Yousef v Taxsmart Group Pty Ltd & Anor - [2013] FCCA 2089

FEDERAL CIRCUIT COURT OF AUSTRALIA

YOUSEF v TAXSMART GROUP PTY LTD & ANOR

[2013] FCCA 2089

Catchwords:
INDUSTRIAL LAW – Termination of employment in alleged contravention of a general protection – identifying the general protection – confusion caused by blending of employment agreement and ancillary franchise agreement – entering into franchise agreement pre-condition to entering into employment agreement – question of whether there was a fixed term of employment – question of whether termination was a “genuine redundancy” – onus of proof – small award made, but other claims dismissed.

Legislation:
Fair Work Act 2009, ss.361(1), 385,389(1)(a), 548(1), 548(2)(a), 550(2)
Federal Circuit Court of Australia Act 1999, s.45

Cases cited:
Smith v Mareeba RSLA Services Club Inc [2013] FWC 351

Applicant:

MAGDY YOUSEF

First Respondent:

TAXSMART GROUP PTY LTD

Second Respondent:

SCOTT ANDREWS

File Number:

MLG 1782 of 2011

Judgment of:

Judge O'Dwyer

Hearing dates:

19 & 20 July 2012

Date of Last Submission:

20 July 2012

Delivered at:

Melbourne

Delivered on:

19 December 2013

REPRESENTATION

The Applicant:

In person

The First Respondent:

Mr Scott Andrews, Director of the First Respondent

The Second Respondent:

In person

ORDERS

By consent, Mr Scott Andrews be added as the Second Respondent.
The Respondents pay the Applicant the sum of $2,584.25.
Otherwise, all extant applications are dismissed.

FEDERAL CIRCUIT COURT
OF AUSTRALIA AT
MELBOURNE

MLG 1782 of 2011

MAGDY YOUSEF

Applicant

And

TAXSMART GROUP PTY LTD

First Respondent

SCOTT ANDREWS

Second Respondent

REASONS FOR JUDGMENT

Introduction

This matter first came before the Court on 9 March 2012 for hearing as a small claim pursuant to s.548 of the Fair Work Act 2009 (“the FW Act”). However, it was evident, as the applicant sought compensation for his dismissal in contravention of a general protection and, in any event, claimed by way of compensation an amount in excess of $20,000, that the matter could not proceed under the small claims process[1]. Accordingly, directions were made allowing for an amended application to be filed and discovery to take place, being satisfied as I was, that justice and the reasonable conduct of the matter required it.[2] A time table was set for the filing of affidavits and the matter referred to mediation, which proved unsuccessful.
[1] s.548(1) & s.548(2)(a) Fair Work Act.
[2] See s.45, Federal Circuit Court of Australia Act 1999.
The trial ran for two days, where the applicant, who was unrepresented gave evidence, along with his two witnesses. Mr Scott Andrews, the Managing Director of the first respondent (“TaxSmart”) represented it, and after he was joined as a party, he represented himself.
Hereafter, a statement of fact is to be taken as a finding of fact, unless the context suggests otherwise.

Background

Before commencing his association with the respondents, the applicant was employed as the Finance and Logistics Manager at Spencer & Rutherford Pty Ltd, a high fashion bag and accessory importer and retailer.
He came to that position with various qualifications and experience; namely, a Bachelor of Accounting, together with a certificate in Business, Sales and Marketing from the American University in Cairo. He also had experience in managing a FoodWorks franchise.

Although he had an academic qualification in accounting and experience in business applying those skills, he was not qualified to be a tax agent. He could not hold himself out to the public as offering tax advice and assistance in preparing taxation returns. To qualify for a licence to practise as a tax agent, one had, amongst other means, to work for a registered tax agent under that agent’s supervision and mentoring for a period of 12 months.[3]
[3] In order to obtain a tax agent’s licence, the Tax Practitioners Board requires an applicant to have
12 months full-time relevant experience, which the applicant would have obtained as a result of his employment with TaxSmart.
Although he was employed full time at Spencer & Rutherford, he was interested, more generally, in advancing his career and establishing a business for himself which would benefit his family.
The applicant's attention was drawn to an advertisement dated

