Fair Work Act 2009

s.394 - Unfair dismissal

Application for relief from unfair dismissal - jurisdictional objections: employer a small business and the dismissal was consistent with the Small Business Fair Dismissal Code and dismissal was a case of genuine redundancy - found that the Applicant was not protected from unfair dismissal as she had not completed the required minimum employment period - application dismissed.

[1] Ms Samantha McElligott (the Applicant) lodged an application under s.394 of the Fair Work Act 2009 (the Act) which was received by the Fair Work Commission (the Commission) on 2 October 2018 alleging that she had been unfairly dismissed by Reason Management Pty Ltd (the Respondent) on 21 September 2018.

[2] In its Form F3 - Employer Response to Unfair Dismissal Application the Respondent raised two jurisdictional objections to Ms McElligott's application, contending that her dismissal was a case of genuine redundancy and that it was a small business and the dismissal was consistent with the Small Business Fair Dismissal Code.

[3] Hearing of Ms McElligott's unfair dismissal application was delayed for a considerable period of time due to the Respondent's Managing Director, Mr Paul Sewell being assessed by his treating medical practitioner as unfit to participate in the proceedings. The matter was eventually heard on 31 January 2020. Ms McElligott appeared on her own behalf at the hearing, while the Respondent did not appear. As a result of the Respondent's non-attendance, at the conclusion of the hearing the Commission indicated to Ms McElligott that it would forward a copy of the transcript to the Respondent and afford it an opportunity to file any submissions and evidentiary material it wished to regarding the application. The Commission wrote to the Respondent on 11 February 2020 requesting that it file any material by close of business on 18 February 2020. The Respondent's representative wrote to the Commission on 18 February 2020 setting out the Respondent's submission and attaching several documents. Ms McElligott was subsequently provided the opportunity to file any submissions in reply and did so on 26 February 2020.

[4] For the reasons set out below, I have found that Ms McElligott was not protected from unfair dismissal as she had not completed the required minimum employment period. Ms McElligott's application is therefore incompetent and must be dismissed.

[5] The Respondent operated a brothel in the Australian Capital Territory. At the time of her dismissal Ms McElligott was employed as the Respondent's Business Manager. In her application, Ms McElligott contended that she commenced employment with the Respondent on 18 September 2017 whereas the Respondent contended in its Form F3 that Ms McElligott began working for it on 16 October 2017.

[6] At 12:37pm on 14 September 2018 Ms McElligott received the following text message from Mr Sewell:

"Hi - a heads up so you can start working out some employment options.

I regret to advise that I am closing the business. A business audit will be undertaken and payout entitlements determined. Subject to audit findings, any outstanding leave will be paid to you over the next three weeks.

A formal letter of redundancy will be provided when you return the keys and any other business assets that you have in your possession.

Formal notice period is advised in the letter. You are not required to work during the notice period.

Please book a time to drop off your keys and other items. Also please advise what personal items on premises so they are returned to you. Collection of you [sic] items can be done by you within the building under supervision.

Thank you for your efforts but unfortunately the business has failed under the business model you supported. It is incumbent on me as the company owner and director to not be negligent in my duty. Continuing to operate under the current business model is a dereliction of duty. My major creditor will not continue to support me under the current business model."[1]

[7] Later that day Ms McElligott received her termination letter. The letter included the following:

"Termination of your employment by reason of redundancy.

The purpose of this letter is to confirm the outcome of a recent review by Reason Management Pty Ltd (the employer) of its operational requirements, and what this means for you.

As a result of the review a number of business changes are required. Without these changes the business is unable to continue operating. Consequently, the business manager role has been redefined and its duties have been included in the business owners [sic] day to day responsibilities.

Regrettably this means your employment will terminate.

This decision is not a reflection on your performance and is required irrespective of any performance considerations.

