Is it the person who hired you, who pays you, or who controls your work?
The Federal Circuit and Family Court of Australia recently dealt with an employment dispute where two managing directors questioned who their true employer was after a series of business changes and restructures.
The workers claimed their employer wrongly transferred their employment to a subsidiary company without proper consent, unilaterally cut their salaries, and failed to pay them for several months of work.
Their employer argued they had agreed to all changes and eventually resigned. The case explored what makes someone your true employer - is it who hired you, who pays you, or who actually controls your work?
Managing directors’ employment terms
The dispute started with a private equity group's purchase of several complementary businesses in the stone and tiling industry in 2018. The investment group bought these companies intending to create an integrated business operation.
After buying the companies, the parent company directly employed both workers as managing directors with $250,000 annual salaries plus potential bonuses up to $100,000. Their contracts clearly stated they would report to the parent company's chief executive officer while running the subsidiary business.
The parent company also appointed external HR consultants to handle payroll and human resources for all group companies.
Change in management leads to confusion
In October 2019, at a board meeting, the parent company announced changes to payroll arrangements. The company said it wanted to streamline financial reporting by having each subsidiary pay its own managing directors.
When one worker asked if they needed new employment contracts, the HR consultant replied by email: "All employment conditions remain the same, so I will send out a letter instead."
The parent company later argued this change meant the subsidiary became the workers' actual employer. The workers maintained it was purely an administrative change and the parent company stayed their true employer.
Determining the ‘true’ employer
By March 2021, the relationship had soured. The subsidiary needed over $12 million in extra funding from other group companies.
The parent company cut the workers' salaries to $150,000 per year in May 2021, saying they agreed to this reduction.
A crucial meeting happened in June 2021. The employer said both workers resigned at this meeting. The workers argued they kept working until November 2021 but weren't paid after June.
The judge looked at who really controlled the workers' employment. As noted in the decision: "The totality of the circumstances surrounding the so-called 'transfer' will inform the reality of that consent. Conversations and conduct at the time of an [worker's] engagement (or at the time of a purported transfer from one [employer] to another) are of significance."
The judgment emphasised that changing someone's employer requires real consent: "A contract of service cannot be transferred by one [employer] to another or novated as between them without the [worker's] consent... the [worker's] consent must be a real one whether express or implied."
Court rules on the ‘true employer’
The court found the parent company remained the true employer throughout the relationship, stating: "[The parent company], through its senior executives, possessed the right of practical and legal control over the day-to-day activities of [the workers] from beginning to end."
However, the workers lost their claim for unpaid wages. The judge determined they had agreed to the salary reduction and resigned in June 2021, not November as they claimed.
The judge concluded: "I find that [the workers] resigned their employment on 21 June 2021. Insofar as [the workers] performed any work or maintain relationships with [the employer group] after 21 June 2021 they did not do so as employees."
The case showed that what matters isn't just who pays your salary, but who actually controls your work. It also reinforced that employers need clear evidence when changing fundamental terms of employment like who the employer is.
