Employee rights when your employer becomes insolvent
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”):
- The employee was employed and that employment has ended;
- An “insolvency event” happens to the employer — either a liquidator is appointed under the Corporations Act 2001 (Cth) or bankruptcy occurs;
- 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;
- The employee is owed unpaid employee entitlements;
- The employee has taken steps so far as is reasonable to prove those debts in the winding up process or bankruptcy of the employer;
- The employee is an Australian citizen or permanent resident;
- 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.
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.