Pub­li­ca­tions

Employ­ee rights when your employ­er becomes insolvent


In Brief

In Octo­ber 2012 the Fed­er­al Gov­ern­ment intro­duced the Fair Enti­tle­ments Guar­an­tee Bill 2012 to for­malise by leg­is­la­tion, what has to date oper­at­ed as the Gen­er­al Employ­ee Enti­tle­ments and Redun­dan­cy Scheme (GEERS). The Bill is like­ly to become law in ear­ly 2013. This arti­cle dis­cuss­es who is eli­gi­ble for finan­cial assis­tance under the Bill and what they can claim.


In Octo­ber 2012 the Fed­er­al Gov­ern­ment intro­duced the Fair Enti­tle­ments Guar­an­tee Bill 2012 to for­malise by leg­is­la­tion, what has to date oper­at­ed as the Gen­er­al Employ­ee Enti­tle­ments and Redun­dan­cy Scheme (GEERS). The Bill is now sit­ting in the Sen­ate of the Fed­er­al Par­lia­ment and near­ing the end of the leg­isla­tive process. It is like­ly to become law in ear­ly 2013. It is not antic­i­pat­ed that there will be any sig­nif­i­cant changes to the Bill in its present form.

The GEERS scheme (and now the Bill), are aimed at pro­vid­ing a lev­el of pro­tec­tion for Aus­tralian employ­ees who, were it not for the assis­tance pro­vid­ed under GEERS (and now the Bill), would not receive enti­tle­ments fol­low­ing the ter­mi­na­tion of employ­ment due to their employer’s insol­ven­cy. This arti­cle looks at some key aspects of the legislation.

Who is eli­gi­ble for finan­cial assis­tance under the Bill?

If an employ­ee meets the fol­low­ing cri­te­ria they then can apply for finan­cial assis­tance on account of employ­ee enti­tle­ments (called an advance”):

  1. The employ­ee was employed and that employ­ment has ended;
  2. An insol­ven­cy event” hap­pens to the employ­er — either a liq­uida­tor is appoint­ed under the Cor­po­ra­tions Act 2001 (Cth) or bank­rupt­cy occurs;
  3. The end of the employ­ment was due to the insol­ven­cy; or occurred less than 6 months before the appoint­ment of the insol­ven­cy prac­ti­tion­er for the employ­er; or occurred on or after the appoint­ment of the insol­ven­cy prac­ti­tion­er for the employer;
  4. The employ­ee is owed unpaid employ­ee entitlements;
  5. The employ­ee has tak­en steps so far as is rea­son­able to prove those debts in the wind­ing up process or bank­rupt­cy of the employer;
  6. The employ­ee is an Aus­tralian cit­i­zen or per­ma­nent resident;
  7. The employ­ee makes a claim with­in 12 months of the insol­ven­cy event or date employ­ment ends whichev­er is the later.

Fol­low­ing the employee’s appli­ca­tion, the Depart­ment of Edu­ca­tion, Employ­ment and Work­place Rela­tions (“the Depart­ment”) will deter­mine whether to pro­vide an advance to the employ­ee or not. If the Depart­ment pro­vides an advance it then takes on the respon­si­bil­i­ty for recov­er­ing the amount it advanced through the wind­ing up or bank­rupt­cy process.

If the Sec­re­tary of the Depart­ment believes that suf­fi­cient funds will become avail­able to the liq­uida­tor or bank­rupt­cy trustee with­in 112 days, to pay the employee’s enti­tle­ments cal­cu­lat­ed in accor­dance with the leg­is­la­tion, then the Depart­ment may deter­mine not to pay the employ­ee an advance.

Contractors

Employ­ees who were for­mer­ly engaged as con­trac­tors to the employ­er may be unable to claim an advance in cer­tain cir­cum­stances. The Bill spec­i­fies that if the Depart­ment is sat­is­fied that:

  • If the per­son start­ed to be employed in the 6 months end­ing at the ear­li­er of: the ter­mi­na­tion of their employ­ment or the appoint­ment of the insol­ven­cy prac­ti­tion­er; and
  • was pre­vi­ous­ly engaged by the employ­er not as an employ­ee (eg as a con­trac­tor); and
  • it was rea­son­able to expect at the start of the employ­ment that the employ­er would not be able to meet the oblig­a­tions owed to the employee,

then the employ­ee is not eli­gi­ble for an advance.

This mea­sure is no doubt designed to avoid manip­u­la­tions of the advance sys­tem which would result in cer­tain employ­ment arrange­ments being entered into for the pur­pose of for­mer con­trac­tors being able to make a claim.

What can an employ­ee claim?

An employ­ee can claim a range of enti­tle­ments (whether orig­i­nat­ing from fed­er­al or state law, award or con­tract), including:

  • *Unpaid wages;
  • Unpaid annu­al leave;
  • Unpaid long ser­vice leave (includ­ing it would appear on a pro rata basis for a peri­od of time not oth­er­wise long enough to trig­ger an enti­tle­ment to LSL);
  • Unpaid pay in lieu of notice (max­i­mum of 5 weeks pay);
  • Unpaid redun­dan­cy (at a max­i­mum of 4 weeks pay per year of ser­vice in respect of each year of ser­vice for which the employ­er was required to pay redun­dan­cy under the rel­e­vant terms which reg­u­lat­ed the employment).

The Bill con­tains a max­i­mum week­ly wage”, which is cur­rent­ly $2,364.00 pw and this fig­ure will be indexed each year. If an employee’s week­ly wage under an award, enter­prise agree­ment, con­tract of employ­ment or leg­is­la­tion exceeds that max­i­mum week­ly wage then the employee’s enti­tle­ments will be cal­cu­lat­ed using the max­i­mum week­ly wage.

If an employee’s terms and con­di­tions were altered in favour of the employ­ee with­in 6 months before the end of the employ­ment or appoint­ment of a sol­ven­cy prac­ti­tion­er for the employ­er, then the Depart­ment may cal­cu­late any advance based on the terms and con­di­tions exist­ing pri­or to the alter­ation, if it holds the view that at the time of the change it was not rea­son­able to expect the employ­er to be able to meet its oblig­a­tions under the changed conditions.

Pro­vi­sion exists for debts owed by the employ­ee to the employ­er to be deduct­ed from an advance.

What Hap­pens in the Trans­fer of Business?

Gen­er­al­ly speak­ing, where the Employer’s busi­ness has been trans­ferred to a new oper­a­tor (oth­er than the bank­rupt­cy trustee of the employ­er), and with­in 14 days of the end of their employ­ment with the employ­er, the Employ­ee is offered employ­ment with the new oper­a­tor of the busi­ness to per­form sim­i­lar work on terms and con­di­tions sub­stan­tial­ly sim­i­lar and over­all no less favourable than their pre­vi­ous terms, then they will not be enti­tled to pay­ment of an advance in respect of enti­tle­ments to pay in lieu of notice or redundancy.

5 Decem­ber 2012


*Ref­er­ence is made in the Sec­ond Read­ing Speech and in the sim­pli­fied out­line of the Bill (s4) to a lim­it on unpaid wages of 13 weeks but this does not appear to have found its way into the rel­e­vant oper­a­tive part of the Bill.