Pub­li­ca­tions

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.