Based on your length of service, your notice period is one week. Therefore your employment will end on close of business Friday, 21 September 2018."[2]

[8] Key aspects of Ms McElligott's written submissions included that:

• she commenced working for the Respondent on 18 September 2017 in an off the books capacity as the Respondent did not have any contracts for employees until mid-October 2017, adding that she signed a contract as soon as one was provided to her - that being on 16 October 2017;

• at the time her dismissal took effect she had been employed by the Respondent for just over 53 weeks, making her application valid;

• at the time she was given the termination letter the Respondent had ten employees, comprising seven casual employees, one part-time employee, a former full-time employee who had been made redundant a few weeks earlier but who was still employed off the books and herself who was employed on a full-time basis;

• in bringing to the Commission's attention Mr Sewell's text message to her on 7 September 2018 (see paragraph [10] below), the Respondent had failed to include a further text message exchange between herself and Mr Sewell - that further text message exchange read as follows:

"Ms McElligott: Can we not at least try and see how tonight and tomorrow go before we go out of business?

Ms McElligott: I don't know why our ads on Crocker and Australia cracker are not showing as I have posted them there and have renewed them recently. When I go in this afternoon I will update all ads to show dropped price and push the ads so they are premium listings

Ms Sewell: We have a solution. We can open legally.

Ms McElligott: Brilliant. I'm on my way in from Moncrieff now so won't be long"[3] (emphasis as per original);

• the Respondent had previously started implementing various changes to the business' structure as it had taken a blow over the winter months;

• at no time had the Respondent mentioned to her that her job would be at risk, adding that when asked Mr Sewell told her that her job was secure and that she had no reason to be concerned;

• at the time of her dismissal the Respondent was not insolvent or anywhere close to being insolvent;

• the day before she received the termination letter Mr Sewell had tried to convince her to go off the books and be paid in cash to avoid increasing the $58,500 the Respondent owed the Australian Taxation Office (ATO);

• as Mr Sewell had asked her to transfer 'net' amounts of wages to employees, she was aware that superannuation contributions and PAYG tax were not being paid at that point in time;

• Mr Sewell had advised her that there was outstanding unpaid rent owed by the Respondent to the building owners;

• she was seeking compensation to make up for the losses and debt she was in as a result of suddenly being out of work as well as being owed a substantial amount of money by the Respondent (Ms McElligott submitted that Mr Sewell owed her an amount of $21,137.19 as a result of a loan she made to the business);

• Midoz Group Pty Ltd, another entity operated by Mr Sewell, had registered the business name 'Meretrix' on 27 September 2018 (i.e. shortly after her dismissal), adding that this was the name used to rebrand the business while she was the Respondent's Business Manager; and

• Mr Sewell had also registered another business name, i.e. Pink Diamond Studios cbr, which was due to open in December 2019 operating from the same premises where she worked for the Respondent, adding that that business had only closed in January 2020.

[9] Attached to Ms McElligott's submissions were statements from Ms Jessica Cordwell, a friend of Ms McElligott, and Ms Selene Samuelson, who also worked for the Respondent. Neither person attended the hearing. Accordingly, their statements were not received into evidence.

[10] Ms McElligott's oral submissions largely reiterated her written submissions. However, Ms McElligott did say that:

• on the morning of 14 September 2018 she received a phone call from Ms Samuelson who told her that Mr Sewell had said to her that morning that he was going to dismiss everyone, shut down the business, hire new employees and re-open over the following week, adding that shortly thereafter she received a text message from Mr Sewell advising her that she was to be made redundant;

• many days prior Mr Sewell had stated in a text message that he was possibly going to have to close the business because his major creditor was not willing to support him any longer, adding that within half an hour Mr Sewell had sent a follow up email stating inter alia that the business would continue as usual, all employees would stay on and the only change would be that some of the casual receptionists would not be rostered as often because she, Ms Samuelson and Mr Sewell could handle the reception duties until the business had built up some funds;[4]

• the above text messages were the last discussion about whether the business was to carry on;[5] and

• she did not believe her redundancy was legitimate because there had been no actual warning and the business continued to trade until early 2020, albeit after a name change.

