IN THE TASMANIAN INDUSTRIAL COMMISSION

Industrial Relations Act 1984

This matter concerns the reference of a dispute pursuant to Section 13(2) of the Long Service Leave Act 1976 by the Secretary, Department of Labour and Industry, to the Commission.

Initially Mr Ben Vaughan brought to the Secretary his contested claim for pro-rata long service leave payment against Aberfeldy Cellars Pty Ltd.

Following investigation of the circumstances of the dispute the Secretary submitted a report of his findings to the President of the Commission, who then referred the matter to me pursuant to Section 15(1)(c) of the Industrial Relations Act 1984, for hearing and determination.

When the matter was brought on for hearing the Secretary's report was presented and read into transcript.

The facts contained in such report were essentially uncontested and therefore properly form part of my findings.

Mr Vaughan's employment details are that he commenced work with Aberfeldy Cellars Pty Ltd (hereinafter referred to as Aberfeldy) a wholesale and retail liquor outlet, on 21 May 1980, and continued that employment until March 1982. However following certain discussions with his employer he registered his own family company called Auvergne Enterprises Pty Ltd (hereinafter referred to as Auvergne) and provided a consultancy service to Aberfeldy from 24 March 1982 to 29 June 1985.

This arrangement was mutually terminated following amendments to the taxation laws, and Mr Vaughan returned to his original position as an employee until 20 January 1988, when his services were terminated because the business was sold.

Mr Vaughan held that he was continually employed as General Manager of Aberfeldy from 21 May 1980 until his termination on 20 January 1988 and that his duties never changed during the whole of that time. He relied upon copies of correspondence confirming his use of that title, together with a written statement from Mrs Sue Ross (another employee of Aberfeldy) supporting his claim in this regard.

In addition to being the general manager of Aberfeldy at 10 Molle Street, Hobart, Mr Vaughan also supervised two other establishments under the control of Aberfeldy, namely the Sun Valley Inn and Tasmanian Fine Wines.

With regard to the disputed period of 24 March 1982 to 29 June 1985, Mr Vaughan had told the Department of Labour and Industry he had originally been promised that he would be made a partner in the business, but, when that did not eventuate his employer advised him to register his own company.

Through Auvergne Mr Vaughan was to supply consultancy services to Aberfeldy and in return he would received taxation benefits. However, when the Taxation Act was amended in 1985, the arrangement became ineffectual, and as a result the Managing Director of Aberfeldy advised Mr Vaughan that the arrangement would have to be terminated.

This was agreed to and Mr Vaughan resumed his original status as an employee of Aberfeldy until the termination of his employment on 20 January 1988.

The employer, through its solicitors, rejected the claim for payment of pro-rata long service leave on the basis that Aberfeldy and Auvergne were not businesses of the same or substantially the same kind within the meaning of Section 2(2) of the Long Service Leave Act, 1976. It was further contended no transmission of employment had taken place, and that accordingly the relevant period between 1982 to 1985 constituted a break in service.

The managing director of Aberfeldy had told the departmental officer that during the disputed period Mr Vaughan had been remunerated by monthly cheques made payable to his company, Auvergne. Furthermore Mr Vaughan was not in any way subject to his supervision as a consultant, but rather was regarded as being totally independent.

In his case presented to the Commission Mr Vaughan confirmed he commenced casual employment with Aberfeldy on or about 10 May 1980 and became permanent on 13 October of that year and was general manager.

He said that on 24 March, 1982, a contract between Aberfeldy and Auvergne came into effect whereby he was to assist Aberfeldy in the conduct and management of its business as a wholesaler and retailer of liquor. He also said that contract terminated on 29 June 1985, and the next day he resumed direct employment with Aberfeldy. Then sometime late in 1987 the business of Aberfeldy was sold, and consequent upon the close of business on 20 January 1988, Mr Vaughan's services were terminated.

Mr Vaughan produced documentary evidence to illustrate to the Commission the fact that during the whole of the period concerned, including the period of time during which the agreement operated, his function as general manager did not change.

As Mr Vaughan put it at page 21 of transcript:-

"Well, sir, I contend that those exhibits show that there was no change in my role in my capacity as general manager. That was acknowledged and accepted by Mr Graham Lynch as managing director of the company. So there was no change in the duties that I performed during the whole period of before, during and after. So, there was continuity of my role."

Mr Vaughan submitted that, upon advice received, the change of employer in this instance constituted a termination of services, and because he had more than seven (7) years of continuous service, an entitlement to payment exists under the Act.

He went on to submit that he worked at the same premises at Davey Street, Hobart, for the whole of the time concerned, and even though he was employed by Aberfeldy from 20 May 1980 through to 23 March 1982 when his services were terminated, he resumed the same job on 24 March 1982 under the terms of the agreement reached between Auvergne and Aberfeldy. Thus it was argued that since the resumption of services was within a two month period, then in accordance with Section 2(2) of the Act, an entitlement exists.

Furthermore, the contract between the two companies was for Auvergne to provide the skilled services of an employee for the purpose of assisting Aberfeldy at such times and in such manner as it may from time to time require in the conduct and management of its business as a wholesaler and retailer of liquor.

