Last updated: February 28, 2019
Topic: BusinessManufacturing
Sample donated:

This paper seeks to analyze and discuss the case of Casino Ltd and to give advice to trade union whether it has chances of success in getting 1 July 2007 contractual agreement to apply to all 100 employees as originally intended on the assumption that contractual agreement between Casino Ltd and its employees is valid and that Caterers Ltd has been validly incorporated.

A company has the right to survive and hence it must operate profitably and efficiently. A company is just like an organism that must grow to sustain it life over time. It must continue to satisfy the needs of its stakeholders. Part of the stakeholders includes the customers who must be continuously served and satisfied for these customers to continue patronizing said organizations. Other stakeholders include also the owners or the stockholders and the employees. The owners or stockholders have opportunity costs in putting their investment to the organization. Hence, corporations must produce profits by attaining certain level of revenues and expenses which will produce profits or returns that is at least above the cost of capital or opportunity costs of stockholders.  In the efforts of management or corporate directors to ensure the profitable business of an organization it may possibly affect the employment of some of the employees since hiring and maintaining the same carry with them cost. At certain point in the organizational life, organizations may introduce restructuring or redesign in its process that may cause it to believe that there are indeed certain inefficiencies in the staffing of the organization.  In the case of Casino Ltd., the company is engaged in the resort business. Case facts provide that company has conducted a redevelopment of it’s the current resort which was determined to be central to the management plan approved by its board of directors. This management effort caused the closure of many of the restaurants in the resort and the redundancy of 60 employees. To appease the affected employees, the company talked to these redundant employees and the latter were offered new, but identical positions working in Caterers Ltd, which was also newly created company by the board of directors of Casino Ltd.

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Case facts also further provide that all 60 employees were made to faced the choice of an uncertain future, thus they were made to accept the job offer with Caterers Ltd.  One result of acceptance however was that these 60 employees no longer work under the previous 1 July 2007 contract of employment they had while working for Casino Ltd.  The result was that said employees now work under wages and conditions that are not as favorable as they had while working for under their old employer Casino Ltd. But their new wages and conditions of employment are comparable to those people who work in similar industries. It may be noted that the creation of new company and the eventual result of redundancy in the employment was a result of deliberate plan to create new company to improve the operational efficiency of the and it’s not directly directed to avoid the company’s responsibility under the Casino Ltd. Although, the original contract between Casino Limited and its employees may not be easily abrogated by the creation of the new company, it may be argued that management is also bound to manage efficiently to deliver the requirements of its investors.  Hence the redundancy found on employment of 60 employees was not intentionally made to terminate the latter services but rather to improve operation. This fact could be supported by the case fact that company managed to employ the 60 employees under a new company name but whose  present wages and conditions of employment are comparable to people who work in similar industries.

But the finding of redundancy may be assumed to have not affected the remaining 40 employees who may not have been given new employment under the new company name in the absence of evidence to the contrary.  Since the company had a July 1, 2001 contract with its employees “that all of its employees were to be paid wages and salaries that are in excess of other employees working in similar resorts in Australia,” it now appears that those who may have been affected employment should be properly compensated for such kind payment for necessary damages due to violation of their  employment  rights under employment laws. Under certain laws employees may be entitled to seniority rights and other employment benefits under the old employment contract, which must be compensated by management of Casino Ltd should the company stay with its decision to have new Caterers Ltd. operational.  It is therefore found by this paper that trade union has all the rights to question to early termination of original contract and may ask for damages to compensate for damages that may entitle all of the employees about their lost benefits and rights due to creation of Caterers Ltd.

It must be noted that the creation of new corporation could not have modified the old agreement arbitrarily. Although a corporate law principle exists that liability of the corporation is not the liability of the corporation, the court may grant an exception where the court could still impose liability under principle of piercing the corporate veil. Under the doctrine of piercing the veil of corporate entity, a corporate owner or shareholder may be held personally liable for the obligations or liabilities of the corporation under instances where the corporate fiction is being used to commit a fraud or to something that is sham as in case to trying to avoid payment of valid obligations.[1]   In the instant case of Casino Ltd, the creation of new corporation that is not backed up by good causes such us ensuring the survival of the corporation may be considered as illegal or unauthorized and hence will not excuse the stockholders of the Casino Liable to be liable to employees who got affected by the decision.

