A recent judgment extends the “true employer” line of cases by allowing it to extend where the true employer did not directly pay employees. The judgment provides employees with recourse to assets for unpaid superannuation to which they would not otherwise have had access. Hamilton Locke acted for Kathy Sozou and Anthony Connelly of McGrathNicol as liquidators in this important decision.
What did we do and why did it matter?
Liquidators, Kathy Sozou and Anthony Connelly applied for orders that they would be justified in treating Apollo Kitchens (NSW) Pty Ltd (In Liquidation) as the employer of 27 employees for the purpose of distributing assets in the liquidation. These employees were formally employed by another entity within a corporate group, Brownlen Pty Ltd (In Liquidation). The liquidators identified the employees performed work across a group of companies and although they were paid by and received payslips from the formal employer (Brownlen), there was clear evidence suggesting Apollo Kitchens put Brownlen in funds so it could pay all employee expenses (such as wages and insurance). Accordingly, the liquidators asked the court if they would be justified in treating the employees as employees of Apollo Kitchens for the purpose of distributing assets in the liquidation.
The orders allow employee creditors to access assets of Apollo Kitchens instead of Brownlen. Without these orders, the former employees would have missed out on superannuation, as they would have been left to prove in the liquidation of an assetless company.
What was different about the case?
Previous ’true employer cases’ were typically decided in circumstances where the insolvency appointment was over all entities in a corporate group, giving liquidators better evidence on the entire factual matrix, and where the true employer actually paid wages and employee expenses.
Neither circumstance applied in this matter. Instead, immediately prior to Brownlen paying wages, superannuation and other employee-related expenses such as workers compensation insurance, Apollo Kitchens provided it with the funds necessary for it to do so. Brownlen had no other source of income and no profit was identified that might suggest a credible reason for Brownlen being the formal employer of record, such as labour hire. In making the orders, Brereton J observed (at [47(2)]):
“There is no evidence that Brownlen was set up or ever operated as a standalone business, to make profits from supplying labour to other companies. Brownlen, at all relevant times on the evidence, depended on Apollo Kitchens for funding. Funding was provided in a barely sufficient amount to cover the employment-related costs on an as needed basis. This case is not as clear as some others, such as Resilient Investment, Branded Media or Mosaic Brands because here the wages were not paid directly by Apollo Kitchens. But the circumstances of this case are not far removed from those cases. There is not much difference between Apollo Kitchens paying the employees directly and Apollo Kitchens paying Brownlen an amount just sufficient to pay the employees and Brownlen then paying the employees on that or the following day.”
This decision confirms the legal basis on which courts look beyond formal employment arrangements to identify the true employer. The decision extends the principles to circumstances where the ‘true employer’ was the entity that funded the ‘employing entity’ which paid wages. It remains important to consider the broader factual matrix to ensure the structure is for no legitimate business purpose. Practitioners should bear these principles in mind, as they can significantly impact the amount of priority creditors who have claims in an insolvent estate.
For more information, please contact Nick Edwards, Brit Ibanez, Ben Fisher.
