IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VG 574 of 1997 BETWEEN: textile footwear and clothing union of australia Applicant AND: bellechic pty ltd First Respondent david keys australia pty ltd Second Respondent bellhop pty ltd Third Respondent JUDGE: RYAN J DATE OF ORDER: 19 november 1998 WHERE MADE: MELBOURNE MINUTES OF ORDER THE COURT ORDERS: 1. That the amended question formulated for separate trial by paragraph 4 of the order of Ryan J of 29 July 1998 be answered as follows: Yes, at all times between 1 January 1996 and 20 January 1997 the third respondent, Bellhop Pty Ltd, was the employer of Lucia Bono and Ada Bernadone. 2. That the application herein be adjourned to a date to be fixed for directions as to the trial of any issues remaining for determination and any further orders to be made in the light of the answer given in paragraph 1 of this order. Note: Settlement and entry of orders are dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VG 574 of 1997 BETWEEN: textile footwear and clothing union of australia Applicant AND: bellechic pty ltd First Respondent david keys australia pty ltd Second Respondent bellhop pty ltd Third Respondent JUDGE: RYAN J DATE: 19 november 1998 PLACE: MELBOURNE REASONS FOR JUDGMENT For some years before 1989, a firm or company called "D K Textiles" had, at premises in Richmond, manufactured women's clothing under the name or label "David Keys". It seems that the goodwill of that business and the machinery used in it was purchased in about 1989 by Mr Wolter Joosse and his wife or companies controlled by them. At the same time Mr and Mrs Joosse also acquired control of a shelf company "David Keys Australia Pty Ltd" which had been incorporated as "Elmhurst Pty Ltd" on 22 March 1988. Shortly afterwards, the business was moved to factory premises at Brunswick Street, Fitzroy. After the move to Fitzroy, two of the employees engaged to work in the business were Mrs Bono and Mrs Bernadone. Until about March 1995, they received pay slips or envelopes issued by David Keys Australia Pty Ltd. On 23 March 1995, the name of David Keys Australia Pty Ltd was changed to "Bellhop Pty Ltd". Mr and Mrs Joosse remained unchanged as directors and sole shareholders. On the same date, the name of Joosse Corporation Pty Ltd which had been incorporated on 30 May 1988 and was similarly controlled by Mr and Mrs Joosse, was changed to David Keys Australia Pty Ltd. Shortly before those events, a new company, Bellechic Pty Ltd was incorporated on 17 March 1995. The directors and only shareholders of Bellechic Pty Ltd, which had a paid up capital of $2.00, were Mr and Mrs Joosse. Bellechic Pty Ltd was ordered to be wound up on 28 October 1997. Mr Joosse explained the corporate changes to which I have just referred as actuated by a desire to separate the manufacturing and wholesaling activities of the David Keys business. That desire, in turn, was said to have been prompted by a concern to escape continuing liability for a WorkCover levy which the business had inherited from the time when it had been conducted by D K Textiles. After the changes of March 1995, group employee tax deductions for employees, including Mrs Bono and Mrs Bernadone, were made and accounted for by Bellechic Pty Ltd and group certificates were issued by that company as employer. Although none was tendered in evidence, it seems likely that pay envelopes or pay slips issued from that time also showed Bellechic Pty Ltd as the employer. At all events, the erection of Bellechic Pty Ltd as a new entity having some connection with their employment did not escape the notice of the existing employees who had been engaged in the business or of their union, the present applicant. Several of the employees enquired about the meaning of the new arrangement and were told, in effect, by Mr Joosse or the secretary who acted as paymaster, that there was no need to worry as all that had happened was a change in the name of the company which was paying the wages. When the concerns of some of the employees were made known to him, Mr Gehrke, the union organiser, took the matter up with Mr Joosse and other persons at a managerial or administrative level in the business. Mr Gehrke explained in evidence that he had been anxious to ensure that the continuity of employment of union members was not disrupted. He was told, in effect, that the members were working for the same business. Despite the introduction of the name "Bellechic Pty Ltd" on the pay and taxation records, garments continued to be produced and marketed under the label or name "David Keys" although some items of menswear were labelled "Classknit". As well, other garments were finished or processed by Bellechic Pty Ltd for outside wholesalers using machinery made available to Bellechic Pty Ltd by another company in the Joosse group. Mr Joosse gave evidence, which I accept, that one of the reasons for having