: I didn’t encourage him. I provided him with information for him to make his own decisions and I told him he needs to make his own decisions
…
45. … now accordingly [sic] to the statements not only were you pushing to have Gerard out of the directorship Ambrose, you are also pushing to have Paul Wilson not as General Manager, you have grave doubts about his ability to lead this business
46. Ambrose: Well I think there is a question there. I think everyone holds. You know I make no apologies there” 135
[94] The above extract supports a finding that Mr von Erkel was given an opportunity to respond to the allegations regarding his conduct with that opportunity including being shown the statements of Mr Hartog and Mr Bain 136.
[95] Having regard to the above, I consider that this factor weighs against a finding that Mr von Erkel’s dismissal was harsh, unjust or unreasonable.
(d) Any unreasonable refusal by the employer to allow the person to have a support person present to assist at any discussions relating to dismissal
[96] Mr von Erkel contended that he did not have the opportunity to consider the need for a support person, deposing that he was not given any prior notice of the termination meeting and was not invited to bring a support person.
[97] The Respondent submitted that Mr von Erkel was offered but declined to have a support person attend the termination meeting with him. Further, Mr Robertson’s evidence was that prior to the termination meeting Ms Burn asked Mr von Erkel whether he wanted to have another staff member present and that he declined the invitation to do so.
[98] Based on the material before the Commission I am unable to form a definitive view as to whether or not Mr von Erkel was invited to have a support person attend the termination with him. However, based on the transcript of the termination meeting 137, I note that at no stage did Mr von Erkel request that the meeting be suspended so that a support person could be arranged. Further, there is no material before the Commission which points to any refusal by the Respondent to allow Mr von Erkel to have a support person assist in the discussions relating to his dismissal.
[99] This does not point to Mr von Erkel’s dismissal being harsh, unjust or unreasonable.
(e) If the dismissal related to unsatisfactory performance by the person—whether the person had been warned about that unsatisfactory performance before the dismissal
[100] As can be seen from the termination letter issued to Mr von Erkel (see [78] above) Mr von Erkel’s dismissal related to his conduct rather than unsatisfactory performance. Accordingly, this factor is not relevant.
(f) The degree to which the size of the employer’s enterprise would be likely to impact on the procedures followed in effecting the dismissal
(g) The degree to which the absence of dedicated human resource management specialists or expertise in the enterprise would be likely to impact on the procedures followed in effecting the dismissal
[101] Mr von Erkel conceded that the Respondent was a small business (as opposed to a small business employer) and that it did not have a dedicated human resource management to advise it. However, Mr von Erkel also submitted that the Respondent was not so small a business as to realistically prevent it from obtaining professional advice on a matter as serious as a potential dismissal.
[102] While the Respondent did not directly address these factors in its submissions, Mr Wilson’s evidence included that neither the Respondent nor Arvio employed or engaged any human resource professionals.
[103] I consider it likely that both the Respondent’s size and the absence of dedicated human resource management expertise did impact on the procedures followed in effecting the dismissal. Perhaps the most obvious example of that is the fact that the initial termination letter issued to Mr von Erkel was from Arvio as opposed to the Respondent which was his actual employer. More specifically, the Respondent on becoming aware of Mr von Erkel’s alleged conduct several months after the event did initiate an investigation which sought to establish whether or not the conduct occurred. While the investigation process may not have necessarily been best practice, it was also not so deficient as to be fundamentally flawed. Accordingly, while I consider that the Respondent’s size and the absence of dedicated human resource management expertise did impact on the procedures followed in effecting the dismissal, I do not consider that they did so to such an extent that any weight should be given to these considerations.
[104] As such I consider these factors to be neutral considerations.
(h) Any other matters that FWC considers relevant
[105] Mr von Erkel submitted that his dismissal was exceptionally harsh given his diagnosis of and treatment for cancer shortly before his dismissal. However, beyond raising the issue Mr von Erkel did not further elaborate in his submissions as to the reason for that view. Further I note that other than a period of annual leave in March and April 2016 during which Mr von Erkel was visiting family he does not appear to have taken any extended period of leave of any sought in the preceding months as a result of his diagnosis and treatment. Against that background, I do not consider this matter to be relevant.
[106] Mr von Erkel also contended that the Commission should not ignore the Respondent’s conduct throughout the proceedings. In this regard I note that the Respondent was self-represented by Mr Wilson in the proceedings. I therefore put any issues concerning the Respondent’s conduct down to Mr Wilson’s lack of familiarity with the Commission’s processes and the pressures associated with having to balance managing the Respondent’s operations and business and the demands of a complex unfair dismissal case before the Commission. As such, I do not consider the Respondent’s conduct to be a relevant consideration.
Summary
[107] From the above, it is clear that a number of the factors set out in s.387 of the Act are either not relevant or neutral considerations in this case. While there are a number of factors that do not support a finding that Mr von Erkel’s dismissal was harsh, unjust or unreasonable, those considerations are outweighed by the absence of a valid reason for Mr von Erkel’s dismissal. Having regard to the material before the Commission and the factors set out in s.387 of the Act supports a finding that Mr von Erkel’s dismissal was unjust.
Conclusion
[108] For all the above reasons I find that:
• the Respondent and Arvio are associated entities for the purposes of the Act;
• at the time of Mr von Erkel’s dismissal the Respondent was not a small business employer for the purposes of the Act;
• the Code therefore does not apply;
• Mr von Erkel’s dismissal was unjust.
[109] Mr von Erkel’s application will now be listed for mention and directions to set a timetable for dealing with the issue of remedy.
