An Australian tech company has been ordered to pay compensation of more than $80,000 each to the two founders of a Melbourne-based startup it acquired, after the Fair Work Commission ruled they were unfairly dismissed.

The Fair Work Commission (FWC) found last week that Simon Kahil and John Cincotta, the co-founders of Melbourne-based meal kit delivery service Pepper Leaf, were unfairly dismissed from the company they started just over a year after tech company Rewardle became its primary shareholder.

The Commission heard that Cincotta had been using his personal savings to keep the startup running, but that the pair were fired earlier this year due to “serious misconduct”.

But in her ruling, Fair Work Commission (FWC) Commissioner Leyla Yilmaz found that these dismissals were “harsh, unjust and unreasonable” and that the process leading up to them was “devoid of any procedural fairness”.

Yilmaz ordered that the highest possible compensation be awarded to Kahil and Cincotta, which amounts to $84,000 each, to be paid within a fortnight.

Rewardle acquires Pepper Leaf

Software tech firm Rewardle acquired a majority shareholding in Pepper Leaf in late 2023.

FWC found the founders were not paid their full salary since the acquisition due to cash flow issues, and that Cincotta had been using his personal savings to keep Pepper Leaf operational.

In 2023 it was announced that Rewardle would be investing $1.5 million in Pepper Leaf, and Pepper Leaf would then loan $1.5 million back to Rewardle, FWC heard.

Rewardle would also loan $110,000 each to Kahil and Cincotta, with repayments on all loans due by the end of October last year, according to an announcement to the ASX.

When Rewardle became the majority shareholder in Pepper Leaf, FWC heard that both co-founders were close to retirement, and there was an in-principle agreement that they would earn out their shareholding over the 12-month period that their loans were repayable.

They were also put on new employment arrangements at the company on salaries of $168,000 per annum.

But the Commission heard that due to cash flow issues, they were instead paid less than $90,000 in one financial year and less than $20,000 in the last six months of 2024, as they “missed out on their wages when business cash flow was insufficient”.

One Pepper Leaf founder was using his own savings to keep the business solvent. Photo: Pepper Leaf

FWC heard that when Rewardle failed to repay the $1.5 million loan to Pepper Leaf, the Rewardle directors extended the loan for six years until 2030 and “placed a number of demands with financial consequences” on the founding directors, including commencing proceedings for them to repay their $110,000 loans with interest.

As part of the acquisition, two Rewardle directors were appointed to the Pepper Leaf board, and its chair was given a casting vote.

By late 2024, these two Rewardle directors started making changes without the support of the Pepper Leaf founders, according to the FWC decision, including replacing its accountants, and variations to the $1.5 million loan.

According to the Commissioner, the Rewardle board was making “unilateral” decisions that were “somewhat dictatorial.”

FWC heard that because there was no money invested into Pepper Leaf, and Rewardle had not repaid its loan, Cincotta was “drawing from his own personal savings to cover business expenses to keep the business solvent”.

By the start of 2025, Kahil and Cincotta were dismissed for “serious misconduct”.

Rewardle was contacted for comment.

Company’s claims dismissed

The respondents claimed that the co-founders were dismissed for “a range of breaches” but the Commissioner said the Rewardle directors had failed to provide evidence for these alleged misconducts.

“On review of the evidence before me I cannot be satisfied that the alleged conduct occurred,” Yilmaz said in the ruling.

“The respondent failed to demonstrate credible, sound, defensible or well-founded reasons for a summary dismissal.”

The decision to fire the two founders was made “without regard for the personal, financial, professional or wellbeing interests” of them, and there was a “total disregard for procedural fairness”, Yilmaz said.

“The applicants were dismissed and their directorships removed instead of the planned settlement of loans, payment of entitlements and an exit from a viable business heavily invested in by the applicants,” Yilmaz said in the decision.

“The respondent asserts that the applicants engaged in serious misconduct, their conduct suggests otherwise.

“They worked in and on the business despite their ill health or financial difficulty, they continued to invest in the business from personal savings and all the while not receiving a salary.

“This conduct challenges any suggestion of misconduct, let alone the reason for dismissal being serious misconduct.”

It was found that both co-founders were “under enormous pressure” and did “what they could to keep the business afloat” despite not being paid their full wage and having to use personal savings.

“All circumstances weigh in favour of finding that the dismissal was harsh, unjust and unreasonable,” Yilmaz said in the FWC decision.