manufacturing done by Bellechic Pty Ltd from March 1995 was to allow processes to be undertaken for outside wholesalers or distributors without diminishing the reputation for quality which was perceived as attaching to the "David Keys" label. After March 1995, several new employees were engaged to work in the business at Brunswick Street, Fitzroy. They included Mr Cavalcante who had earlier worked for D K Textiles and had gone to Fitzroy when the business was relocated by Mr and Mrs Joosse in 1989. Mr Cavalcante resigned in 1990 and returned in September 1995 from which time his pay slips and group certificates were issued in the name of Bellechic Pty Ltd. In other respects, to his observation, the conduct of the business was unchanged. Other new employees were recruited in about May 1995 from another factory in Richmond which had manufactured garments under the name or label "Mark Slade" and which went out of business at about that time. These employees included Mrs Taleska whom Mr Joosse took by car from the Slade factory to Brunswick Street to see the David Keys operation. Her understanding, confirmed by what Mr Joosse had told her, was that she would be working for "David Keys". However, she acknowledged that all her pay slips and group certificates were issued in the name of Bellechic Pty Ltd. Mrs Martakis had also previously worked for Slades and was approached by Mr Joosse to "work for David Keys at the David Keys factory". She did not notice the name Bellechic Pty Ltd on her pay slips or group certificates. Among the employees recruited by Mr Joosse from Slade's was "Marsha" who was engaged to work in a supervisory capacity at Brunswick Street, Fitzroy. She, in turn, recruited another former Slade's employee, Mrs Skowronska. Mrs Skowronska's experiences and observations were similar to those of Mrs Martakis and she believed that she worked for "David Keys" because that was the label on garments she was making and was the name displayed externally and inside at the Brunswick Street premises. Mrs Skowronska noticed the name Bellechic Pty Ltd on her pay slips and said that when she asked "Marsha" the reason for that, was told that "David Keys" was in financial trouble and the pay slips were being issued by Bellechic Pty Ltd which had lent money to David Keys. Mrs Bosevska was also engaged by "Marsha" and was led to believe that her employer was "David Keys", no mention having been made of Bellechic Pty Ltd. No notice of termination of the employment by David Keys Australia Pty Ltd of any existing employee was given in March 1995 and no employee was requested to consent in writing to the transfer of his or her employment to Bellechic Pty Ltd. It was suggested in evidence that employees had signed forms of authorisation or consent which were lodged with the Australian Taxation Office to enable Bellechic Pty Ltd to be substituted as the company to make group tax deductions from their wages. However, no such documents were tendered in evidence. After March 1995, Bellechic Pty Ltd apparently paid contributions to the Australian Retirement Fund by way of superannuation contributions for employees working in the business. The evidence does not reveal what notice (if any) was given to the trustees of that Fund nor whether the employee beneficiaries assented to a change in the identity of their employer for the purposes of the superannuation scheme. Despite the introduction of "Bellechic Pty Ltd" as the name on the pay slips and group certificates, persons engaged in the business were frequently referred to as working for "David Keys" without identifying a particular corporate entity in the Joosse group of companies as the employer. This is illustrated by a reference dated 23 January 1997 given to Mrs Bono by Mr Joosse after she ceased work upon the factory's being relocated to Seaford. That reference was in these terms: TO WHOM IT MIGHT CONCERN Mrs Lucia Bono has been employed by David Keys for all her working life as a cutter. Mrs Bono also ably works on overlockers and buttonholers. Mrs Bono has always worked diligently and is a very reliable staff member. Mrs Bono leaves us on her own accord due to the fact that the business is relocating to Seaford. We recommend Mrs Bono to any other employer. However, termination statements prepared for Mrs Bono and other employees similarly affected by the move to Seaford showed Bellechic Pty Ltd as the employer and cheques in payment of their entitlements on termination were drawn on an account in the name of Bellechic Pty Ltd. Against this factual background, there falls to be resolved the following question which, as amended, I ordered pursuant to, O 29 r 2 of the Rules of this Court should be decided separately from, and before, any other question in the present proceedings: Whether at any time between 1 January 1996 and 20 January 1997 the second respondent David Keys Australia Pty Ltd or the