COVID-19 | Redun­dan­cy pay­ments dur­ing the crisis

Michael Byrnes, Part­ner and Emi­ly Capen­er, Solic­i­tor pro­vide an overview of two recent cas­es that con­sid­ered the pay­ment of redun­dan­cy dur­ing the COVID-19 crisis. 

Redun­dan­cies are gen­er­al­ly dri­ven by fac­tors such as tech­no­log­i­cal advances, com­pa­ny restruc­tur­ing and busi­ness clo­sures. Now, of course, employ­ers and employ­ees alike need to deal with the chal­lenges posed by a pan­dem­ic. Due to the COVID-19 cri­sis there has been a dra­mat­ic increase in the num­ber of employ­ees whose posi­tions are being made redun­dant by busi­ness­es who can no longer afford to keep them use­ful­ly employed. While the Job­Keep­er scheme has sought to alle­vi­ate the cur­rent finan­cial bur­den on some Aus­tralian employ­ers, not all busi­ness­es are eli­gi­ble, and they still may need to look at oth­er options includ­ing redundancy. 

In this regard, what hap­pens when an employ­er is unable to afford redun­dan­cy pay, par­tic­u­lar­ly in the midst of the cur­rent pan­dem­ic? This arti­cle looks at two recent Fair Work Com­mis­sion deci­sions which exam­ine this ques­tion in the con­text of the COVID-19 cri­sis. These cas­es demon­strate that the Com­mis­sion’s response to reliev­ing employ­ers from their oblig­a­tions in rela­tion to redun­dan­cy pay large­ly turns on the facts. 

Redun­dan­cy overview 

When an employ­ee is made redun­dant, in almost all cas­es they will be enti­tled to receive redun­dan­cy pay from their employ­er, usu­al­ly in accor­dance with the (ser­vice based) quan­tum spec­i­fied in the Fair Work Act 2009 (Cth) (the Act).

There are two cir­cum­stances in which an employ­er can apply to the Com­mis­sion to have the amount of redun­dan­cy they would oth­er­wise have to pay under the Act reduced:

  • the employ­er has found oth­er accept­able employ­ment for the employ­ee; or
  • the employ­er is unable to afford the full redun­dan­cy amount.

It is ulti­mate­ly for the Com­mis­sion to deter­mine whether the redun­dan­cy pay will be reduced and by how much (includ­ing to nil). The recent cas­es of Mason Archi­tec­tur­al Join­ery Pty Ltd [2020] FWC 1897 and Wor­thing­ton Indus­tries Pty Ltd [2020] FWC 1912, both deliv­ered on 9 April 2020, demon­strate that the facts in each sit­u­a­tion will play a sig­nif­i­cant role in deter­min­ing the Com­mis­sion’s decision. 

Mason Archi­tec­tur­al Join­ery Pty Ltd [2020] FWC 1897 (Mason)

In Mason, the rel­e­vant employ­ee had been employed by Mason Archi­tec­tur­al Join­ery Pty Ltd for a peri­od of three years. In Feb­ru­ary 2020, he and anoth­er employ­ee had their employ­ment ter­mi­nat­ed on the basis of redun­dan­cy after the busi­ness expe­ri­enced two months with­out rev­enue and was seek­ing to reduce costs. Upon his redun­dan­cy, the employ­ee became enti­tled to three weeks’ notice of ter­mi­na­tion and sev­en weeks’ redun­dan­cy pay. 

While the employ­er paid out the notice peri­od, Com­mis­sion­er McK­in­non con­sid­ered the employ­er’s appli­ca­tion to the Com­mis­sion to vary the quan­tum of redun­dan­cy due to inca­pac­i­ty to pay. 

Com­mis­sion­er McK­in­non not­ed that the employ­er was a small busi­ness suf­fer­ing sig­nif­i­cant finan­cial strain. Although the busi­ness had recent­ly received one pay­ment for a com­plet­ed job, it had lost fur­ther work due to the pan­dem­ic and was try­ing to work through the cur­rent crisis”. 

The Com­mis­sion also observed that the employ­ee had been able to find alter­na­tive work with a high­er hourly rate, and that the short peri­od for which the employ­ee was out of work was suf­fi­cient­ly cov­ered by the paid notice period. 

In these cir­cum­stances, Com­mis­sion McK­in­non con­sid­ered it appro­pri­ate to reduce the amount of redun­dan­cy pay to which the employ­ee was enti­tled to one week’s pay (from the sev­en weeks’ pay to which he would oth­er­wise have been entitled). 

Wor­thing­ton Indus­tries Pty Ltd [2020] FWC 1912 (Wor­thing­ton)

By con­trast, in Wor­thing­ton, Deputy Pres­i­dent Clan­cy dis­missed Wor­thing­ton Indus­tries’ appli­ca­tion to the Com­mis­sion for a reduc­tion in redun­dan­cy pay for three employees. 

