Ashmont Preschool Incorporated T/A Ashmont Preschool Centre Inc. v Louise Evans, Suzanne Walsh, Erin Roberts, James Smith, Brenda Burns, Edith Holt, Jacqueline King, Joanne Lockett, Jodie Hodgson, Amanda Sleaman,

[2018] FWC 6426

[2018] FWC 6426

FAIR WORK COMMISSION

DECISION

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

Ashmont Preschool Incorporated T/A Ashmont Preschool Centre Inc.
v
Louise Evans, Suzanne Walsh, Erin Roberts, James Smith, Brenda Burns, Edith Holt, Jacqueline King, Joanne Lockett, Jodie Hodgson, Amanda Sleaman, Megan McCarthy, Codie Harper, Cheryl Flanagan, Megan Crouch, Amanda Ryan
(C2018/3452, C2018/3479, C2018/3480, C2018/3482, C2018/3483, C2018/3484, C2018/3485, C2018/3486, C2018/3487, C2018/3488, C2018/3489, C2018/3491, C2018/3555, C2018/3556, C2018/3557)

COMMISSIONER JOHNS SYDNEY, 17 OCTOBER 2018

Variation of redundancy pay.

[1] On 21 June 2018 Ashmont Preschool Centre Inc (Ashmont) made 12 applications to the Fair Work Commission under section 120 of the Fair Work Act 2009 (FW Act) seeking to vary the amount of redundancy pay payable to a number of is employees who had their employment terminated by reason of redundancy. On 28 June 2018 Ashmont filed a further 3 applications. Together I refer to the respondents to the 15 applications as the Affected Employees. Ashmont contends that it cannot pay the amounts owed to the Affected Employees.

[2] The Affected Employees are as follows:

Name	Dismissed	Position	Years of service	Number of weeks’ severance pay due under s.119(2) of the FW Act	Amount owed	Proposed variation amount
Respondents represented by the IEU
Louise Evans (C2018/3452)	29 June 2018	Teacher	3 yrs, 1 mth	7 weeks at 19.5 hours per week at $40.58 per hour	$5,539.17	100%
Suzanne Walsh (C2018/3479)	29 June 2018	Teacher	3 yrs, 1 mth	7 weeks at 22.5 hours per week at $39.47 per hour 1	$6,216.525	Unspecified
Erin Roberts (C2018/3840)	18 June 2018	Teacher	8 yrs, 8 mth	14 weeks at 19.5 hours per week at $34.89 per hour	$9,524.97	Unspecified
Other Respondents
James Smith (C2018/3482)	27 June 2018	General Staff	Unknown	Unknown	Unknown 2	Unspecified
Brenda Burns (C2018/3483)	18 June 2018	General Staff	10 yrs, 8 mths	12 weeks at 32.5 hours per week at $25.84 per hour	$10,077.6	Unspecified
Edith Holt (C2018/3484)	18 June 2018	General Staff	2 yrs, 10 mths	6 weeks at 15 hours per week at $23.97 per hour	$2,157.30	Unspecified
Jaqueline King (C2018/3485)	18 June 2018	General Staff	3 yrs, 1 mth	7 weeks at 10 hours per week at $23.97 per hour	$1,677.9	Unspecified
Joanne Lockett (C2018/3486)	18 June 2018	General Staff	4 yrs, 4 mths	8 weeks at 34.5 hours per week at $25.84 per hour	$7,131.84	Unspecified
Jodie Hodgson (C2018/3487)	18 June 2018	General Staff	2 yrs, 3 mths	6 weeks at 26 hours per week at $25.32 per hour	$3,949.92	Unspecified
Amanda Sleaman (C2018/3488)	18 June 2018	General Staff	3 yrs, 5 mths	7 weeks at an unknown amount of hours per week at $25.84 per hour	Unknown 3	Unspecified
Megan McCarthy (C2018/3489)	18 June 2018	General Staff	4 yrs	8 weeks at 28 hours per week at $25.84 per hour	$5,788.16	Unspecified
Codie Harper (C2018/3491)	18 June 2018	General Staff	6 yrs, 3 mths	11 weeks at 35 hours per week at $25.84 per hour	$9,948.40	Unspecified
Cheryl Flanagan (C2018/3555)	18 June 2018	General Staff	1 yr, 1 mth	4 weeks at unknown amount of hours per week at $21.29 per hour	Unknown 4	100%
Megan Crouch (C2018/3556)	18 June 2018	General Staff	1 yr, 1 mth	4 weeks at 7.5 hours per week at $22.49 per hour	$674.70	Unspecified
Amanda Ryan (C2018/3557)	18 June 2018	General Staff	1 yr, 6 mths	4 weeks at 13 hours per week at $28.58 per hour	$1,486.16	100%
TOTAL OWING (at least)					$64,172.65 5