third respondent, Bellhop Pty Ltd was the employer of any and which persons named as employees in the further amended statement of claim herein. The employees named in the further amended statement of claim were Lucia Bono, Magda Taleska, Irenie Martakis, Marta Skowronska, Parva Bosevska and Ada Bernadone. Mr Langmead of Counsel for the applicant contended that all six employees should be found to have been employed during the relevant period by David Keys Australia Pty Ltd. He based that submission on the common acceptance that they worked for, or in the business of, "David Keys" and that, by virtue of the name change effected in March 1995, David Keys Australia Pty Ltd (formerly Joosse Corporation Pty Ltd) was commonly accepted as being the entity in the Joosse group of companies most closely identified with that business and should be taken to have been in control of it. In the alternative, Mr Langmead submitted, as I understood him, that Mrs Bono and Mrs Bernadone had each entered into a contract of employment with David Keys Australia Pty Ltd before the changes of March 1995 and that nothing had been done at that time which had the legal effect of transferring the benefit or the burden of those contracts to Bellechic Pty Ltd. Accordingly, on this alternative submission, after the name change, Mrs Bono and Mrs Bernadone remained employed by the same legal entity which had become Bellhop Pty Ltd. In support of his primary submission Mr Langmead referred to Australian Insurance Employees Union v W P Insurance Services Pty Ltd (1982) 1 IR 212 where Evatt J held that a stenographer, Mrs Roberts, had been employed by the respondent and not by a related company, Watkins Property and Administration Services Pty Ltd ("WPA") which provided various services to the respondent and had paid Mrs Roberts' wages and made up her pay records, personnel records and the like as well as issuing her group certificates. His Honour's conclusions on the question which he had to resolve were expressed in these paragraphs (at 216): I am satisfied that WPA was not Mrs Roberts' employer at any time. The fact that her salary was paid by WPA and that tax group certificates issued to her showed that company as her employer is not conclusive evidence of the fact that it was the employer. I am satisfied that that arrangement was one of financial convenience to the Watkins group and in my view those facts are what may be termed neutral indicia in determining the issue which company was her employer in the legal sense during the relevant period. (cf R E S Logging Co Pty Ltd v Bridge [1969] A R [NSW] 604 cited Australian Timber Workers Union v Monaro Sawmills Pty Ltd 29 ALR 322 at 329.) The question for determination in these proceedings, as I see it, is: "With whom was the contract of service of Mrs Roberts made?" I am satisfied that in all the circumstances Mrs Roberts was employed by the respondent company during all relevant periods. She was undoubtedly under the control of Mr Rivers during that period as that term is used in authorities such as Australian Mutual Provident Society v Chaplin and Anor (1978) 18 ALR 385; Current Review [Z81]; Zuijs v Wirth Bros Pty Ltd (1955) 93 CLR 561; Mersey Docks and Harbour Board v Coggins & Griffith (Liverpool) Ltd [1947] AC 1 and Century Insurance Co v Northern Ireland Road Transport Board [1942] AC 509. I am satisfied on the balance of probabilities the control and direction of Mr Rivers of Mrs Roberts' work covering insurance matters was as a director of the respondent company and not simply as an employee of WPA. It must be remembered that he was a director of only the respondent company and of no other in the Watkins group of companies. Again, Mrs Roberts could truly be said to be part and parcel of the operations of the respondent company (cf Denning LJ, as he then was, in Stevenson, Jordan & Harrison Limited v Macdonald & Evans (1952) 1 TLR 101 at 111 cited in Timber workers Union case (supra) at 329). In my view all the evidence supports the view that Mr Rivers was WP Insurance Services Pty Limited. He was the active director. He was the man with the technical skills. He was the man who had undertaken to the Queensland Insurance Commissioner that he had the controlling say in the company. He was the man who supervised all the insurance operations and directed Mrs Roberts' work day being alert that she was not finding herself doing work for other executives in the group of companies rather than for him. However, in the present case, Mr Joosse had effective control of all three companies by which the employees could conceivably have been employed after March 1995, namely Bellechic Pty Ltd, David Keys Australia Pty Ltd (formerly Joosse Corporation Pty Ltd) and Bellhop Pty Ltd (formerly David Keys Australia Pty Ltd). Accordingly, the identification of the person in whom control of the employees resided does not assist in marking