When a small business is not a small business

unfairdismissal

The definition of a small business has been further clarified in legal terms in a decision by Fair Work Australia that could have ramifications for small business owners across the country.

The South African owners of a Perth-based garden statue business, Gardens of Italy, were taken to the Fair Work Commission over the alleged unfair dismissal of their former employee, Stephen Pretorius.

While the exact dates of Mr Pretorius’ employment were disputed, owners Marco and Ulrike Schmidt agreed the man had been employed for more than six months, but less than a year.

Under the terms of the Fair Work Act, the minimum employment period a worker must have completed before unfair dismissal protections kick in is 12 months for a small business, and six months for all other businesses.

Mr and Mrs Schmidt had believed the application would be thrown out on the grounds that they, as the owner-operators with just one worker in Australia, were in fact a small business.

It was never disputed that at the time of Mr Pretorius’ employment, he was the sole employee of Gardens of Italy. However, as defined under Section 23 of the Act, a small business is one that employs fewer than 15 people, taking into account associated entities as well.

In South Africa, the Schmidt’s are the directors of another entity – Gardens of Italy Close Corporation – which employs 21 people, and was found to supply Gardens of Italy in Australia with much of its stock.

“The parties dispute the extent to which another entity, Gardens of Italy Close Corporation, which operates in South Africa, should be regarded as an associated entity for the purpose of the employee count under s.23 [of the Fair Work Act],” the decision noted.

But the definition of an “associated entity” was met by the Corporations Act, namely because “the operations, resources or affairs of the principal are material to the associate; the principal has a qualifying investment in the associate; the principal has significant influence over the associate; and the interest is material to the principal.”

Because their overseas-entity was found to contribute to their overall employee headcount, the unfair dismissal claim was advanced to the conciliation stage by the Fair Work Commission.

“Given the definitions in the FW Act and the Corporations Act, I am obligated to conclude that Gardens of Italy does not meet the definition of a small business. Accordingly, I am satisfied that Mr Pretorius has exceeded the requisite minimum employment period so that he is able to pursue this application,” the decision read.

It was also noted in the decision that the finding should not be misinterpreted as to mean that employees of Gardens of Italy Close Corporation had any form of access to the jurisdiction established by the Fair Work Act.

“It is simply the case that, notwithstanding that Gardens of Italy is, by itself, a small business, the Corporations Act requires that I take into account the employees of the related, but overseas operated, Gardens of Italy Close Corporation,” the decision said.

With most small businesses in Australia now having some sort of overseas affiliation – for example, stock from overseas suppliers or outsourced office work – the unfair dismissal claim heard this week should undoubtedly be factored in to dismissal considerations.