4 February 2011 which sought applications for employment with TaxSmart from graduate accountants. Pertinently it stated:
"Graduate Positions available - tax accountants.
·   fast track your career
·   Melbourne CBD
·   $50,000 annual salary plus bonus
·   6 weeks paid annual holidays
·   no experience necessary
·   must purchase franchise
·   training to apply for Tax Agents Licence
·   Intensive on the job training
·   one on one mentoring
·   Respected accounting firm
Education & Qualifications
-Business or Commerce degree
Successful applicants will be required to purchase a franchise prior to commencing employment”
The applicant made contact with representatives of TaxSmart, including discussions with Mr Andrews. He was attracted by the prospect of working for TaxSmart as it provided him with an opportunity to earn an income whilst qualifying for registration as a tax agent and also, at the end of the process, having a franchise business to own and develop. He was told that TaxSmart was the franchise name associated with shopfront businesses located in heavy pedestrian traffic shopping centres and strips, that offered taxation services; in particular the preparation and filing of income tax returns for, principally, individuals, but also small businesses. The concept was the creation of Mr Andrews who had successfully established a similar business in Queensland. He had resolved to establish a franchise operation throughout Australia which would rival the well-known firm of H & R Block.
Having been assured by representations made to him, the applicant entered into an employment agreement with TaxSmart and, as required, a franchise agreement with another related company of which

Mr Andrews was a director and controlling mind; namely TaxSmart Franchising Pty Ltd (“the franchisor”). Under the franchise agreement, the applicant paid $55,000.
In this way, he was assured that he would have employment for a period of 12 months during which he would be supervised and mentored in a way that would qualify him for registration as a tax agent. Further, whilst his application was being processed for registration as a tax agent (after working the requisite 12 months), he would be guaranteed continued employment under the employment agreement for a further four months - hence the stipulated period of

16 months employment in the agreement.
As his employment was terminated prior to him qualifying for registration as a tax agent (after only 6 months employment), he could not qualify as a tax agent and he could not avail himself of the rights and benefits embodied in the franchise agreement.
The applicant sought to recover the money he paid under the franchise agreement (ie $55,000) by issuing proceedings against the franchisor in the Victorian Civil and Administrative Tribunal (“VCAT”) for recovery of that amount. I understand he was successful in obtaining a full recovery of the fees paid.
The proceeding before me, therefore, relates only to the employment agreement.

The joinder of Mr Andrews

At the outset of the hearing Mr Andrews did not resile from the suggestion that he was the controlling mind of TaxSmart and he had been fully informed and intimately involved in dealings with the applicant, including the decision to terminate his employment. Should it be found that there was a breach of the FW Act, he could be said to be liable.[4] When invited to comment on whether he had objection to being joined as a second respondent to the proceeding as provided for in s.550 of the FW Act, he did not object and, indeed, consented to being so joined. Accordingly, I made an order to that effect.
[4] See s.550(2) of Fair Work Act 2009.

The Employment Agreement

On 23 May 2011, the applicant commenced his employment with TaxSmart on a 16 month employment agreement as a Senior Accountant. As stated, in order to secure his employment, TaxSmart required him to enter into the franchise agreement. During the

16 month period of employment under the agreement, TaxSmart proposed to provide the necessary training to ensure he could obtain a tax agent’s licence which would allow him to conduct his franchise when qualified as a tax agent.
By letter dated 11 November 2011, the applicant’s employment with TaxSmart was terminated for ‘operational requirements’. The letter to him setting out his termination was given the subject title, “Termination of your employment by reason of redundancy”.
A significant clause in the employment contract is as follows:
“12. TERMINATION
After the completion of any probation or qualifying period relevant to your employment and as stated in item 4 of the schedule, the following arrangements will apply:
(a)Either party may terminate the employment upon the giving of four (4) weeks’ written notice to the other (or TaxSmart may elect to make payment in lieu of notice for part or all of the notice period at its absolute discretion, in which case the notice period will be the minimum required under the Fair Work Act).
(b) …”

The adverse action claimed

The adverse action identified by the applicant can be summarised as follows:
·the applicant paid $15,000 for training, but TaxSmart had only spent $2,500 in this regard;
·training was not given, as promised on a one to one basis;
·when complaint was made to Mr Andrews about the training and the applicant threatened to take his complaint to the Fair Work Ombudsman, Mr Andrews asked him to resign;
·the applicant was forced to take one weeks annual holiday (note – this was required of all other employees as well. It was during this enforced holiday that he was terminated); and
·the alleged redundancy was not genuine.