out one company rather than another as the employer. Nor does the fact that most of the garments produced by the employees bore the "David Keys" label or that "David Keys" was the name most prominently displayed around the factory premises. It is true that the employees spoke of, and regarded, themselves as employed by "David Keys" and were similarly spoken of, at least on occasions, by Mr Joosse. However, that was a reference to the overall business which, on the evidence, was carried on after March 1995 as to part by Bellechic Pty Ltd and as to other aspects by either or both David Keys Australia Pty Ltd and Bellhop Pty Ltd. Authorities applying the distinction between employees and independent contractors are not particularly helpful when a decision has to be made as to which of several entities has been the employer of persons who concededly worked as employees. That is not to say that resort is never available to indicia such as the "control test" discussed in Zuijs v Worth Bros Pty Ltd (1955) 93 CLR 561 or whether the person concerned is "part and parcel" of the organisation of a particular entity (cf Bank Voor Handel en Scheepvart NV v Slatford [1952] 2 All ER 956 at 971). However, in the final analysis, the choice has to be made primarily by reference to the nature of the business in which the employee was required to work and what was said and done at the time of his or her engagement. In the present case, none of the employees recruited after March 1995 stipulated for a particular entity to be her employer. There was no apparent reason to do so since all of the companies in the Joosse group had minimal paid up capital and none was apparently financially stronger than the others. In those circumstances, in which the employees were engaged to work in a business in which a number of separate corporate entities participated otherwise than as partners, it was open to those controlling the business to select which company should be the employer provided that the selection was consistent with the financial and administrative organisation of the business and was not otherwise a sham. The evidence compels the conclusion that Mr Joosse selected Bellechic Pty Ltd to be the employer of the relevant employees recruited after March 1995. Moreover, that selection was consistent with the operating structure of the "David Keys" business at that time because the part of the business in which the employees were engaged was the manufacture of garments including those which were finished or otherwise processed for distribution under labels other than "David Keys". From March 1995, the evidence indicates, the whole manufacturing process was allocated to Bellechic Pty Ltd. Not only were there no contrary indications pointing to a different presumptive employer, but the conclusion which I have just indicated is reinforced by the fact that Bellechic Pty Ltd, after March 1995, paid the wages of the employees in question, deducted their group tax, made the employer's contributions in respect of them to the Australian Retirement Fund and, when required, made up the statements of their entitlements on termination of employment and paid those entitlements. All this was done with the acquiescence, after initial enquiry, of the employees concerned and their union. In this context it is not without significance that the applicant union instituted the present proceedings originally against Bellechic Pty Ltd alone apparently in the belief that it had "taken over" the business in which the employees had worked. It is also to be remembered that when Mr Gehrke, the union organiser, was apprised that Bellechic Pty Ltd was being recorded as the employer on pay slips and the like after March 1995, his enquiries were prompted by a concern that his members should retain "continuity of employment" presumably for purposes of long service leave, superannuation and similarly accruing benefits. He was apparently satisfied on that head by the response from Mr Joosse and others that the employees were working in the same business. Doubtless it was accepted that, by virtue of what was then s 149(1)(d) of the Industrial Relations Act 1988, the new employer which had been introduced would attract liability under the applicable award as a successor to the "David Keys" business. That paragraph provided: Subject to any order of the Commission, an award determining an industrial dispute is binding on: ... (d) any successor, assignee or transmittee (whether immediate or not) to or of the business or part of the business of an employer who was a party to the industrial dispute, including a corporation that has acquired or taken over the business of the employer. Further reassurance was provided by Mr Joosse's undertaking that "nobody would suffer from the changeover" to a different company as the one responsible for payment of wages. It may be that assurances of that kind operated by