[3] Ashmont does not contend that it obtained acceptable alternative employment for any of the Affected Employees. The sole basis for the proposed reduction in redundancy payments was incapacity to pay. In each the applications of Ashmont wrote,

“Ashmont Preschool Centre closed on 15th June 2018 as it was no longer financially viable to continue to operate.”

[4] Ashmont attached a number of documents in support of its applications. I have had regard to those documents.

[5] Three of the Affected Employees (Louise Evans, Suzanne Walsh and Erin Roberts) are represented by Independent Education Union (IEU). The IEU on behalf of its members and the remaining Affected Employees oppose orders being made in the terms sought by Ashmont.

Background

[6] The following matters are not contested and I make the following findings of fact:

a) Ashmont Preschool was purpose built 42 years ago and has operated in the Wagga Wagga area ever since.

b) In 2007 Ashmont became a 45 place Long Day Care Centre for 2 to 6 year olds. The Federal Government supported parents through the Child Care Benefit.

c) For some time there were two rooms; one catering for 2 and 3 year-olds and the other 4 to 6 year-olds.

d) A number of the families who send their children to Ashmont are affected by socio-economic disadvantage.

e) In recent times Ashmont was involved in an employee related dispute that resulted in a “substantial payout”.

f) Difficulties were experienced ascertaining the real financial situation of Ashmont. Further, it was difficult to find a management committee for the local community who have the capacity to run the service.

g) Enrolments in the 2 and 3 year-olds have declined. Consequently, income has declined.

h) Expenses have not declined. Approximately 95% of expenditure is attributed.

i) In mid-2018, Department of Education Legacy Funding ceased.

j) New Child Care Benefit Package arrangements commenced in July 2018 which impacted upon the budget.

k) With the decline in the 2 and 3 year old groups, the greatest use of the service was between the hours of 8.30 am – 4.00 pm, suggesting some viability under a traditional pre-school (as opposed to child care) model.

l) On 29 March 2018 a meeting was held with the staff of Ashmont. Staff were told that the meeting was confidential and taking part because of the employer’s obligation to consult about giving of workplace changes under the Children Services Award 2010. It was proposed to change the hours of operation in July 2018 to 8.30 am – 4.00 pm. Staff were asked to voluntarily drop the number of hours or days that they worked.

m) Budget projections undertaken in April 2018 forecast operating losses in April, May, June, July, and August 2018.

n) On 20 April 2018 the Committee of Management met and noted that Ashmont had a net Cash position of $19,443.00. The Committee of Management resolved to put Ashmont into administration.

o) As at 1 May 2018 Ashmont had $13,012.24 in the bank.

p) On 14 May 2018 the Committee of Management resolved to “cease trading as a not-for-profit, community based long day care centre” on 16 June 2018. The Committee of Management proposed that families be given four weeks’ notice in advance and that staff also be given four weeks’ notice such that they be paid up to and including Monday, 18 June 2018.

q) On 21 May 2018 parents were written to and advised that “the final date of operation of Ashmont Preschool Centre will be on Friday, 15th June 2018.”

r) Also on 21 May 2018 staff were advised of the cessation of trading on 15 June 2018 and that their “last day of employment will be Monday, 18th June 2018.” Staff were advised that they would work through the notice period and that they would “be advised in due course of your eligibility of redundancy entitlements.”