Wor­thing­ton Indus­tries had request­ed that the amount of redun­dan­cy pay be reduced from four weeks to one week for each of the three employ­ees. This appli­ca­tion was made on the basis that almost all areas of the man­u­fac­tur­ing busi­ness had been impact­ed due to COVID-19, and that they antic­i­pat­ed their sales to drop by up to 50 per­cent in the com­ing months. Fur­ther­more, Wor­thing­ton Indus­tries indi­cat­ed that it was their pref­er­ence to main­tain the three employ­ees on a casu­al basis, with the inten­tion of con­vert­ing them back to full-time employ­ment once sales had picked up. 

In his rea­son­ing, Deputy Pres­i­dent Clan­cy con­sid­ered that Wor­thing­ton Indus­tries appeared to be an eli­gi­ble can­di­date for the Fed­er­al Gov­ern­men­t’s Job­Keep­er scheme, as they were an employ­er with a turnover of less than $1 bil­lion and pre­dict­ed a fall in turnover in excess of the required 30 per­cent. Notably, the Job­Keep­er scheme had been passed by Par­lia­ment after the employ­ees had been retrenched. As such, Deputy Pres­i­dent Clan­cy sug­gest­ed that Wor­thing­ton Indus­tries may want the oppor­tu­ni­ty to assess whether the Job­Keep­er Pay­ment was some­thing they could ben­e­fit from in the present sit­u­a­tion. In this regard, Deputy Pres­i­dent Clan­cy noted: 

  • [20] Fur­ther, I high­light­ed the sec­tion of the FAQ deal­ing with the sit­u­a­tion where a com­pa­ny might have let their work­ers go, which indi­cat­ed that if such work­ers were rehired, they could imme­di­ate­ly receive the Job­Keep­er Pay­ment, even if it was nec­es­sary for the employ­er to imme­di­ate­ly stand them down. I indi­cat­ed that there was also a sec­tion enti­tled What should I do if I want to re-hire an eli­gi­ble employ­ee who received a redun­dan­cy pack­age?”. I not­ed that the answer to that par­tic­u­lar FAQ” was that if re-hired, the employ­er will need to con­sult with the employ­ee and con­sid­er pre­vail­ing work­place arrange­ments to set­tle redun­dan­cy terms.” I expressed a pre­lim­i­nary view that the appli­ca­tions before me might per­haps be capa­ble of being con­sid­ered part of pre­vail­ing work­place arrange­ments to set­tle redun­dan­cy terms”.”

Wor­thing­ton Indus­tries refused this offer on the basis that resolv­ing the redun­dan­cy issue before the Com­mis­sion would pro­vide cer­tain­ty to all involved. As such, the mat­ter pro­ceed­ed on the basis of fur­ther sub­mis­sions in rela­tion to reduc­ing redun­dan­cy pay. 

In their sub­mis­sions Wor­thing­ton Indus­tries rel­e­vant­ly argued, that while Wor­thing­ton Indus­tries cur­rent­ly had the means to pay the full amount and had mon­ey in the bank today to do so, they would be deal­ing with a deficit and cash flow prob­lems very quick­ly”. It argued that the busi­ness would suf­fer finan­cial hard­ship as a result of pay­ing the full redun­dan­cy amounts to the three employees. 

In mak­ing his deci­sion, Deputy Pres­i­dent Clan­cy acknowl­edged the chal­lenges faced by both employ­ers and employ­ees as a result of the COVID-19 cri­sis. Ulti­mate­ly, how­ev­er, as Wor­thing­ton Indus­tries had the present means to pay the full amount of the redun­dan­cy enti­tle­ments, Deputy Pres­i­dent Clan­cy was not sat­is­fied that the busi­ness should be grant­ed a reduc­tion in the amount of redun­dan­cy pay. As a result, the three employ­ees were each enti­tled to receive the full four weeks’ redun­dan­cy pay in accor­dance with the Fair Work Act.

Some obser­va­tions

The cas­es of Mason and Wor­thing­ton illus­trate some of the fac­tors the Com­mis­sion will take into con­sid­er­a­tion when assess­ing appli­ca­tions from employ­ers to reduce redun­dan­cy pay. Notably, even in a sit­u­a­tion as unprece­dent­ed as the cur­rent COVID-19 cri­sis, employ­ers will not be giv­en carte blanche when it comes to a reduc­tion in redun­dan­cy pay. The rea­son­ing in Wor­thing­ton also sug­gests employ­ers should care­ful­ly con­sid­er their eli­gi­bil­i­ty for any gov­ern­ment sub­si­dies (most notably, Job­Keep­er, the pri­ma­ry pur­pose of which is to keep staff employed) before effect­ing redun­dan­cies with the inten­tion of then mak­ing an appli­ca­tion for a reduc­tion in redun­dan­cy pay. 

If your busi­ness has been impact­ed by COVID-19 and you need spe­cial­ist employ­ment law advice, please con­tact our Employ­ment Part­ner Michael Byrnes on +61 2 9777 8340.