Appearances:
P. Hull for the Applicant
P. Wilson for the Respondent
Hearing details:
2017.
Melbourne
October 30 and 31
November 23.
Printed by authority of the Commonwealth Government Printer
<PR606774>
1 [2016] FWC 7112
2 [2016] FWCFB 8722
3 [2016] FWC 7112 at [6]-[12]
4 Exhibits 6 and 32-34
5 Transcript at PN168-182
6 Exhibit 21
7 Transcript at PN3263-3268
8 Ibid at PN3296-3323
9 Ibid at PN3206-3211
10 Exhibit 13
11 Transcript at PN3454-3459 and PN3470
12 Ibid at PN3634
13 Ibid at PN3500
14 Ibid at PN3503
15 Ibid at PN3513-3517
16 Ibid at PN3553
17 Ibid at PN3555-3556
18 Ibid at PN3557-3560
19 Ibid at PN3564
20 Ibid at PN3581
21 Ibid at PN3595
22 Ibid at PN3635-3643
23 (2012) 219 IR 128
24 Exhibits 22 and 15-17 respectively
25 Transcript at PN296-323
26 Ibid at PN367-373
27 Ibid at PN356-364
28 Ibid at PN388-397
29 Ibid at PN403
30 Exhibit 18
31 Transcript at PN405-423
32 Ibid at PN487-488
33 Ibid at PN1082-1085
34 Ibid at PN1088-1095
35 Ibid at PN1100-1101
36 Ibid at PN1196-1199
37 Ibid at PN1209
38 Ibid at PN1234
39 Exhibit 24 at Attachment 1
40 Transcript at PN1235-1237
41 Ibid at PN1248
42 Ibid at PN1272-1274
43 Ibid at PN1287-1290
44 Ibid at PN1297 and PN1334
45 Ibid at PN1336-1337
46 Exhibit 19
47 Exhibit 20
48 Transcript at PN596-599
49 Ibid at PN694-699
50 Ibid at PN707-718
51 Ibid at PN731
52 Ibid at PN738
53 Ibid at PN767
54 Ibid at PN769
55 Exhibit 21
56 Transcript at PN835
57 Ibid at PN836
58 Ibid at PN2307-2308
59 Exhibits 23 and 24
60 Exhibit 24 at Attachment 2
61 Transcript at PN1402-1403
62 Ibid at PN1405
63 Ibid at PN1406-1407
64 Ibid at PN1412
65 Ibid at PN1413-1414
66 Ibid at PN1415-1417
67 Ibid at PN1431-1432
68 Ibid at PN1660
69 Ibid at PN1662
70 Ibid at PN1455-1456
71 Ibid at PN1462
72 Ibid at PN1481-1485
73 Ibid at PN1523, PN1642-1643 and PN1659
74 Ibid at PN1581-1586
75 Ibid at PN1645-1655
76 Exhibits 25 and 26
77 Transcript at PN1737-1740
78 Ibid at PN1741-1744
79 Ibid at PN1752-1759 and PN1776
80 Ibid at PN1763
81 Ibid at PN1768-1769
82 Ibid at PN1783-1792
83 Exhibit 25 at page 3
84 Transcript at PN1891-1901
85 Ibid at PN1960-1974
86 Exhibit 18
87 Transcript at PN2002-2020
88 Ibid at PN2034
89 Ibid at PN2042
90 Exhibits 29-31
91 Exhibit 13
92 Transcript at PN2613
93 Ibid at PN2627-2631
94 Ibid at PN2636
95 Ibid at PN2637-2641
96 Ibid at PN2642-2643
97 Ibid at PN2687-2697
98 Ibid at PN2708
99 Ibid at PN2743
100 Ibid at PN2756 and PN2766
101 Ibid at PN2842 and transcript of 5 August 2016 at PN376
102 Ibid at PN2895
103 Ibid at PN2914
104 Ibid at PN2942-2945
105 Ibid at PN135-140
106 Ibid at PN145-147
107 Ibid at PN154
108 Ibid at PN159-162
109 Ibid at PN168-182
110 Ibid at PN193
111 An Order to that effect was issued by the Commission on 4 December 2017. The Order related to the period 1 January to 1 June 2016.
112 Exhibit 5
113 The material was produced in accordance with an Order Requiring Production of Documents etc .to the Fair Work Commission issued on 4 December 2017
114 Exhibit 18
115 (2012) 215 IR 235
116 Ibid at [30]
117 See Letter of engagement issued to Ms Redpath on 18 May 2016 which was produced in accordance with an Order Requiring Production of Documents etc .to the Fair Work Commission issued on 22 November 2017
118 Transcript at PN1552
119 Ibid at PN1506-1509
120 Ibid at PN1618-1636
121 Ibid at PN1615-1619
122 Exhibit 24 at Attachment 1 and document produced in accordance with an amended Order Requiring Production of Documents etc .to the Fair Work Commission issued on 24 October 2017
123 Document produced in accordance with an Order Requiring Production of Documents etc .to the Fair Work Commission issued on 22 November 2017
124 Print R4471
125 (1995) 62 IR 371
126 Print S4213
127 (1999) 169 ALR 89 at 92 per Moore J
128 Exhibits 19 and 21 respectively
129 Exhibit 21
130 Transcript at PN164-182
131 Attachment to Form F2 – Unfair Dismissal Application
132 Exhibit 6 at Attachment AvE 1
133 Section 176(4) of the Building Act 1993 (Vic)
134 Exhibit 13
135 Ibid
136 Exhibits 19 and 21 respectively
137 Exhibit 13
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