s) At its meeting on 31 May 2018 the Committee of Management noted:

i. a report from a chartered accountant to the effect that “there was no point in appointing an administrator as the cash flow projections and anticipated income with existing and the new Child Care Package clearly showed that Ashmont Preschool Centre Inc was not viable and was heading towards insolvency”; and

ii. two expressions of interest in taking over the preschool centre and resolved to seek office in writing prior to 7 June 2018.

t) In June 2018 the Committee of Management continued to explore funding options and made grant applications.

u) On Friday, 15 June 2018 Ashmont Preschool Centre closed.

v) On Monday, 18 June 2018 the employment of all staff except Louise Evans, Suzanne Walsh and James Smith were terminated.

w) On 21 June 2018, 12 of the present applications were made to the Commission.

x) On 28 June 2018 a further 3 applications were made.

y) On 27 June 2018 James Smith’s employment ended.

z) On 29 June 2018 Louise Evans and Suzanne Walsh’s employment ended.

aa) On 29 June 2018 I conducted a Mention/Directions hearing. Later that day I issued directions programming the filing and service of materials in support of the applications and thereafter in opposition. The matter was listed for hearing on 1 August 2018 (on 17 July 2018 relisted for 31 July 2018).

Filed material

[7] The following material was filed in compliance with the directions. There was no opposition to me receiving the materials filed and I mark them as exhibits as follows:

Exhibit	Description	Date
In support of the applications
A1	Statutory Declaration of Catherine Leigh Willis, Chairperson of Ashmont Preschool Inc.	13 July 2018
A2	Unaudited Profit & Loss January 2018 – June 2018	11 July 2018
A3	Unaudited Balance Sheet as of June 2018	11 July 2018
In Opposition to the applications made in respect of IEU members
R1	Submissions	25 July 2018
R2	Statutory Declaration of Erin Roberts	25 July 2018
R3	Statutory Declaration of Louise Evans	24 July 2018
R4	Statutory Declaration of Suzanne Walsh	24 July 2018

[8] On 27 July 2018 the parties agreed that I should decide the matter “on the papers”. Consequently, the hearing listed for 31 July 2018 was vacated.

Evidence

[9] In coming to this decision I have had regard to all of the filed material. In particular I note the evidence of Ms Willis, Chairperson, which was to the effect that:

a) “…due to the under viability of the preschool service conducted, the decision was made for the preschool to be closed and this has now occurred.”

b) “We do not have funds to make redundancy payments which may be due to staff.”

c) As that 13 July 2018 Ashmont had cash reserves of only $11,333.26.

d) Ashmont has “further commitments to pay monies from funds that are available e.g. auditor’s/accountants fees and insurance. We are also unsure of our obligation to repay any surplus funds that are held under the terms of a $75,000 transition grant received from the Department of the Prime Minister and Cabinet.”

[10] I note from the evidence of the members of the IEU that, at the time of attesting to their Statutory Declarations none of them had yet gained alternative employment.

Submissions of the IEU

[11] The IEU submitted that,

“Background

1. Ashmont Preschool Incorporated (“the Preschool”) ABN 47 941 897 510 is a not for profit preschool that operated for over 40 years in Wagga Wagga.

2. The Preschool experienced a significant drop in enrolments in 2018 that affected the viability of the Preschool.

3. On Monday 21 May 2018 staff and parents were advised that the Preschool would be closing on Friday 15 June 2018. Staff were advised that the last day of work would be Monday 18 June, except that Suzanne Walsh and Louise Evans were advised their last day of work would be 29 June 2018.

4. As at 21 May 2018 and 18 June 2018, there were 15 employees.

5. No redundancy payments were made to staff.

6. The Preschool ceased operation on Friday 15 June 2018.

7. On 21 June 2018 a representative of the Preschool applied to the Fair Work Commission pursuant to section 120 of the Fair Work Act (“the Act”) made applications for a variation of redundancy pay based on incapacity to pay in respect of all 15 employees.

