Crook Ltd is an Australian travel company that specializes in international budget tours. The
company targets cost-conscious travelers, including students and back-packers, as its customers. As part of its business strategy to maximise its profits and keep the operating costs of its business low, Crook Ltd manages its own fleet of aircraft and operates flights under the brand name of Con-Air.
Due to political tensions in the Middle East, the raising price of oil and subsequent increases in the cost of aviation fuel is badly affecting the bottom line of the business of Crook Ltd. Aviation fuel is a major business expense and is also an unavoidable cost for the business. The company's management are concerned about the company's shrinking profits and come up with a plan to save operating costs. Management reviewed the size of the workforce at s Crook Ltd and considered it to be over-sized for the current scale of business conducted. The payment of employee salaries is the second largest operating expenditure for the business. Management at Crook Ltd, therefore, requested the air-stewards and catering employees (staff) employed by the company to voluntary take a reduction in pay but all the employees refused the offer.
The board of directors of Crook Ltd called an urgent board meeting to discuss the declining corporate profits and to formulate a strategy to ride out the turbulent economic conditions facing the travel industry.
Following discussions at that meeting on 1 April 2018, a new company was incorporated in Myanmar as a wholly owned subsidiary of Crook Ltd. The newly incorporated company, called Crook and Friends Pty Ltd (CF Pty Ltd) is lawfully incorporated in Myanmar and is fully compliant with all the laws of Myanmar, including its industrial laws. CF Pty Ltd appointed three directors, all of whom are appointed from the board of seven directors of Crook Ltd. Of the three directors in CF Pty Ltd, two of the directors are based in Australia. At the time of incorporation of CF Pty ltd, it was decided by the board of Crook Ltd that all of the profits of CF Pty Ltd will be distributed as a dividend to Crook Ltd.
The reasons for the incorporation of CF Pty Ltd are revealed in the board minutes of the meeting conducted by Crook Ltd on 1 April 2018. It showed that there was a vigorous debate at board level as to whether there was a need to set up a wholly owned proprietary company in Myanmar and transfer 50% of the staff employment contracts with Crook Ltd to CF Pty Ltd. The majority of the board members of Crook Ltd genuinely believed that this strategic decision [to set up a labour hire company in Myanmar and also to conduct travel business there] was in the long- term interests of Crook Ltd because this change was estimated to save the company $4 million in employee wages and entitlements each year.
As a consequence of this strategic decision, 50% of the former staff of Crook Ltd are now employed by CF Pty Ltd under the terms and conditions of industrial laws in Myanmar. Consequently, those staff members with employment contract with CF Pty Ltd now receive 25% less pay and, correspondingly, less superannuation contributions from their new employer, compared to their more generous pay and employment benefits they received when working for Crook Ltd. The staff employed by CF Pty Ltd work alongside the staff employed by Crook Ltd and wear the same uniforms and do the same work on board the Con Air flights. They are treated the same as staff working for Crook Ltd, except for pay and other employee entitlements.
The staff at CF Pty Ltd have complained to the Hospitality Trade Union (HTU) who are very unhappy with these events, in particular, with the less favourable employment terms and
conditions. The significant degree in overlap in the management of both companies and the considerable degree of control exercised over the three directors of CF Pty Ltd by Crook Ltd is seen by the HTU as suspicious. An HTU official was overheard to have said, when hearing of this new employment arrangement, this is a classic case of 'smoke and mirrors.'
Is this a case of 'smoke and mirrors'? Advise the HTU as to their chances of success in getting the former contractual employment entitlements (ie. the original wages and superannuation benefits received at Crook Ltd) to apply to the staff at CF Pty Ltd.
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