[11] At the hearing, the Commission asked Ms McElligott a series of questions. Her responses included the following:

• at the time her employment she ceased working for the Respondent it employed ten persons, including herself and Ms Samuelson;[6]

• after she ceased working for the Respondent, five persons continued to work for the Respondent, adding that to the best of her knowledge the other employees left and found work elsewhere;[7]

• both she and Ms Samuelson had been made redundant by the Respondent, adding that Ms Samuelson was a Business Manager of one of Mr Sewell's other businesses and that after being made redundant when the other business closed she worked with her as a co-Business Manager for the Respondent for about 6-8 weeks;[8]

• to the best of her knowledge Midoz Group Pty Ltd continued to trade at the premises where she worked, adding that the name of the business trading at the premises had changed;[9]

• she could have been redeployed to the position of a casual floor walker, i.e. a sex worker, adding that the remuneration attaching to such a role would have been significantly less than the remuneration she received as the Respondent's Business Manager;[10]

• the business was in a degree of financial trouble;[11]

• the only employees made redundant were her and Ms Samuelson, both of who were employed on wages (based on Ms McElligott's sex worker employment agreement it appears that sex workers working for the Respondent were paid a base hourly rate plus a percentage of the fee charged for each booked session);[12]

• she had commenced a new job on 31 January 2019;[13]

• her remuneration while working for the Respondent was $60,000 per annum or approximately $1,150 per week (gross);[14]

• her employment was not covered by a modern award;[15] and

• there was no discussion about the business being in trouble.[16]

[12] The Respondent's primary submission was that it was small business and the Small Business Fair Dismissal Code applied to it as at all relevant times it had no more than six employees. As a result, the Respondent submitted the Commission did not have jurisdiction to determine the application and should dismiss it. The Respondent further submitted that Ms McElligott had not been employed for more than 12 months at the agreed date of termination on 14 September 2018. Attached to the Respondent's submissions were copies of two employment agreements signed by Ms McElligott in respect of her employment with the Respondent. The first employment agreement,[17] which related to Ms McElligott's engagement as a sex worker, was dated 15 October 2017. The second employment agreement,[18] which related to Ms McElligott's engagement as Business Manager, was dated 7 November 2017. Also attached to the Respondent's submissions was a copy of a tax file number declaration signed by Ms McElligott on 16 October 2017.[19]

[13] The Respondent further submitted that should the Commission find against its primary submission that:

• drawing on a text message sent by Mr Sewell on 7 September 2018 to a number of people, including Ms McElligott using her pseudonym 'Belle Fatale', it was clear that the business was struggling and that there was no animosity that gave rise to Ms McElligott's termination - by way of background the text message read as follows:

"Therefore: I cannot reopen until I have a new business model that can be agreed by creditors to enable me to trade into profit. If they disagree I can never reopen. At the moment even a default on our electricity bill will result in disconnection. As it is, legally that are enforced to disconnect me.

Last week I tried to ensure everyone was aware of how critical the business position had become. Really had to do something radical like price cuts to get more numbers to the door. The previous Saturday it was reported that there were 8 walkins. Last Saturday, there were 6. I have also been advised that all the price change did was cost the business money.

The only marketing evidence I actually have is based on the knowledge I gather when floor managing. We are now basically stealing Cocos traffic. Not one person discovered us from the website or social media. I can't comment on phone enquiries but do know that the three i [sic] have handled I had to direct them to the website for photos of the workers.

• Ms McElligott was in no position to know the true financial position of the business, adding that she had no means of being aware of its tax and superannuation obligations for example;

• at the time the business ceased trading towards the end of 2018, Mr Sewell had amassed a debt to the ATO of approximately $59,000 comprised of unpaid PAYG and compulsory superannuation payments, adding that there were numerous other debtors which Ms McElligott cannot have been aware of;

• Ms McElligott's dismissal was not motivated by malice but rather a realisation that the business needed to be restructured;

• it was Mr Sewell's intention to step into the management role himself as he could not afford a non-income earning manager anymore;

• that plan did not work as several sex workers ultimately left at or about the time of Ms McElligott's dismissal, adding that the Respondent had difficulty recruiting replacement workers;

• the Respondent traded intermittently until about mid-December 2018 but did not operate in any form after that date as it was not operating profitably;

• Mr Sewell subleased the premises to another brothel from the start of 2019 until about March 2019, adding that that business was operated by an entity unrelated to Mr Sewell and that it had ceased trading;

• any money made as a result of the sublease was paid to satisfy the head lease; and

• Mr Sewell was effectively impecunious, living in his car and surviving on a pension.