8. It seems that no action has been taken to wind up the company.

9. The Respondent does not dispute that there is insufficient cash to pay redundancy entitlements.

Principles

10. Section 120 of the Act is as follows:

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.

11. The Ashmont Preschool Centre Teachers’ Early Childhood Services Agreement 2014 (“the Enterprise Agreement”) applied to the employment of Teachers, including Suzanne Walsh, Erin Roberts and Louise Evans.

12. Clause 36.11 (c) of the Enterprise Agreement requires, in determining an application by an employer to pay a lesser amount (or no amount) of severance pay that the Commission “shall have regard to such financial resources and other resources of the employer concerned as the Fair Work Commission considers relevant, and the probable effect that paying the amount of severance pay in subclause 36.11 above will have on the Employer”. Clause 36.11 (a) states that Clause 36.11 only applies to an employer if it employs 15 or more employees “immediately prior to the termination of employment of employees”.

13. A Full Bench of the Commission in The Maritime Union of Australia v FBIS International Protective Services (Aust) Pty Ltd [2014] FWCFB 6737 considered theinteraction between the entitlement to redundancy pay pursuant to section 119 ofthe Act and the entitlement pursuant to an enterprise agreement. The Bench held atparagraph 30:

[30] It seems clear to us that s.120 of the Act is a provision of the NES relating to the NES redundancy pay entitlement in s.119. For reasons already given, it is not as suggested by the Appellant, excluded by the express terms of the FBIS Agreement. Rather it continues to apply as a minimum standard to the redundancy pay entitlement under the FBIS Agreement that is the same as the NES entitlement. In our view, this construction is consistent with the statutory note found at the end of s.55(6) of the Act which provides: “Note: For example, if the award or agreement entitlement is to 6 weeks of paid annual leave per year, the provisions of the National Employment Standards relating to the accrual and taking of paid annual leave will apply, as a minimum standard, to 4 weeks of that leave.”

[31] It is also consistent with the explanation of this provision in the Supplementary Explanatory Memorandum to the Fair Work Bill 2008, which provides: “28. The amendments made by this item also make clear that where:

• an enterprise agreement contains terms that are the same or substantially the same as a NES entitlement, or terms that are ancillary or incidental to, or which supplement, a NES entitlement; or

• a modern award contains terms that are ancillary or incidental to, or which supplement, a NES entitlement, the provisions in the NES that relate to that entitlement (e.g., in relation to rate of accrual of leave, or what notice must be given to access an entitlement) apply to the entitlement in the award or agreement (as a minimum standard) to the extent that the award or agreement entitlement is the same as the NES guaranteed entitlement.” 11 [Our emphasis added]

[32] The construction we prefer also gives full effect to s.61 of the Act. The construction argued for by the Appellant would displace the NES redundancy entitlement in s.119 and the NES standard relating to that entitlement found in s.120. The NES entitlement would not operate in parallel with the enterprise agreement entitlement, while the NES standard related to the NES entitlement it would not apply as a minimum standard to the enterprise agreement entitlement, and the exclusion of the entitlement would be subject to a less stringent test. As we have indicated above, an enterprise agreement may expressly or by necessary implication allow the NES redundancy entitlement to operate without the strictures in s.120 of the Act. That is, it might allow an employee an entitlement even if an employer obtained acceptable alternative employment for the employee. This would be a term that fell within s.55(4) of the Act. Clause 2.5.5.1(c) is not a term that has that effect, to the contrary it is detrimental to the employee.

14. The effect of the above decision was considered by a Full Bench in DL Employment v AMWU [2014] FWCFB 7946. The Commission held that a redundancy provision inthe enterprise agreement which could not be avoided by an employer could not bereduced by the provisions of Section 120:

[80]DLE conceded that s.120 of the FW Act applies only to the NES redundancy entitlements in s.119, and has no application to the redundancy pay entitlements in the DLE Agreement. This was a proper concession. Section 120 only applies if the employee “is entitled to be paid an amount of redundancy pay by the employer because of section 119”. In this case, the relevant entitlement does not arise because of s.119 but because of the terms of the DLE Agreement. The inclusion of redundancy pay entitlements that are more generous than the NES scale is authorised by s.55(4)(b). As the analysis in the Full Bench decision in Maritime Union of Australia v FBIS International Protective Services (Aust) Pty Ltd demonstrates 62, “it is possible for an enterprise agreement to provide for a term which requires a redundancy entitlement to be paid unencumbered by s.120 of the Act” where that entitlement is more beneficial to employees than that prescribed by s.119.63 That is what the DLE Agreement does.

