Application by Zuza Pty Ltd

[2020] FWC 6575

[2020] FWC 6575

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.120—Redundancy pay

Application by Zuza Pty Ltd
(C2020/8261; C2020/8262; C2020/8263; C2020/8264; C2020/8265; C2020/8266; C2020/8267; C2020/8268; C2020/8269; C2020/8270; C2020/8271; C2020/8272; C2020/8273; C2020/8274; C2020/8275; C2020/8276)

DEPUTY PRESIDENT LAKE BRISBANE, 7 DECEMBER 2020

Variation of redundancy pay – incapacity to pay – where employer had significant debt and no income stream – multiple applications - where business had permanently ceased trading – redundancy pay varied to nil – application successful.

Background

[1] Zuza Pty Ltd (Zuza, or the Applicant) has applied pursuant to s.120(2) of the Fair Work Act 2009 (the Act) to have the Commission reduce to nil the redundancy entitlement of 16 employees (the Respondents). The Applicant contends that they have an incapacity to pay and that all of the employee’s entitlements should reduced accordingly.

[2] The Respondents were all employees who were involved in the operation of the Grill’d West End restaurant. This restaurant was the entirety of the Applicant’s business. On 30 September 2020, the Grill’d West End store was permanently closed.

[3] Given that variation is sought under the premise that the Applicant has an incapacity to pay, I find that it is appropriate to deal with all of the applications concurrently. The applications are highly analogous and deal with a “common substratum of facts” 1. I consulted the parties on the hearing of the applications on the papers – this was not objected by any party. To best fulfil the Commission’s objective to be fair, just, and efficient the matters are to be determined concurrently and on the papers.2

Relevant Legislation

[4] Section 119 and 120 of the Act provide:

119 Redundancy pay

Entitlement to redundancy pay

(1) An employee is entitled to be paid redundancy pay by the employer if the employee’s employment is terminated:

(a) at the employer’s initiative because the employer no longer requires the job done by the employee to be done by anyone, except where this is due to the ordinary and customary turnover of labour; or

(b) because of the insolvency or bankruptcy of the employer.

Note: Sections 121, 122 and 123 describe situations in which the employee does not have this entitlement.

Amount of redundancy pay

(2) The amount of the redundancy pay equals the total amount payable to the employee for the redundancy pay period worked out using the following table at the employee’s base rate of pay for his or her ordinary hours of work:

Redundancy pay period
Employee’s period of continuous service with the employer on termination	Redundancy pay period
1	At least 1 year but less than 2 years	4 weeks
2	At least 2 years but less than 3 years	6 weeks
3	At least 3 years but less than 4 years	7 weeks
4	At least 4 years but less than 5 years	8 weeks
5	At least 5 years but less than 6 years	10 weeks
6	At least 6 years but less than 7 years	11 weeks
7	At least 7 years but less than 8 years	13 weeks
8	At least 8 years but less than 9 years	14 weeks
9	At least 9 years but less than 10 years	16 weeks
10	At least 10 years	12 weeks

120 Variation of redundancy pay for other employment or incapacity to pay

(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.

(2) On application by the employer, the FWC may determine that the amount of redundancy pay is reduced to a specified amount (which may be nil) that the FWC considers appropriate.

(3) The amount of redundancy pay to which the employee is entitled under section 119 is the reduced amount specified in the determination.

[5] Section 121 of the Act provides:

121 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.

(2) A modern award may include a term specifying other situations in which section 119 does not apply to the termination of an employee’s employment.

(3) If a modern award that is in operation includes such a term (the award term), an enterprise agreement may:

(a) incorporate the award term by reference (and as in force from time to time) into the enterprise agreement; and

(b) provide that the incorporated term covers some or all of the employees who are also covered by the award term.

[6] Section 120 confers on the Commission a discretion to reduce the amount of redundancy pay to which an employee would otherwise have been entitled under s.119 of the Act.

[7] Section 120(1) states that the section applies if an employee is entitled to be paid an amount of redundancy pay under s.119, and the employer ‘cannot pay [the redundancy] amount’. These are the jurisdictional facts that must be established before the Commission may exercise its discretion. Section 120(2) then states that the Commission ‘may determine that the amount of redundancy pay is reduced to a specified amount (which may be nil) that the FWC considers appropriate’. If the Commission makes an order under s.120(2), the amount of redundancy pay to which the employee is entitled is the reduced amount specified in the determination (see s.120(3)).

Relevant Case Law

[8] Determining whether the employer “cannot pay” the redundancy appears to be a question that imports some temporal significance. Where there is some reduced trading capacity, but there still exists some avenue to make payment (in the form of either cash at bank, or a continuing cash flow) this would indicate that it may be difficult to show a current incapacity to pay. 3 “Foreshadowed cash flow issues” that are yet to occur cannot combat the fact that an employer has sufficient funds currently to meet their obligation. However, such a determination is not made in isolation and requires a proper consideration of the totality of the employer’s position; it is possible that a solvent employer with continuing cash flow can be found to be incapable of paying out an employee.4

[9] Where there is capacity to pay some of the redundancy amount, but not all, a partial reduction can be awarded: 5

“[37] … The Applicant does not have the means to pay the full redundancy amount or the money in the bank to do so. The Applicant has demonstrated a considerable business downturn and financial difficulty and significant outstanding debts. The Profit and Loss statements provided by the Applicant show losses of $49,972 in March and $22,585.66 in April. While the Applicant provided evidence of a profit for May of $22,541.22, $43,716 of reported income from May was made up by JobKeeper and government stimulus packages. Mr O’Brien’s uncontested evidence was that he has only undertaken one further job since the redundancies, which was performed by Mr O’Brien and a casual employee.

