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COVID-19 | Fair Work Commission considers factors impacting redundancy payouts
In four (related) cases, the Fair Work Commission (FWC) recently ruled in favour of an employer by reducing the redundancy payouts owed to four of its employees.
These four cases, HyperLife Pty Ltd t/a Acme Prestonv v Kelly Brennan [2020] FWC 3080, HyperLife Pty Ltd t/a Acme Preston v Erin Black [2020] 3081, HyperLife Pty Ltd t/a Acme Preston v Andrew Davis [2020] 3082 and HyperLife Pty Ltd t/a Acme Preston v Julie Hamshere [2020] 3083 (together, the HyperLife Cases) each considered applications for reductions in redundancy payment in the context of COVID-19.
As with the decisions of Mason Architectural Joinery Pty Ltd [2020] FWC 1897 and Worthington Industries Pty Ltd [2020] FWC 1912 handed down by the FWC in April, the HyperLife Cases illustrate some of the factors the FWC will take into consideration when assessing applications from employers to reduce redundancy pay.
In April 2020, manufacturing company HyperLife Pty Ltd t/a Acme Preston (Acme Preston) made the decision to close its site in Ingleburn, in part due to the financial constraints imposed by the COVID-19 pandemic. As a result, four employees had their employment terminated by way of redundancy. Each of those employees was, prima facie, entitled to receive a redundancy payout of between four and twelve weeks’ pay.
Pursuant to section 120 of the Fair Work Act 2009 (Cth) (FW Act), which empowers the FWC to make orders reducing the quantum of redundancy an employer is obliged to pay from that ordinarily required under the FW Act, Acme Preston made separate applications to the FWC to have the redundancy amounts owed to the four employees reduced.
Acme Preston submitted that it had insufficient cash flow to fund the redundancy payments. It held approximately $38,000 in cash in the bank and had wages for its remaining staff due the following week. A letter from the company’s accountant asserted that the company’s assets were nearly matched by its liabilities. The company had received a number of loans from the family business of Acme Preston’s director and no longer had a reasonable source of other funds. Further, Acme Preston did not consider itself eligible to receive the JobKeeper Payment because it had acquired another business in 2019 and was therefore unlikely to satisfy the test relating to reduction in turnover.
In considering the facts, Deputy President Dean cited Mildren Automotive Pty Ltd [2013] FWC 2113:
“The employer must satisfy the FWC that it is not financially competent or possessed of the necessary funds to make the payment and has no reasonable source of funds.
The assessment of financial competence will include consideration of the financial standing of the business including its cash position and the assets of the business.
The effect upon the employees immediately concerned will be considered including whether making an order prevents the employee from recovering the entitlement through other means should the company be liquidated; the effect that any order may have on the status of employees as potential creditors should the company become insolvent; and the impact of any order on the employee’s rights under the General Employee Entitlements and Redundancy Scheme (GEERS) or similar schemes.
The effect upon the continuation of the business, including whether reducing the entitlement of dismissed employees may have a beneficial effect on other employees, thereby enhancing their prospects of being able to remain in employment, are also relevant considerations.”
Deputy President Dean held that Acme Preston was under significant financial strain and unable to afford to pay out the full redundancy entitlements ordinarily required under the FW Act. As a result, each of the four employees had their entitlement to a redundancy payment reduced to between two and four weeks’ pay.
Conversely, a different decision was reached in the recent decision of Coal River Farm Investments Pty Ltd T/A Coal River Farm [2020] FWC 3558 (the Coal River Case).
In the Coal River Farm Case, the employer, Coal River Farm, sought a reduction in redundancy payout for two former employees in the context of the COVD-19 pandemic. One employee was entitled to $19,230.77 for 5 years’ service, and the other was entitled to $4,769.23 for just under 2 years’ service.
Coal River Farm made its application to the FWC under section 120 of the FW Act for a reduction in redundancy pay on the grounds of incapacity to pay. It cited a 100% loss in revenue with no prospect of returning to pre-COVID levels for least 24 months, and an 80% reduction in revenue for the overall business. Among other things, Coal River Farm also submitted that it was relying solely on JobKeeper to pay the wages of 22 employees, had limited funds in the bank for cash flow purposes, and had significant liabilities including a debt to the Australian Taxation Office.
Although a range of financial documents were provided in support of Coal River Farm’s submissions, the FWC ultimately declined to find that it had insufficient means to pay the redundancy entitlements. This was largely due to deficiencies in the financial information provided by Coal River Farm, such as undated screenshots of unidentifiable bills, and failure to adduce evidence of revenue prior to the impact of COVID-19. As a result, the FWC decided not to reduce the redundancy pay for the two employees.
The FWC does not make orders reducing redundancy pay lightly. While they had different outcomes, the common link between the HyperLife Cases and the Coal River Farm Case is the fundamental importance of cogent financial evidence in applications of this kind. This includes, as a bare minimum, submitting comprehensive, accurate financial information that demonstrates both the current lack of funds to make the payments (specifically the cash and asset position of the employer) and the absence of a reasonable source for such funds. In the present environment employers also need to be prepared to fully address eligibility for JobKeeper or other COVID-19 benefits or concessions that might have assisted the employer to be in a position to make the usual redundancy payments.