IN the recent decision of Matthews v Cool or Cosy Pty Ltd; Ceil Comfort Home Insulation Pty Ltd, the Full Bench of the Western Australian Industrial Relations Commission considered the nature of the employment relationship between a group of companies and a senior manager providing services to a number of companies in the group.
It shows that employers cannot hide from their responsibilities behind the ‘corporate veil’.
The Cool or Cosy group comprised several companies engaged in the insulation business across Australia.
Although legally separate, the companies shared the same bank, auditors, solicitors and accounts and had a common managing director and some common directors.
Another company called Citigroup, which was unrelated to the Cool or Cosy group, was used as a vehicle for employing staff at the head office of the group.
Matthews, the applicant, was employed by one of the companies in the group as sales manager in WA.
Following several promotions he became national general manager for the group.
In 2001, following some financial difficulties, the directors of the Cool or Cosy group of companies decided to terminate Matthews’ employment on the basis of redundancy.
He responded by lodging a claim for unfair dismissal and denial of contractual benefits under the WA Industrial Relations Act against two of the companies in the Cool or Cosy group.
At first instance the Commission found Matthews could not have been employed by any of the companies in the Cool or Cosy group because, at the time of his dismissal he was employed by Citigroup, an unrelated company.
The key issue for the Full Bench in overturning this decision was "lifting the corporate veil" to examine the true nature of the relationship between Matthews and the Cool or Cosy Group, in order to identify who was Matthews’ true employer.
The Full Bench found that although the Cool or Cosy group of companies was not a corporate entity, the level of integration between the companies was such that it cold be described as "a de facto partnership".
The attempt by the directors and managing director of the Cool or Cosy group to portray Citigroup as Matthews’ employer was found by the Full Bench to be a sham, designed to avoid meeting the employer’s liabilities.
Matthews had been appointed to his position by the managing director of the Cool or Cosy group, he answered to the managing director and in the end he was terminated after a decision taken by the directors of the companies in the Cool or Cosy group.
The only relationship between Matthews and Citigroup was that for a brief period towards the end of his employment, Citigroup had paid his salary and Citigroup appeared on his group certificate as his employer.
In the end the Full Bench found that Matthews was employed by one of the companies in the Cool or Cosy group and that this company was liable for his unfair dismissal.
The Full Bench also held that because the group was in reality operating as a partnership, any one of its members could be held responsible for acts done by the whole group.
Having made this finding, the Full Bench then went on to consider whether given the "de facto partnership" finding, Matthews might simply be held to have been employed "by and on behalf" of the group as a whole. On this rather novel view, the group as a whole, that is multiple employers, would be held liable for the unfair dismissal.
Industrial relations commissions may now look behind corporate structures in order to ensure employers are not avoiding their legal obligations.
If a business consisting of multiple separate companies operates as a single integrated organisation, it is possible that it will be treated that way, notwithstanding legal formalities. Employers may adopt a strategic corporate structure in relation to employees for practical business reasons. In doing so, care needs to be taken to ensure that managerial and supervisory arrangements accurately reflect employment relationships in that structure.
Kylie Groves, solicitor - 9429 7475
Michael Preston, articled clerk - 9429 7684