[38] I do however note that the Applicant now has the benefit of the JobKeeper payments to assist in paying remaining staff, and is owed debts of some $88,000 by creditors. Additionally, Ms Grant was entitled to four weeks of redundancy pay and now faces the loss of permanent work. For that reason I do not consider it appropriate to reduce the redundancy pay to nil, but consider a reduction is appropriate.

[39] I consider a reduction in the redundancy pay owing of one week is appropriate. This takes into consideration the Applicant’s current financial situation, the fact that it is unlikely that they will obtain money from new contracts in the near future, the notice period provided to Ms Grant, and the casual employment found by Ms Grant. I acknowledge businesses require cash on hand to operate but I also note that Mr O’Brien has given evidence he is not presently taking on new work.”

[10] Other decisions of this Commission have considered numerous and varied factors. It is questionable how relevant each of them is, and what weight should be attributed, but is sufficient to say they have been the subject of some consideration previously. Factors that have been considered include:

•  Viewing a complete picture of the financial circumstances of the employer, which is not simply limited simply to a bank statement; 6

•  The extent of the financial difficulty being faced; 7

•  What the remaining assets and receivables of the business are, and whether they would give rise to a realisable gain; 8

•  Whether the Applicant had done the “right thing” by the employee, attempting to pay out the employees’ other owing statutory entitlements; 9

•  Whether there is any realistic prospect of any improvement in the financial position of the company (was the business shut, if so permanently; is there any future anticipated cash flow?);¹⁰

•  Whether varying the redundancy would merely be of assistance, but is not borne out of an incapacity. 11

Submissions

[11] The Applicant made submissions which showed they had successfully found other jobs for several of the impacted staff. This shows dedication on behalf of the employer and an attempt to do the right thing by their employees, but is secondary to the financial considerations put forward. It is not necessary to consider whether acceptable alternate employment was found if there is an overarching incapacity to pay which would reduce the redundancy to zero.

[12] As to the incapacity, the Applicant’s submissions made clear that:

•  The business had been struggling for many years;

•  The introduction of food delivery services impacted profit adversely, due to the 25% commission charged by UberEats and others;

•  JobKeeper was the only thing that prevented the business closing earlier;

•  The franchisee had not paid royalties for the previous year, due to the poor performance of the business;

•  The franchisor had input over $70,000 over the last 12 months to pay creditors and help support the business;

•  Currently, the business debt is approximately $400,000, with no remaining business assets;

•  There is some deliberation with the Australian Taxation Office with respect to further money owing; and

•  Despite best efforts, Zuza Pty Ltd may have to be put into liquidation, however, the cost involved and lack of any business assets makes it difficult to see how this would be an available option.

[13] Deputy President Clancy articulated the below, which I find relevant to the current proceedings: 12

“[39] I consider it highly unlikely that the employer company will be placed into liquidation because of the cost involved in doing so and the almost complete absence of assets and receivables available for recovery if this was to occur. While an order of the Commission to reduce or remove an entitlement to redundancy would impact the employees’ right to recover their payments through the FEG scheme, should the employer company be liquidated, I consider there is virtually no risk of this occurring. There is, in my view, little if no incentive for anyone to place the employer company in liquidation. The costs required to do so would appear to outweigh the potential benefits anyone doing so would derive.

[40] The employer company is not trading. It has virtually no assets or receivables. There is next to no chance that it will be liquidated. As much as Mr Hall and Mr Shay want to be paid their outstanding redundancy entitlements by the employer company, I cannot see how this could occur on the facts before me and I am not empowered to order Mr Clarke to personally meet this obligation.”

[14] It is my view that there is an incapacity to pay the redundancy amounts. The Applicant has done their best to keep their ex-employees informed and provide to them what opportunities they could, through alternate employment in the Grill’d network or aiding to secure new jobs by way of positive references. In the circumstances being faced, this is commendable.

[15] I find that the Applicant clearly cannot pay the redundancy amount, satisfying s.120(1)(b)(ii) of the Act.

Conclusion

[16] Taking into account all of the circumstances, I consider that I should exercise my discretion to reduce the Respondents’ redundancy pay. I Order that all of the redundancy entitlements should be reduced to zero.

DEPUTY PRESIDENT

Printed by authority of the Commonwealth Government Printer

<PR725217>

 1   Philip Morris Inc v Adam P Brown Male Fashions Pty Ltd (1981) 148 CLR 457, 512 (Mason J).

 2 Section 577 Fair Work Act 2009.

 3   Application by Worthington Industries Pty Ltd [2020] FWC 1912.

 4   Application by Mason Architectural Joinery [2020] FWC 1897, [5]-[6].

 5   Techno Fitouts Pty Ltd v Susan Ann Grant[2020] FWC 3969, [37]-[39].

 6   Applications by Yu Kitchen Pty Ltd [2020] FWC 4151.

 7   Baywood Products Pty Ltd v Mervyn Inall[2010] FWA 9303.

 8   Techno Fitouts Pty Ltd v Susan Ann Grant[2020] FWC 3969, [37]-[39].

 9   Applications by Yu Kitchen Pty Ltd [2020] FWC 4151.

10 Ibid.

 11   Coal River Farm Investments Pty Ltd T/A Coal River Farm [2020] FWC 3558

 12   MJ & RA Clarke P/L T/A Bakers Delight Strath Village v Ben Hall; Robert Shay[2017] FWC 6735