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Be direct: Resolution to remove a director from all offices did not terminate employment

02 April 2024

7 min read

#Workplace Relations & Safety

Published by:

Kelvin Lee

Be direct: Resolution to remove a director from all offices did not terminate employment

In the recent decision of Niccolo Pty Ltd v Sandro Drummond [2024] FWCFB 101, the Full Bench of the Fair Work Commission (FWC) held that a resolution of the shareholders of a company to terminate a director from their offices was ineffective to also terminate their employment as managing director of the company.

What happened?

Sandro Drummond was a company director of Niccolo Pty Ltd (Niccolo), a coffee business based in Melbourne.  Mr Drummond was also employed as the managing director of Niccolo.

Nicholas Bolton, the founder of Niccolo, assisted the general manager of Niccolo on matters relating to the management of Niccolo but did not hold any position within Niccolo, nor was he an employee of Niccolo.

There was a longstanding friendship between Mr Drummond and Mr Bolton, however, the friendship deteriorated sharply in 2023.

On 5 August 2023, Mr Drummond received an email from Mr Bolton stating that “Niccolo needs to immediately terminate [Mr Drummond’s] employment and involvement in the company”.

On 11 August 2023, Mr Drummond was notified that a resolution had been passed in a general meeting to “remove [Mr Drummond] as a director of the Company, together with any other offices held by him in the Company, with effect from the date of passing the resolution”.

On 31 August 2023, Mr Drummond lodged an unfair dismissal application in the FWC. Niccolo raised multiple objections to the application, including that the application was lodged out of time as Mr Drummond was dismissed on 5 August 2023, through Mr Bolton’s email.

Mr Drummond argued that his application was lodged within time, stating the date of his dismissal was 11 August 2023 as there was no official documentation of his dismissal prior to this date. He also argued that Mr Bolton did not have the authority to dismiss him as he was not a shareholder or employee of Niccolo.

The key issue in dispute between the parties was the date of the dismissal.

Decision at first instance

At first instance, Commissioner Wilson held that:

  • there was no evidence that Niccolo had acted on the purported dismissal on 5 August 2023 by taking action such as removing Mr Drummond from its IT systems and bank accounts or advising others that Mr Drummond was no longer employed with Niccolo
  • the evidence indicated that Mr Drummond had challenged the 5 August 2023 dismissal on the basis that it was ineffective
  • the evidence suggested that Niccolo had accepted Mr Drummond’s objection that the 5 August 2023 dismissal was ineffective by circulating a notice of general meeting on 10 August 2023 to be held the following day
  • if Niccolo was of the view that the dismissal took effect on 5 August 2023, there would not have been a need for a resolution that Mr Drummond be terminated from “any other offices held by him in the Company”.

Accordingly, Commissioner Wilson held that Mr Drummond’s dismissal occurred on 11 August 2023 and that the unfair dismissal application was lodged within the 21-day time limitation.

Niccolo appealed.

Decision on appeal

Niccollo appealed the decision on the basis that the Commissioner had made various factual and legal errors which resulted in coming to the wrong conclusion on the date of Mr Drummond’s dismissal.

Niccolo also contended that the Commissioner had made a significant error by concluding that Mr Drummond was dismissed on 11 August 2023 when the resolution had only removed Mr Drummond from offices that was held by him in the company. Niccolo contended the resolution does not mention Mr Drummond’s employment.

The Full Bench rejected most of Niccolo’s appeal grounds, however, agreed that the resolution said nothing about Mr Drummond’s employment. The Full Bench opined that the conclusion made by the Commissioner that the reference to “any other offices” in the resolution could only be to Mr Drummond’s position as an employee was in error.

The Full Bench held that:

  • while it is very common for officers of a corporation to also be employed by the corporation, there is a clear distinction between an officer and an employee of a company, both at law and as a matter of ordinary business language
  • section 9AD of the Corporations Act 2001 defines who is an ‘officer’ of a corporation and does not include an employee
  • in the context of a resolution of a general meeting of members, the removal of a person from offices held in the company does not include the termination of the person’s employment
  • termination of a person’s employment does not affect the offices the person may hold in a corporation. If the members wish to remove the person from offices in the company, the necessary legal steps must be taken
  • the inclusion of “any other offices” in the resolution was likely for the avoidance of doubt, that in the event Mr Drummond had held any other offices within Niccolo, that the resolution would remove him from those offices. This would lead to the same conclusion in circumstances where the resolution, instead, referred to “other offices that he holds”
  • given Mr Drummond remained as a director of Niccolo until 11 August 2023, it is not surprising that no immediate action was taken by Niccolo after 5 August 2023 to lock Mr Drummond out of bank accounts and IT systems or to announce his termination. In any event, it is not a reason to infer that Niccolo did not believe that Mr Drummond’s employment had ended, or that it had not in fact ended.

The Full Bench ultimately held the following:

“The resolution of 11 August 2023 did not terminate Mr Drummond’s employment. It meant what it said, which was that Mr Drummond was removed (not terminated) as a director and from any other offices he held in the company. The Commissioner’s conclusion that the resolution ended Mr Drummond’s employment was an error of fact. It was a significant one, because it determined the outcome of the jurisdictional hearing. As a consequence of the error, Mr Drummond’s application was found to have been made within time…”

The Full Bench considered that it was in the public interest to hear the appeal as it raised a serious question about whether the Commission had jurisdiction to deal with Mr Drummond’s unfair dismissal application. The Full Bench determined that it was appropriate to rehear and determine the questions of whether the application was made in time and if not, whether to grant an extension of time, concluding that:

“…the resolution of 11 August 2023 did not terminate Mr Drummond’s employment does not necessarily mean that the message sent by Mr Bolton on 5 August 2023 did so. It is necessary to re-examine this question.”

The Full Bench held that Mr Bolton had the authority from Niccolo’s general manager to dismiss Mr Drummond; that the email from Mr Bolton dated 5 August 2023 was valid and was clear in that Niccolo needed to terminate Mr Drummond’s employment immediately; and that Mr Drummond did not demonstrate any exceptional circumstances to grant an extension of time to his unfair dismissal application.

Ultimately, while the Full Bench granted and upheld the appeal and quashed the decision at first instance, Mr Drummond’ unfair dismissal application was dismissed on rehearing of the matter.

Key takeaways for employers

This decision serves as an important reminder for employers that a resolution passed by shareholders to remove a person from holding an office or offices of the company who is also employed as an employee of the company, does not mean that the person's employment with the company is terminated.

When dismissing an employee, it is crucial that the dismissal is authorised and clearly communicated to the employee, otherwise employers risk facing potential unfair dismissal claims.

If you have any questions regarding this article, please get in touch with a member of our team below.

The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Kelvin Lee

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