Mr Vaughan said at page 26 of transcript, inter alia:-

"I'm saying that the portion of the business in which I was employed was the same, or substantially the same, before and after that transition. There was no change. So for the purposes of the Act it's deemed to have transmitted to Auvergne Enterprises."

He also said he was under the direction still of the Managing Director (Mr Lynch) to do what he requested and how he requested it.

Following a number of questions from the bench in relation to the specific terms of the agreement between Auvergne and Aberfeldy Mr Vaughan stressed that it was necessary to have proper regard for the circumstances as a whole, and in particular the fact the agreement came about at Aberfeldy's suggestion, because when Mr Vaughan first decided to work with Aberfeldy it was on the basis that he be admitted as a partner to the business after 12 months.

It was stated that when that promise was not fulfilled, then as a compromise, the other arrangement was suggested to allow Mr Vaughan to split income with his wife.

In opposing the claim Mr Abey for Aberfeldy addressed himself to two fundamental questions. Firstly whether or not Mr Vaughan was an employee of Aberfeldy during the period 24 March 1982 to 29 June 1985 when a registered agreement between the two parties existed.

And secondly if he was not an employee of Aberfeldy, but instead was an employee of Auvergne, then whether or not the latter company was engaged in the same or substantially the same kind of business as Aberfeldy.

Mr Abey argued that Mr Vaughan was neither an employee of Aberfeldy during the disputed period, nor were Aberfeldy and Auvergne engaged in the same or substantially the same business.

Both of these aspects were addressed by Mr Abey in much detail; which I do not consider needs to be faithfully reported upon because they form part of my decision.

The Long Service Leave Act 1976 is a law relating to the granting of long service leave to an employee by an employer consequent upon an employee serving the requisite period of continuous service.

In this instance I have been presented with a number of uncontested facts which under ordinary circumstances, would give rise to an automatic entitlement to payment in lieu of long service leave. However, a dispute exists in relation to the consequential affect of Mr Ben Vaughan forming a family company called Auvergne Enterprises Pty Ltd and that Company then contracting to supply managerial services to Aberfeldy Cellars Pty Ltd between 24 March 1982 and 29 June 1985.

A finding that Mr Vaughan was still an employee of Aberfeldy during the contested period would be sufficient to give rise to an entitlement to payment of an amount calculated as $5,571.50, being 6.6465 weeks at $838.26.

An entitlement would also arise if a finding was made to the effect that during the relevant period, the total of the arrangements entered into, met the terms of Section 2(2) of the Act, which provides as follows:-

"2(2) [Deemed transmission of business]
Where an employee is employed in or about any place in the business of an employer and the employment of the employee with that employer is terminated, and, not later than the expiration of a period of two months from the date on which that employment was so terminated, the employee becomes employed in or about that place in the business of some other employer, the business of the employer by whom his employment has been terminated shall, for the purposes of this Act, be deemed to have been transmitted to the employer by whom he so becomes employed if the business in which he so becomes employed is of the same, or substantially the same, kind as the business in which he was employed in the employment that has terminated."

I am not persuaded to do as the claimant suggested; that is in effect to ignore the existence of a properly registered company called Auvergne Enterprises Pty Ltd (of which he and his wife are directors) and also ignore the consequences of legally binding terms of the agreement made between the two relevant companies.

Whilst it is uncontested that Mr Vaughan acted in the capacity as manager for the whole of the time between 21 May 1980 and 20 January 1988 and essentially performed the same duties during the whole of that time, I do not believe the deliberative actions taken by both parties did not change their relationship in a significant way.

In my view Mr Vaughan was not an employee of Aberfeldy between 24 March 1982 and 29 June 1985 for the following reasons:-

1. Section 2 of the Act defines an "employee" as meaning a person who is employed by an employer to do any work for hire or reward, and includes an apprentice or any other person whose contract of employment requires him to learn or be taught any business.

And "employer" means a person by whom an employee is employed and includes the Crown.

Within the accepted meanings of such expressions attributed to them within the terms of the Industrial Relations Act 1984, and by common law, the evidence before the Commission does not support the existence of an employer/employee relationship during the contested period.

2. Within the terms of the agreement between the two parties

(i) "Aberfeldy had requested Auvergne to make available to Aberfeldy the skilled services of an employee* for the purpose of assisting Aberfeldy ......... and Auvergne agreed to comply with such a request" and such similar expressions are repeated throughout the document.

*underlining mine.

Such wording clearly conveys the meaning and intent that any employee supplied belong to and be employed by Auvergne and not Aberfeldy.

(ii) The agreement also stipulates in 3(a) that:-

"Auvergne shall be liable for and shall indemnify Aberfeldy against any liability, whether at common law or under any statute, arising out of the death or personal injury of the employee or out of any act or omission by the employee in the performance of any duties required of him by Aberfeldy".

and in 3(b) (inter alia);-

"Auvergne shall insure and keep insured both itself and Aberfeldy to an amount and with an insurance company approved by Aberfeldy against each of the liabilities mentioned in para. (a) of this clause ...."