The remedy claimed

The applicant, by his amended application filed 9 January 2012, sought payment from the Respondent of unpaid entitlements being made up of the following:
Unpaid wages, 40 hours  $962
Unpaid annual leave entitlements, 25 hours             $602.25
Unpaid termination payment, 40 hours                $962
Unpaid weekend work bonus  $1,020
Refund of pre-paid training costs  $12,100
TOTAL  $15,646.25
The applicant also claimed compensation for the contravention of the general protection in the sum of $42,328, being wages he would have received from the date of his termination to the expiry date of his employment agreement (ie from 19 November 2011 to 23 September 2012 – 44 weeks @ $962 per week).
The applicant also claims that his superannuation entitlement between 1 July 2011 and 18 November 2011 was not paid, being a total of $1,922.08. However, it appears, this amount has been claimed through the Australian Taxation Office.
The total claim being made up as follows:
Total unpaid entitlements/refund  $15,646.25
Additional compensation claim  $42,328.00
TOTAL  $57,974.25
There is, in my view, considerable confusion engendered in the mind of the applicant occasioned by his blending of his rights and entitlements arising out of his employment agreement and the franchise agreement.
Having heard the evidence of Mr Andrews, whose evidence I accept, about the calculation of the franchise fee of $55,000, it is evident that $15,000 of that fee is attributed to training and when the applicant asserts he was entitled to such level of training, it clearly in my view directly related to training associated with the conduct of the franchise. The applicant has associated the training necessary to become a tax agent mistakenly to the level referred to in the franchise agreement.

An examination of the employment agreement does not specify any training or the costs of such training to be given as a term of his employment. Having regard to that clear association of the promised training with the franchise agreement and further having regard to the applicant’s understanding of the amount to be applied to training was to be $15,000, I am satisfied that the claim he now makes for a failure to provide the training under the employment agreement is unsubstantiated. In any event, the applicant appears to have been fully compensated for costs of the expected training as a consequence of his successful VCAT proceeding where he recovered all of the franchise fee of $55,000, of which $15,000 was allocated to training. He cannot claim twice.
It is evident that training in relation to his employment and, more particularly, that which is necessary for him to qualify at the end of his 12 month employment period for registration as a tax agent, was given to him. He complains about the quality of that training, but does acknowledge it was given.

The evidence

The two principal witnesses were the applicant and Mr Andrews.

The applicant also called two witnesses, Ms Wai Ling Pang and Mr Manvir Singh.
The applicant’s evidence confirmed his attraction to the position and the franchise arrangement. He confirmed he paid $55,000 up front and was then employed at the Glen Waverley office, initially with one day a week in the Melbourne office. He complains, in effect, about a lack of support, instruction and training in how to complete taxation returns and provide competent advice, particularly for small business clients. He confirmed that he was provided with educational and instructional manuals, purchased by TaxSmart, but complains about a lack of training by not being provided the one on one mentoring and instruction he was led to believe would be available. He confirmed that the necessary fees for him to work in his role were paid by TaxSmart.
The applicant, it would appear, was not alone in his criticism of the lack of support provided by management of TaxSmart and some of the roles he and others were required to perform; such as answering queries directed from the Cairns office, whilst located in Melbourne.
The applicant came to believe his treatment by TaxSmart’s management was “oppressive”, citing one example that he was required to give a “daily summary” in order to be paid, but even though he complied, he was not paid. He claims others in his position were not required to submit daily summaries and were paid.

He threatened to make a complaint to the Fair Work Ombudsman (“FWO”), which he did, but before the FWO initiated any action, he was paid.
The applicant, and a number of fellow employees, including his two witnesses, believed that TaxSmart had deliberately engaged them in employment at a time of the year when demand for assistance to comply with filing income tax returns was at it highest; referred to as “the tax season”. They feel they were exploited by TaxSmart as a means to gain new clients, but when the tax season ended and the demand dropped off, their employment was cynically terminated. He accused TaxSmart of having a strategy of employing accountants on a long term basis, whilst always intending only short term work for them.
The evidence of Mr Singh was consistent with the indignation he and the applicant felt about being asked to answer calls on queries, do face to face cold calling on businesses and generally about the lack of availability, as and when he wanted it, of TaxSmart management to provide advice when needed, and training. He also, in my view, blended his expectations under the franchise arrangement with those he had for his employment. His negotiations with TaxSmart management were centred on a refund of the money he had advanced in respect of the franchise agreement. Although he, like the applicant, complained of no training, he gave evidence nonetheless of training, but complained of its quality. It did not reach his expectations.
Ms Pang worked with the applicant at the Glen Waverley office and she confirms that the office there closed down suddenly. She was also of the view that TaxSmart only wanted to employ accountants during the tax season. She also confirmed that they were asked, when they were required to move from Glen Waverley to the Melbourne office, to answer telephone queries generated from interstate. She complained of having to do the work sent down from the Cairns office.
Both Ms Pang and Mr Singh confirmed that they were offered, after being dismissed on the basis of redundancy, contract or casual work. This was taken by them to be confirmatory of the fact work was still available and that the redundancy was not genuine, although they were unable to say what the terms of such contract or casual work might be.
Ms Pang made, in my view, a very pertinent observation; namely, “I believe the Respondent do [sic] not have a good business plan before employing us for 12 months”.
The evidence of Mr Andrews was persuasive. He had a plan to expand his business by using a franchise structure applying the successful model and experience he had gained in his Cairns practice. He sought the advice of a respected franchise adviser and lawyer and thereafter set about establishing 26 franchises in Queensland, New South Wales, Victoria and South Australia, with the headquarters in Cairns.

