Service with an associated entity can count towards employment length under the Fair Work Act, impacting unfair dismissal eligibility, even where the employee resigned.

Employers are often surprised to learn that an employee’s service with a related business may count toward their period of employment for unfair dismissal purposes, even where there has been a break in employment or the employee resigned.

Understanding how this works is critical, particularly when managing performance or considering termination during what appears to be a “probationary” period.

 

The legal standpoint

Under the Fair Work Act 2009, an employee must complete a minimum employment period before they can bring an unfair dismissal claim - 6 months for most employers and 12 months for small businesses.

However, determining whether this period has been met is not always straightforward. In some cases, an employee’s prior service with an associated entity may count toward this minimum period, meaning they may gain access to unfair dismissal protections sooner than expected.

 

What is an associated entity?

Two businesses are “associated entities” if they are related under corporate law. For example one entity controls another, or both are controlled by the same parent company.

 

Can prior service count?

Yes. Under section 22 of the Fair Work Act, an employee’s period of employment can include service with an associated entity in certain circumstances. 

Importantly, a formal transfer of employment is not required. It does not matter whether the employee resigned, or was terminated by the previous entity. The key issue is whether the service should be treated as continuous or connected.

 

What employers need to consider

When assessing whether prior service counts, the Fair Work Commission will typically look at:

  1. The relationship between the entities: Are the businesses legally associated entities?

  2. The gap between roles: How long was the break between employment? Breaks of less than 3 months are more likely to result in service being recognised.

  3. The overall continuity of employment: Is there a clear connection between the roles? Was the move between entities part of a broader organisational structure?

There is no single rule. Each case depends on its facts.

 

Common misconception: “probation resets everything”

Many employers assume that hiring an employee into a new entity “resets the clock.”. This is not always correct. Even if a new contract is issued, and the employee starts a new probation period, prior service with an associated entity may still be counted under the Act.

If prior service is not considered, you may incorrectly assume the employee is still within the minimum period. A termination decision may be made without full procedural safeguards. This can expose the organisation to unfair dismissal claims, reputational risk and legal costs.

 

Bottom line

Service with an associated entity may count toward an employee’s period of employment for unfair dismissal - even where the employee resigned or there was a break in service.

Employers should carefully assess prior service within corporate groups, as employees may meet the minimum employment period earlier than expected and be entitled to unfair dismissal protections.