Advanced Engine Components Limited

[2012] FWA 7725

[2012] FWA 7725

FAIR WORK AUSTRALIA

DECISION

AND

REASONS FOR DECISION

Fair Work Act 2009
s.120 - Application to vary redundancy pay for other employment or incapacity to pay

Advanced Engine Components Limited
(C2012/4771)

COMMISSIONER CLOGHAN PERTH, 19 SEPTEMBER 2012

Application to vary redundancy pay.

[1] On 30 July 2012, Advanced Engine Components Limited (“the Applicant” or “Employer”) made application to Fair Work Australia (FWA) pursuant to s.120 of the Fair Work Act 2009 (“the FW Act”) to vary the redundancy pay due under the National Employment Standards on the grounds of incapacity to pay.

[2] The application relates to employees employed by the Applicant whose employment ceased on or around 5 April 2011.

PROCEDURAL BACKGROUND

[3] On 8 August 2012, I wrote to each of the employees advising:

• that their former employer had made the above application to vary their entitlement to redundancy pay on the grounds of incapacity to pay;

• of the legislative framework surrounding the application;

• of procedural directions which was enclosed giving them the opportunity to be heard in relation to the application;

• that, as part of the procedural directions, each employee would receive material from their former employer setting out the facts and grounds upon which the Employer relied in support of its application;

• of the opportunity for each employee to respond to the facts and grounds relied upon by the Employer;

• that should the employee object to the variation in redundancy pay sought by the Employer, it was expected that they would attend the hearing and give evidence resisting the application;

• that if they did not provide a response to the Employer or attend the hearing, it would be considered that they did not object to the application to reduce the redundancy payment.

[4] Following my correspondence to each employee, and the Employer’s material provided to each employee as a result of the procedural directions, one (1) employee provided a response.

[5] Two further employees attended the hearing on 4 September 2012.

RELEVANT STATUTORY FRAMEWORK

[6] Section 119 specifies the entitlement of the employees.

[7] Section 120 provides:

“(1) This section applies if:

(a) an employee is entitled to be paid an amount of redundancy pay by the employer because of section 119; and

(b) the employer:

(i) obtains other acceptable employment for the employee; or

(ii) cannot pay the amount.”

[8] Section 121 provides:

Exclusions from obligation to pay redundancy pay

“(1) Section 119 does not apply to the termination of an employee’s employment if, immediately before the time of the termination, or at the time when the person was given notice of the termination as described in subsection 117(1) (whichever happened first):

(a) the employee’s period of continuous service with the employer is less than 12 months; or

(b) the employer is a small business employer.”

[9] The Applicant relies on s.120(1)(b)(i) primarily but has also provided evidence in relation to s.120(1)(b)(ii).

APPLICANT’S SUBMISSION

[10] Mr Keys, Chairman, gave evidence that the Applicant is a public company listed on the Australian Securities Exchange. The Applicant’s operations previously involved the manufacture and sale of products within Australia and overseas. The Applicant also has operations in China.

[11] By 31 December 2010, the Applicant had accumulated losses of $28 million. These losses were funded by investment and loans from the Applicant’s major shareholders and Directors.

[12] As a result of ongoing losses, the Applicant restructured its business, reviewed its expenses and sought to find a buyer for its operations in China.

[13] The sale of the Applicant’s operations in China proved to be difficult and the Employer considered going into formal administration in April 2011. It was at this time that employees were “stood down” due to the uncertainty of future funding to minimise cash expenditure while ongoing negotiations proceeded with potential investors.

[14] Negotiations for the sale of the Applicant’s China operations proved to be unsatisfactory as it would not clear all Australian employee entitlements. As a result, negotiations commenced for the sale of all of the Applicant’s non-China assets.

[15] In March 2012, the Applicant concluded the sale of all non-China assets.