None turned a profit and he had to close the operation down.

He refuted the suggestions he didn’t provide training, or support.

The level of training was appropriate for the applicant and others to qualify for a tax agent’s licence after the completion of the requisite

12 months employment with TaxSmart. I am satisfied that the applicant, although he believes otherwise, was provided with training in accordance with the representations properly associated with his employment agreement.
I am further persuaded by Mr Andrews that his plan was to establish an Australian wide, significant franchise structure for TaxSmart and that was his genuine goal, which ultimately was unsuccessful. I am not persuaded, although it was not for the applicant to persuade me, that Mr Andrews entered into a cynical exercise of employing accountants under his mentoring to work for one taxation season with a view that at the end of it, he would terminate their employment. I am satisfied that a great deal of forethought, effort and entrepreneurialism was applied to establishing TaxSmart as a franchise operation and his recruitment of franchisees was done with a genuine long-term intention to attract suitably qualified, but not fully qualified, applicants who after a period of time would be able to take up a franchise. It beggars belief that if his intention was merely to employ accountants during a tax season he would then enter into such an elaborate, supportive and expensive process of setting up and selling franchises to such accountants. In order for that process to have some, in his mind, security he proposed that the franchise purchase be conditional upon the employment and ultimate qualification of applicants as tax agents.
As Miss Pang quite astutely observed, Mr Andrews’ business plan was not sound as it was dependent upon a high intake of new clientele that did not eventuate. I am further satisfied that, in an endeavour to try and salvage his operation and, further, to engage his employees in productive activities, he was forced to adjust the roles of his employees, such as having them attend the Melbourne office to answer queries generated from interstate.
I am also satisfied that at the time the termination of the applicant’s employment was effected, there were considerable stresses (financial and otherwise), understandably, on the respondents. This I take to be an explanation of why, at first, the first respondent was slow in providing the full payments that the applicant was entitled to under the employment agreement on being terminated.

Consideration

The applicant’s claim for $42,328 in respect of the balance of the term of his employment under the employment agreement appears to be based on the premise that the employment contract was for a fixed term.

However, as set out in [17] above, there was a provision in the employment contract which allowed termination before the expiration of the employment period on one or other of the parties giving notice.[5]
[5] See Smith v Mareeba RSLA Services Club Inc [2013] FWC 351.
The applicant’s claim under this head must fail.
In essence the applicant contends his termination was an unfair dismissal as defined in s.385 of the FW Act. That section speaks of a dismissal that “was harsh, unjust or unreasonable”. Although the applicant used other language, (“oppressive”) the circumstances of his dismissal, in his understanding were “harsh, unjust and unreasonable”. However, s.385(d) provides that a dismissal is not unfair if it is a case of “genuine redundancy”. Genuine redundancy is defined as a situation where “the person’s employer no longer required the person’s job to be performed by anyone because of changes in the operational requirements of the employer’s enterprise”[6].
[6] s. 389(1)(a) Fair Work Act 2009.
The first respondent relies on the genuine redundancy defence to the applicant’s claim. Section 361(1) of the FW Act provides, however, that the onus of proof in respect of this defence falls squarely upon the first respondent.
For reasons outlined above, I am satisfied the first respondent has satisfied the onus of proof imposed on it and that the termination was because of a genuine redundancy. In my view, the first respondent under the direction of the second respondent, embarked upon an ambitious plan to expand his business through a franchise structure, but the anticipated business was not generated and there was not sufficient work to employ the applicant and his two witnesses.
The applicant referred to the lack of veracity by the first and second respondents as evident in the subsequent offer for them to do contract work. I am satisfied, however, that offer reflected the uncertainty of gaining new clients, and the first respondent sought to have a resource to cover any future increase in work. The applicant, incidentally, together with his two witnesses confirmed the lack of work.
However, in respect of the applicant’s claim for unpaid wages ($962), unpaid annual leave entitlement ($602.25) and unpaid weekend bonus ($1,020), a total of $2,584.25, I am satisfied that these amounts are properly due to the applicant. I note the second respondent’s statement that if they are owed, he will pay them. The applicant’s evidence on these issues was unchallenged. The claim for the training costs refund, however, has already been recovered, as stated above, from the VCAT proceeding.

Conclusion

For the above reasons, the applicant’s claim is only successful in the sum of $2,584.25, but otherwise the application is dismissed.

I certify that the preceding forty-seven (47) paragraphs are a true copy of the reasons for judgment of Judge O'Dwyer

Date: 19 December 2013