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Australian Employment Law

Company Restructures - Talk to the workers.

"A free citizen, in the exercise of his freedom, is entitled to chose the employer whom he promises to serve, so that the right of his service cannot be transferred from one employer to another without his assent."

Viscount Simon L.C.
[1940] AC 1014 at 1020

Justice Merkel of the Federal Court of Australia recently, in the decision IN THE MATTER OF COOGI NOMINEES PTY LTD (Administrator Appointed) was highly critical of the controllers of the Coogi Group of companies before that group of companies went into administration.

During 2000 the Coogi Group of companies restructured themselves, moving 240 people from one company group to a new company group. The post restructure companies were all companies that had no assets.

By moving the 240 employees the pre-restructure group appears to have attempted to avoid meeting in excess of $2,500,000 worth of various employee benefits.

Although the post-restructure companies accepted the employment of the transferred employees and paid salaries, taxes and other payments in respect of those employees, the majority of whom were women from non-English speaking backgrounds performing largely unskilled work, the employees were never consulted about the cessation of their employment with their pre-restructure employer, or about the commencement of their employment with their post-restructure employer. It appears that the only information received by the employees about their new employer was the appearance of its name on the payslips and the group certificates that issued from 2 March 2000 and onwards.

The employment transfers raise the issue of some difficulty for the present administrators who are required to ascertain for the purposes of the administration of the group, whether the transferred employees are creditors of the pre-restructure or of the post-restructure companies in respect of their employee entitlements. In order to resolve the issue the administrators brought an action for directions by the court under the Corporations Act 2001 as to which of the companies in the Coogi Group is to be treated as the employer of the transferred employees.

The issues raised in the matter were deemed so serious that the Australian Security & Investment Commission sought leave to be made a party to the proceedings so as to watch and overview the actions of the proceedings.

The substantial body of evidence put before His Honour Mr Justice Merkel and filed by the parties revealed that the transferred employees were not informed about the proposals to transfer their employment, nor was their assent to the transfer sought or obtained.

Merkel in reviewing the case and in reviewing the precedents quoted the Judgment of Lord Atkin in Nokes v. Doncaster Amalgamated Collieries Limited at page 1026 where it was said that there is no power in an employer:

"To transfer a man without his knowledge and possibly against his will from the service of one person to the service of another. I had fancied that ingrained in the personal status of a citizen under our laws was the right to choose for himself whom he would serve: and that right of choice constituted the main difference between a servant and a serf."

In the present case the employment of the transferred employees was transferred to the post-restructure companies without the expressed or implied assent of the employees. In those circumstances it must follow that, in so far as their contractual relationship with their employer was concerned, their employment with their pre-restructure employer did not cease and their employment with their post-restructure employer did not commence.

In generally reviewing the case Merkel went on to say:

"On the material presented before the court the controllers appear to have pursued their own interests in disregard to the entitlements and interests of their long serving and loyal employees by transferring the employment of the employees, and their responsibility for their employee entitlements, to shell companies thereby treating those employees as if they were serfs, rather than free citizens entitled to choose their own employer."

The actions of the controllers of the pre-restructure companies is clearly reprehensible. The Judgment of Merkel is highly critical of the steps taken by the pre-restructure controllers.

The decision was announced in September of 2002. It is unknown whether further action to track down the individually responsible managers and controllers of the pre-restructure companies has been embarked upon. It is noted however that Mr Justice Merkel in his decision clearly encourages the parties to strive for, where possible, the prosecution of claims for indemnity against the managers, owners and controllers of the pre-restructure companies.

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