Making the changes hastily may really reveal a bad intention on the part of the company as case facts provide that Casino Ltd has been employing 100 people who work in the catering, cleaning and the hospitality outlets of the resort. Case facts provide that that one of the purposes of new created company was to resolve some recent employment dispute that had kept company and its employees in the past. The immediate creation of the company, a wholly owned subsidiary of Casino Ltd, within one month after the agreement was made, may give the meaning to employees that such was being resorted to make the old agreement not having any effect. This inference may be further gleaned by the case fact that the new company was incorporated with all directors appointed from the Board of five directors of Casino Ltd and part of the agreement was that all of the profits of Caterers Ltd will be distributed as a dividend to Casino Ltd.

As to what authorizes a corporation to do corporate acts as in creating another corporation is granted by law. Section 124 on Legal capacity and powers of a company under The Corporation Act of 2001[2]  provides the following:

(1) A company has the legal capacity and powers of an individual both in and outside this jurisdiction. A company also has all the powers of a body corporate, including the power to:

(a)  issue and cancel shares in the company;

(b)  issue debentures (despite any rule of law or equity to the contrary, this power includes a power to issue debentures that are irredeemable, redeemable only if a contingency, however remote, occurs, or redeemable only at the end of a period, however long);

(c)  grant options over unissued shares in the company;

(d)  distribute any of the company’s property among the members, in kind or otherwise;

(e)  give security by charging uncalled capital;

(f)  grant a floating charge over the company’s property;

(g)  arrange for the company to be registered or recognised as a body corporate in any place outside this jurisdiction;

(h)  do anything that it is authorised to do by any other law (including a law of a foreign country).

It may be noted above that a company also has all the powers of a corporation,[3] including the power to issue and cancel company shares. The power of the company therefore to create new corporation as done by Casino Ltd in creating Caterers, Ltd has basis in law, hence the company  can therefore rightfully do the same.  This is also supported above (paragraph (g)) that a company can arrange for the company to be registered or recognized as a body corporate in any place outside this jurisdiction.  As to who may exercise the powers of the corporation is vested with the directors. Section 198A of The Corporation Act of 2001[4] provides:

(1)       The business of a company is to be managed by or under the direction of the directors.

(2)       The directors may exercise all the powers of the company except any powers that this Act or the company’s constitution (if any) requires the company to exercise in general meeting.

In the instant case the appointment of the new directors of Caterers, Ltd by Casino Ltd is perfectly valid and in accordance with law and hence must be accorded the presumption of regularity.

As to whether the resulting redundancy in employment of 60 employees as found from the 100 employees may be held valid due to redevelopment of the current resort, this believes that such is valid as it is within the powers of the board of directors who are empowered to manage corporate organizations.  The trade union is not part of management or board of directors to dictate upon the corporation to dictate what to do. It cannot prevent management from exercising the prerogative of what it sees best for the company.  Case facts provide that it was the senior managers of Casino Ltd who devised a strategic plan which called for a new corporate structure which will take into account that the catering and entertainment services of Casino Ltd has the potential to become a significant operation in its own right both within and outside the resort. As proof of the sound management decision case facts also provide that the directors of Casino Ltd were genuinely impressed with plan and believed it was in the long term interests of the company. The said directors as a result, approved the decision by passing a resolution that the management of Casino Ltd put into place matters that will allow Caterers Ltd to pursue this new strategic objective.

Given therefore the formalities and approval done, it may be rightfully argued the corporate directors or Casino Ltd are acting within their powers when they created a new corporation which resulted to creating redundancy in the jobs of certain employees. This is part of corporate governance.[5] There is no valid reason why the act of the board of directors should be invalidated as their act appears to be done in good faith that is ensuring the attainment of the strategic objective of the organization. An organization that is prevented from meeting its objectives would be an inutile entity and such would have chosen not to have organized since a sense of purpose and growth is inherent in every business organization.

Another question that may have to be addressed is whether management or directors need to prove good faith in so making its decision to create another corporation. This paper believes that management does not need to prove any good intention of creating a new corporation given the fact that termination of some of the employment may just be deemed incidental in corporate decision subject however to the right of the other employees to be compensated for the loss of their rights[6] under existing employment laws[7].