[14] The Commission exercises its discretion in relation to an application for an unfair dismissal remedy pursuant to Part 3-2 of the Act. In this case it is disputed that Ms McElligott had served the required minimum employment period such that she was a person protected from unfair dismissal pursuant to s.382 of the Act. This is the threshold issue to be determined. If I find that Ms McElligott was protected from unfair dismissal, I then need to determine whether her dismissal was a case of genuine redundancy. Against that background, the relevant provisions of the Act are ss. 382, 383 and 389 which provide as follows:

"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

(ii) an enterprise agreement applies to the person in relation to the employment;

(i) 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.

(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;

(b) if the employer is a small business employer - one year ending at that time.

(1) A person's dismissal was a case of genuine redundancy if:

(a) 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; and

(b) the employer has complied with any obligation in a modern award or enterprise agreement that applied to the employment to consult about the redundancy.

(2) A person's dismissal was not a case of genuine redundancy if it would have been reasonable in all the circumstances for the person to be redeployed within:

(b) the enterprise of an associated entity of the employer."

[15] The Respondent submitted that it was a small business as at all relevant times it had no more than six employees. Ms McElligott submitted at the time she was given the termination letter the Respondent had ten employees. Further there was no material before the Commission to the effect that Ms Sewell's other business interests, i.e. the Midoz Group Pty Ltd, employed anyone at the time of Ms McElligott's dismissal. The parties' respective submissions support a finding that the Respondent was a small business employer as defined in s.23 of the Act.

[16] To be protected from unfair dismissal Ms McElligott therefore had to have completed a period of employment with the Respondent of at least the minimum employment period [s.382(a)]. Section 383 of the Act provides that if the employer is a small business employer the minimum employment period is one year ending at the earlier of the time when the employee is given notice of dismissal or the time immediately before the dismissal.

[17] The Explanatory Memorandum to the Fair Work Bill 2008 explains the minimum employment period as follows:

1515. This clause sets out what is the minimum employment period. It is one year for employees of a small business and six months for all other employees. Whether an employee has served the minimum employment period is assessed either when the person is given notice of dismissal, or when the dismissal takes effect, whichever happens first." (Underlining added)

[18] Ms McElligott contends that her employment with the Respondent commenced on 18 September 2017, while the Respondent contends that her employment commenced on 16 October 2017 which is the day after she signed her initial employment agreement with it. It is clear from the termination letter (see paragraph [7] above) that Ms McElligott was provided with notice of her termination on 14 September 2017, with termination taking effect on 21 September 2017. For the purposes of assessing the minimum employment period in this case, the earlier of these dates is undoubtedly the date on which Ms McElligott was provided with notice of her termination, i.e. 14 September 2018. Therefore, irrespective of the commencement date relied upon, it is clear that Ms McElligott had not completed the required minimum employment period. This is because the date on which Ms McElligott was provided with notice (i.e. 14 September 2018) was just short of one year after the commencement date relied on by her (i.e. 18 September 2017). Accordingly, Ms McElligott was not protected from unfair dismissal.

[19] In those circumstances, it is not necessary for the Commission to determine whether Ms McElligott's dismissal was a case of genuine redundancy.

[20] For all the above reasons, I find that Ms McElligott was not protected from unfair dismissal as she had not completed the required minimum employment period. Ms McElligott's application is therefore incompetent and must be dismissed. An order to that effect will be issued in conjunction with this decision.

Respondent's written submissions received on 18 February 2020, with the Applicant's submissions in reply received on 26 February 2020.

[1] Attachment to Form F2 - Unfair Dismissal Application

[3] Attachment to Samantha McElligott's response/reply to the statements made by the Employer/Respondent Paul Douglas Sewell

[17] Respondent's submissions of 18 February 2020 at Attachment A

Printed by authority of the Commonwealth Government Printer