17 April 2020

Redundancy Obligations During COVID-19 Pandemic

Lachlan Thorburn, Michael Coates
Lachlan Thorburn Litigation Lawyer
Michael Coates Intellectual Property Lawyer

The Fair Work Commission (“FWC”) has ordered that a company was entitled to reduce the amount of redundancy entitlements due and payable to an employee, as a direct result of COVID-19 crisis. However, in a separate matter (handed down on the same day), the FWC refused to order such a reduction after determining that the employer was likely eligible for the JobKeeper scheme and had the means to pay the entitlements.

Section 120 of the Fair Work Act 2009 (Cth) allows the FWC to reduce the amount of redundancy pay (including to zero) if the employer cannot pay the stipulated amount of the entitlements.

Permitted reduction of redundancy entitlement payable

Application by Mason Architectural Joinery [2020] FWC 1897 

Mason Architectural Joinery sought the FWC’s permission to reduce an employee’s redundancy pay from 7 weeks to 1 week because it could not afford to pay the full entitlement.

The ruling is the first to reduce redundancy pay during the COVID-19 crisis and was issued despite the Government’s plan to avoid job losses through its JobKeeper scheme.

In finding for the employer, Commissioner McKinnon determined that “the business is trying to work through the current crisis and much depends on how long the situation lasts“.

Further, Commissioner McKinnon said, “I am satisfied that Mason Joinery is under significant financial strain and that it cannot afford to pay Mr Grant’s full entitlement to redundancy pay”.

Relevantly, Commissioner McKinnon also considered and determined that the former employee had already been paid 3 weeks’ notice and was only out of work (and unpaid) for 8 days as a result of his employment coming to an end by way of redundancy (as the employee had commenced alternative employment with a $2 per hour pay rise 8 days after the termination date).

Of important note, Commissioner McKinnon makes no reference in the decision to the employer’s potential eligibility for the JobKeeper scheme.

Employer not permitted to reduce redundancy entitlements

Application by Worthington Industries Pty Ltd [2020] FWC 1912 

The employer sought to reduce the amount of redundancy pay for three employees from 4 weeks’ pay to 1.

The employer had made the employees redundant as a result of a reduction in production output. Moreover, the employer submitted to the FWC that it anticipated sales would significantly reduce in the coming months by up to 50%, as a combined result of increased competition and the COVID-19 crisis.

Although the employer claimed that paying the full entitlement to the employees would cause financial hardship, Deputy President Clancy determined that the employer currently had the means to pay the full entitlements and would likely be eligible for the JobKeeper scheme. Further, Deputy President Clancy determined that if the employer was eligible for JobKeeper scheme, 90 per cent of the redundant employees’ wages would be covered by the scheme.

The employer accepted that it had the means to pay the full amount of the entitlements (although the employer further submitted that paying the entitlements now would create cash flow issues in the weeks to come). This concession was significant in the employer’s application being ultimately rejected and the employees remaining entitled to 4 weeks’ redundancy pay.

Interestingly, prior to determining the matter, Deputy President Clancy proposed adjourning the hearing so that the employer had time to ascertain whether it was eligible for the JobKeeper scheme and if so, to give consideration to rehiring the relevant employees. However, the employer rejected this proposal and pressed to have its application heard on the basis that the decision would achieve “certainty” for its business.

Considerations

It is apparent from the Worthington Industries decision that when consideration is given to the JobKeeper scheme, the FWC may endeavour to follow the Federal Government’s position – being that eligible businesses should apply for the JobKeeper subsidy to keep employees employed and connected to the business.

Moreover, that decision provides guidance that if an employer terminates an employee’s employment by way of redundancy and has the means to pay the stipulated redundancy entitlements, it is likely that the employer will be required to adhere to its full statutory obligations. Particularly, in circumstances where the employer is or will likely be eligible for the JobKeeper scheme.

Given the Mason Architectural Joinery decision did not take into consideration the employer’s potential eligibility for the JobKeeper scheme, it may be arguable that this decision will be distinguishable in matters involving a JobKeeper eligible employer.

Accordingly, a JobKeeper eligible employer must be aware that if it ends an employee’s employment by way of redundancy, it runs the real risk that it may be liable for the full entitlements due and payable to the employee (especially if that employer has the means to pay the employee his/her full entitlements).

If you are an employer and would like to learn more about your redundancy obligations, please contact Lachlan Thorburn.

 

 


Individual liability limited by a scheme approved under professional standards legislation (personal injury work exempted).

 

 

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