application of some aspect of the doctrine of estoppel to create or preserve civil liabilities in one of the other companies in the Joosse group, but that issue is outside the scope of the present preliminary question. Different considerations apply to Mrs Bono and Mrs Bernadone who were each engaged to work in the "David Keys" business long before the incorporation of Bellechic Pty Ltd. It is not disputed that their employer from the time of engagement up to March 1995 was David Keys Australia Pty Ltd which became Bellhop Pty Ltd. Accordingly, it has to be determined whether the reorganisation of the "David Keys" business which occurred in March 1995 brought about an assignment of their employment to Bellechic Pty Ltd. The principle governing the assignment of a contract of employment was expressed in these terms by Viscount Simon LC in Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014 at 1018: It is, of course, indisputable that (apart from statutory provision to the contrary) the benefit of a contract entered into by A to render personal service to X cannot be transferred by X to Y without A's consent, which is the same thing as saying that, in order to produce the desired result, the old contract between A and X would have to be terminated by notice or by mutual consent and a new contract of service entered into by agreement between A and Y. In citing that authority Fridman, The Modern Law of Employment, suggests at p 479: Hence assignment of a contract of employment will determine the relationship, unless what has taken place is not in fact an assignment, without the consent of employer or employee, but a novation of the contract, ie, the extinction of the original contract and the creation of a new one by and with the consent of all three parties. In the present case, there was no express assignment by Bellhop Pty Ltd to Bellechic Pty Ltd of the benefit of the contracts of employment with Mrs Bono and Mrs Bernadone. The only facts from which such an assignment might be heard were that, after March 1995, Bellechic Pty Ltd was named as the employer on their pay slips, issued their group certificates and paid their superannuation contributions. Even if an assignment could arise by implication in that way, which I doubt, the evidence does not sustain an inference that the presumptive assignment was ever accepted by Mrs Bono or Mrs Bernadone. In my view, an inference of that kind is particularly difficult to draw when it is said to arise from the acquiescence in a change of name on a pay slip or group certificate by employees with limited knowledge of English and, apparently, no commercial sophistication. The evidence is more consistent with the employees' having regarded the changed mode of payment of wages and accounting for group tax matters of administrative convenience for their employer which did not change its identity. Since Mrs Bono and Mrs Bernadone continued to work in the David Keys business in the same way as they had before March 1995, the preferable analysis is that they remained employees of David Keys Australia Pty Ltd, or Bellhop Pty Ltd as it became, and that company made their services available to Bellechic Pty Ltd upon the latter agreeing to pay their wages and attend to the tax deductions on behalf of Bellhop Pty Ltd. Instances of the loan of an employee from a general employer to a third party are easy to find in the reports but most of the cases are concerned with the attribution of a duty of care owed to the worker rather than the identification of the general employer or the third party as the "true" employer for the application of general contractual principles or a statutory provision like s 178(6) of the Workplace Relations Act 1996. In the circumstances of the present case, I consider that the evidence tends to the conclusion that, for the purposes of that sub-section, Bellhop Pty Ltd remained the employer of Mrs Bono and Mrs Bernadone. For these reasons, the question reserved for separate determination should be answered as follows: Yes, at all times between 1 January 1996 and 20 January 1997 the third respondent, Bellhop Pty Ltd, was the employer of Lucia Bono and Ada Bernadone. I shall adjourn the application to a date to be fixed for directions as to the trial of any issues remaining for determination and any further orders to be made in the light of the answer just formulated. I certify that this and the preceding nine (9) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Ryan. Associate: Dated: 19 November 1998 Counsel for the Applicant: Mr D Langmead Solicitors for the Applicant: Maurice Blackburn & Co Counsel for the First Respondent: No appearance Solicitors for the First Respondent: No appearance Counsel for the Second and Third Respondents: Mr J Goussis Solicitors for the Second and Third Respondents: Waters O'Brien Date of Hearing: 17 and 18 November 1998 Date of Judgment: 19 November 1998