It may be concluded that this paper has analyzed the case of Casino Ltd with the advice that the trade union may have the chance of success in getting 1 July 2007 contractual agreement to apply to all 100 employees as originally intended under the contractual agreement between Casino Ltd and its employees because of the creation of a new entity under the name of Caterers Ltd.  Corporations may not just avoid employment contracts via creating another corporation under the pretext of reorganization with good cause. The courts can pierce the veil of corporate entity to prevent or correct corporations if said corporation will use the doctrine of separate personality in order to commit a fraud to create a sham corporation. However, the rights of trade union must be brought not under the Corporation law but under employment laws. It must be pointed out however that the as far as the sixty (60) of the one hundred (100) original employees may have got the substance of the July 1, 2007 agreement that “all of its employees were to be paid wages and salaries that are in excess of other employees working in similar resorts in Australia”.   Therefore, it would may be assumed that the forty (40) employees after deducting the sixty (60) were not affected and they still had their original terms of employment as result of redevelopment strategy that was formulated and implemented.  Only the 60 affected employees are therefore advised to bring their complaint under employment laws as these employees deserved to be compensated for possible breach of contract to changes of their original employment terms brought by the creation of a new corporation. If may therefore be said the directors are empowered to make decisions subject to legal consequences of their actions including on possible violations of employment laws.  The Corporation Act of 2001 is enacted to govern what may be done by the officers of corporations but employment laws a created to protect the rights of employees and trade unions.
Bibliography:

 

Abe Herzberg & Phillip Lipton Corporate Education Services Pty Ltd (2007) Corporation Act of 2001 {www document} URL http://www.lipton-herzberg.com.au/corp-law-websites.html#corp, Accessed September 17, 2007-09-18

Alexopoulos, G. (2003) Stalin’s Outcasts: Aliens, Citizens, and the Soviet State, 1926-1936; Cornell University Press, 2003

Australian Corporations Legislation, 2007, Butterworths.

Donelly and Harris (2003), Corporations Law Questions and Answers, 2nd ed., Butterworths

Essential Corporations Legislation 2007, LawBook Co.

Farrar, J. (1998) “Legal Issues Involving Corporate Groups”  16 C;SLJ 184 at 185)

Ford, Austin ; Ramsay, 2007 Ford’s Principles of Corporations Law, 13th ed., Butterworths

Ford, Austin ; Ramsey, 1999, An Introduction to the CLERP Act, Butterworths

Hamabe, Y. (1995) The JFCN Treaty Preemption of U.S. Anti-Discrimination Laws in Executive Positions: Analysis in International Contexts; Law and Policy in International Business, Vol. 27

Hargovan, Company and Incorporated Associations Law, 2nd ed., 2000, Eastern House

Kalenkoski and Lacombe (2006) Right-to-Work Laws and Manufacturing Employment: The Importance of Spatial Dependence; Southern Economic Journal, Vol. 73

MacDowell and Andocides (1989) On the Mysteries; Oxford University, 1989

Payne, J. (1997) “Lifting the Corporate Veil: A Reassessment of the Fraud Exception”  56 Cambridge Law Journal 284 at 290.

Ramsay, I. and  Noakes, D. (2001) Piercing the Corporate Veil in Australia, Company and Securities Law Journal, Volume 19, No 4

Redmond, (2005) Companies and Securities Law – Commentary and Materials, 4th ed.,  Thomson/LawBookCo

Tomasic, Jackson, Woellner, (2002)  Corporations Law Principles, Policy and Practice, 4th ed.,  Butterworths.

Woodward, Bird ; Sievers, (2005) Corporations Law – In Principle, 7th ed., LawBook Co

Woodward, Bird ; Sievers, Corporations Law – In Principle, 7th ed., 2005, LawBook Co

[1] Ramsay, I. and  Noakes, D. (2001) Piercing the Corporate Veil in Australia, Company and Securities Law Journal, Volume 19, No 4, citing Payne, J. (1997) “Lifting the Corporate Veil: A Reassessment of the Fraud Exception”  56 Cambridge Law Journal 284 at 290 and Farrar, J. (1998) “Legal Issues Involving Corporate Groups”  16 C;SLJ 184 at 185).
[2] Abe Herzberg ; Phillip Lipton Corporate Education Services Pty Ltd (2007) Corporation Act of 2001 {www document} URL http://www.lipton-herzberg.com.au/corp-law-websites.html#corp, Accessed September 17, 2007-09-18
[3] Australian Corporations Legislation, 2007; Essential Corporations Legislation 2007
[4] Abe Herzberg ; Phillip Lipton Corporate Education Services Pty Ltd, 2007, See above
[5] Woodward, Bird ; Sievers, Corporations Law – In Principle, 7th ed., 2005, LawBook Co
[6] MacDowell and Andocides (1989) On the Mysteries; Oxford University, 1989; Alexopoulos, G. (2003) Stalin’s Outcasts: Aliens, Citizens, and the Soviet State, 1926-1936; Cornell University Press, 2003
[7] Kalenkoski and Lacombe (2006) Right-to-Work Laws and Manufacturing Employment: The Importance of Spatial Dependence; Southern Economic Journal, Vol. 73