Kwik Air Ltd is a well-established Australian airline that services both domestic and international routes in and out of Australia. The company's advertising slogan is ‘come fly the friendly skies with Kwik Air'. The company has a large workforce which includes 200 pilots based in Australia. Following the slump in the aviation sector as a result of the global financial crisis, the management of Kwik Air Ltd became concerned at the airline's rapidly falling profits. The long recession and poor economic conditions have caused a sharp decline in air travel. Management of Kwik Air Ltd requested its pilots to voluntary take a reduction in pay but the pilots refused the offer.
The board of directors of Kwik Air Ltd and the company's senior managers had a meeting in January 2013 to discuss strategies to ride out the turbulent economic conditions. As a result of that meeting, in February 2013, a new company was incorporated in New Zealand which is a wholly owned subsidiary of Kwik Air Ltd. The new company is called Xpress Air Ltd and it is validly incorporated in compliance with the company laws of New Zealand. Xpress Air Ltd has four directors, all of whom are appointed from the Board of six directors of Kwik Air Ltd. It is agreed that all of the profits of Xpress Air Ltd will be distributed as a dividend to Kwik Air Ltd.
The January 2013 board meeting documented the minutes (proceedings) of the meeting. A copy of the minutes was obtained (lawfully) by the pilots. It showed that the board meeting focused exclusively on discussing the benefits of creating a new corporate entity. It showed that the senior managers of Kwik Air Ltd decided on a strategic plan which called for a new corporate structure which, according to the document, "will take into account that the airline activities of Xpress Air Ltd has the potential to become a significant operation in its own right both within and outside of New Zealand." The minutes also showed that Kwik Air Ltd will own the planes but lease them to Xpress Air Ltd. The directors of Kwik Air Ltd were enthusiastic about the plan and believed it was in the long term interests of the company. Accordingly, the directors passed a resolution that the management of Kwik Air Ltd put into place matters that will allow Xpress Air Ltd to pursue this new strategic objective.
The restructure of Kwik Air Ltd resulted in 200 of the company's pilots being made redundant. The pilots were, however, immediately offered new employment opportunities with Xpress Air Ltd on lower wages and lesser (inferior) employment entitlements than those they previously enjoyed with Kwik Air Ltd even though they performed the same work as before. Faced with the choice of an uncertain future, all 200 employee pilots accepted the job offer with Xpress Air Ltd.
As a result, the Xpress Air Ltd pilots no longer work under the previous (generous) contract of employment they had while working for Kwik Air Ltd. In particular, the pilots are upset that they are receiving 20% less pay and, correspondingly, 20% less superannuation payments than before for performing the same work at the same number of hours. The pilots are all employed and work in Australia and they will be paying tax to the Australian Tax Office (ATO) in accordance with the Australian Tax Laws. They will also be subject to other relevant Australian laws governing their employment conditions.
The pilots have complained to the Australian |Pilots Association (APA) who are furious with these events and the new employment terms and conditions. In particular, the APA has discovered that any new pilot employed by Kwik Air Ltd receives 20% more pay and superannuation entitlements compared to the same work done by the pilots of Xpress Air Ltd.
The significant degree in overlap in the management of both companies and the very large degree of control exercised over the four directors of Xpress Air Ltd by Kwik Air Ltd was seen to be strange and, quite frankly, highly suspicious. The APA casts doubt on the legality of the ‘cozy' corporate arrangements, especially given the fact that Xpress Air Ltd does not even own its airplanes.
Advise the APA as to their chances of success in getting the former contractual employment entitlements (ie. the original wages and superannuation benefits received at Flywell Ltd) to apply to the pilots of Xpress Air Ltd.
Students are expected to research, analyse and apply relevant provisions of the Corporations Act (if any) and relevant company law precedents to support the answer.