[16] Following the sale of its non-China assets, the Employer made payment to the employees of all employees’ leave entitlements, superannuation and four (4) weeks’ redundancy payment based on their continuous service from 1 January 2010 to on or around 5 April 2011 in accordance with its interpretation of the National Employment Standards. Since making the payment, the Applicant now recognises that there is an entitlement by employees to redundancy pay for the period of employment prior to 1 January 2010.

[17] Mr Keys gave evidence that approximately 75% of the revenue received from the sale of assets was applied to employees’ entitlements including redundancy payments.

[18] Further, Mr Keys gave evidence that none of the proceeds of the sale were used to pay Directors or entities related to the Directors for outstanding wages, Directors Fees, service fees or secured or unsecured monies lent to the Applicant. These monies exceed $10.5 million.

[19] Overall, the Applicant has a negative net asset position of $11 million and cash of approximately $10,000.

[20] The Applicant’s China operations have incurred a loss of $130,000 in the first six months of this calendar year.

[21] The Applicant is seeking to make its China operations a “going concern” or alternatively, sold.

[22] The Applicant has no operations assets or employees in Australia.

[23] The Applicant acknowledges its mistake in calculating redundancy payments but is attempting to avoid entering into formal administration.

CONSIDERATION

[24] This application is somewhat unusual as the Applicant has made a redundancy payment to all six (6) employees, however, the payment made was incorrect. While the redundancy payment was made in April 2012, the employees were “stood down” in April 2011. Further, having made the redundancy payments in April 2012, the application was not made until 30 July 2012 after the erroneous calculation had been pointed out to the Employer.

[25] I have no evidence which indicates that it deliberately underestimated its original calculation of the redundancy payments to the employees; the error occurred as a result of a wrongful interpretation of the redundancy pay provisions of the National Employment Standards.

[26] The Applicant, as part of the procedural directions, provided detailed grounds to each employee subject to this application of the market circumstance it found itself in, why it had taken so long to obtain the funds to pay the employees the redundancy payments it did and other outstanding entitlements. The material provided to each employee set out the reasons why it was making the application to FWA to vary the redundancy pay to that amount which had already been paid.

[27] I received evidence and submissions from the two employees present at the hearing. The written submission from one employee, who was unable to be present at the hearing, was incorporated into proceedings.

[28] Following a conference of the parties present at the hearing, the application was varied to apply to three employees; Daniel Nelson, Chris Guy and Lincoln Steel. The three did not attend the hearing or make any submissions to the Tribunal and, in accordance with my correspondence to them, I considered that they did not object to the Employer’s application.

[29] Having received the submissions and evidence from the Employer, I am satisfied that in 2010 and early 2011, it faced considerable market and financial difficulties. While the Employer has described the employees’ cessation of employment as being “stood down”, I am satisfied that they were made redundant. The employees were made redundant simply because it accumulated losses of $28 million and had to address its ongoing liability for wages and salaries. When the employees were ‘stood down” in April 2011, they were entitled to more than their redundancy pay.

[30] From the evidence, I am satisfied that the Employer took reasonable steps to reduce its debt pressures and when it finally sold its non-China assets, it paid to its employees their outstanding entitlements, albeit the wrong redundancy pay. I also accept the evidence of Mr Keys that the Applicant has no Australian assets, operations or employees. I also accept the evidence of Mr Keys that the Applicant’s assets are limited to operations in China which, for the first six months of this calendar year, has losses of $130,000 and cash of approximately $10,000.

[31] In conclusion, from the evidence, I am satisfied that the Applicant, in these unusual circumstances, has established that it cannot pay the amount the employees were entitled to at or around 5 April 2011. Accordingly, an order will be made to vary the amount of redundancy pay to that which was paid to the three specified employees on or around April 2012.

COMMISSIONER

Appearances:

G Keys for the Applicant.

P Nguyen, on his own behalf.

M Arango, on his own behalf.

Hearing details:

2012:

Perth

4 September.

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