Those provisos are also inconsistent with any notion that Aberfeldy and not Auvergne was the employer of Ben Vaughan.

(iii) Item 4 of the agreement provides that:

"Auvergne will during the currency of this agreement pay the salaries and other allowances of the employee whose services are made available to Aberfeldy pursuant to this agreement"

This too is clearly unsupportive of the notion of an employer/employee relationship between Aberfeldy and Ben Vaughan.

(iv) Item 5 of the agreement stipulated that during the currency of the agreement Aberfeldy was to pay to Auvergne an amount equal to seven and one half per cent (7.1/2%) of the net trading profit of Aberfeldy for the preceding year; together with a monthly payment of $1970, or such other sum as may be agreed upon from time to time.

Such an arrangement does not characterise the payment of wages or salaries to an employee.

(v) Item 7 deals with the conditions relating to termination of the agreement and provides in (b) that:-

"(b) On and after the determination of this Agreement for whatever reason Auvergne shall be entitled to payment of all amounts payable to it in accordance with Clause 5 hereof (calculated in the case of any amount due under Clause 5 (b) hereof as accruing on a daily basis up to the date of termination) but not to payment of any other allowance or amount on account of such termination."

Reference to the exclusion of the right to payment of any allowances or other payments not specified in clause 5(b) of the agreement also supports the argument that such a provision excludes payments normally attaching to the employment of an employee by an employer.

(vi) Item 8 refers to settlement of disputes between the parties by reference to the Arbitration Act, a mechanism for settling commercial disputes, as opposed to industrial disputes.

(vii) Item 9 of the agreement is self explanatory, and provides as follows:-

"9. THE parties hereto acknowledge that nothing herein contained shall constitute a partnership between Aberfeldy and Auvergne nor the relationship of master and servant as between Aberfeldy and any employee made available by Auvergne to Aberfeldy pursuant to this agreement."

(viii) Item 10 gives control of any employees to Auvergne, in that it may withdraw the services of any particular employee from Aberfeldy and to substitute any other. And the question of control over an employee is a critical criteria in deciding whether or not an employer/employee relationship exists, and in this instance who are the parties to such a contract of master and servant.

The provision is expressed in the agreement as follows:-

"10. AUVERGNE reserves the right at any time and from time to time during the currency of this agreement to withdraw the services of any employee from Aberfeldy and to substitute another employee equally skilled and experienced in his place."

(ix) The evidence is that, for a time at least, the Taxation Department upheld an objection to a determination that an employer/employee relationship existed between Aberfeldy and Mr Vaughan for the purposes of the Payroll Tax Act.

It needs to be said I recognise that there is no simple test to determine whether or not a master and servant relationship has been established in any given set of circumstances. But rather the case is that the factors peculiar to one contract may not necessarily be helpful to determining another.

In the present matter there may be factors which viewed singularly could point to a finding different to that which I have made.

Item 2 of the agreement which provides as follows, illustrates this very point:-

"2. AUVERGNE undertakes that the employee will during the currency of this agreement to the best of his skill and ability assist Aberfeldy to carry out the purposes for which his services are required and will act under and in accordance with the lawful directions of Aberfeldy."

(my underlining)

But when all of the relevant facts are considered together, I have no hesitation in concluding that Mr Vaughan was not an employee of Aberfeldy during the life of the agreement between the two parties.

I turn now to the question of whether or not Mr. Vaughan, as an employee of Auvergne, may be entitled to long service leave payment by virtue of the provisions of Section 2(2)1 of the Act.

To meet the requirements of Section 2(2) in order to substantiate a claim it must have been demonstrated that all of the necessary elements are present.

It is beyond question that Mr Vaughan was employed by Aberfeldy up until 23 March 1982 and at that time his services as an employee were terminated.

There is also no argument concerning the fact that no later than the expiration of a period of two (2) months from the date on which that employment was terminated Mr Vaughan became employed in or about that same place in the business of some other employer, i.e Auvergne.

The critical question is however, whether or not the business in which he became employed was the same, or substantially the same, as the business in which he was previously employed.

The evidence is that the business of Aberfeldy was that of a wholesaler and retailer of liquor, but that the business of Auvergne was the provision of management consulting services in connection with the conduct and management of Aberfeldy's business as a wholesaler and retailer of fine wines and spirits.

In my view the two businesses were not the same. And whilst the two were inter-related and mutually dependent upon one another for a period of time, they were not totally so dependent. This is self evident in that the arrangement made was not apparently necessary either before or after its termination. Rather the agreement between Aberfeldy and Auvergne was entered into with the intention only of minimising tax.

Whilst the duties of Mr Vaughan remained virtually the same during the contested period, the reality is that there were two separate companies in existence concurrently, and I find that those businesses were not, in the alternative, substantially the same.

Accordingly the claim for long service leave payment by Mr Vaughan against Aberfeldy cannot be sustained and is dismissed.

A Robinson
DEPUTY PRESIDENT

1 Ibid