15 In this case the Enterprise Agreement provides for factors relevant to the determination of the Commission that may be expressed differently to the broad discretion in Section 120, that would be potentially less advantageous to employees. Such an approach must be resisted for the reasons set out in The Maritime Union of Australia v FBIS International Protective Services (Aust) Pty Ltd, cited above. That is, the Commission should not agree to vary the redundancy payment pursuant to the an enterprise agreement, if no such application would be granted pursuant to Section 120 and the consequence would be that employees do not receive redundancy pay that is part of the NES.

16. There is clear authority for the proposition that the Commission will not grant an order pursuant to Section 120 in circumstances where there is no benefit to other employees of such an order.

17. In Application by Villa Crerarii [2013] FWC 903 Commissioner Deegan held:

[13] The legislation envisages that there will be cases in which it is appropriate to remove an employer’s obligation to make a redundancy payment on the ground that the employer is unable to pay. In very few cases would it be appropriate to do so, particularly given the effect such an order would have on the employee’s right should the company be wound up. The decisions acknowledge that an appropriate case for such an order is one where the order would have a beneficial effect on the prospects of other employees. It is my decision that this is such a case. If the company is required to make the payment to Mr Kahl it may well have the effect of putting in jeopardy the employment of the remaining employees. As Mr Kahl has found finding other employment in the area so difficult I am reluctant to take any course which may bring about such a result.

18. In PYL Nominees Pty Ltd, [2011] FWA 1581 Commissioner Raffaelli refused to make an order reducing redundancy pay, commenting:

[28] I accept that Mundi faces financial difficulties. However, I also note the following:

- the possibility that Mundi is or will be insolvent and the effect that any order may have on the status of employees as potential creditors;

- the impact of any order on the employees rights under GEERS;

- the fact that reducing the entitlements of these employees will have no beneficial effect on other employees. This is not a case where reducing the payments to some, may enhance the prospects of other employees being able to remain in employment;

- the service of the employees and their relatively low level of remuneration.

19. In Company P. v D.S. [2014] FWC 4673, Hampton C summarised the principles to be

applied in application to vary redundancy pay in a section 120 application as follows:

“[32] The ability of an employer to apply to the Commission for a variation in relation to its obligation to pay redundancy has its origins in the Termination, Change and Redundancy Case of 1984.

[33] Drawing upon that decision and the various decisions of the Commission when applying provisions akin to those in the State award, the following principles appear:

• The provision means that the Commission “may” determine to reduce the amount of redundancy pay up to an amount of nil, indicating that the granting of full or partial relief from the obligation is an exercise of discretion in the circumstances of the case. The employer bears the onus of establishing that there are grounds justifying the exercise of the discretion.

• The employer must satisfy the FWC that it is not financially competent or possessed of the necessary funds to make the payment, and has no reasonable source of funds.

• The assessment of financial competence will include consideration of the financial standing of the business including its cash position and the assets of the business.

• The effect upon the employees immediately concerned will be considered including whether making an order prevents the employee from recovering the entitlement through other means should the company be liquidated; the effect that any order may have on the status of employees as potential creditors should the company become insolvent; and the impact of any order on the employee’s rights under the mGeneral Employee Entitlements and Redundancy Scheme (GEERS) or similar schemes.

The effect upon the continuation of the business, including whether reducing the entitlement of dismissed employees may have a beneficial effect on other employees, thereby enhancing their prospects of being able to remain in employment, are also relevant considerations.”

In this case the Commissioner was interpreting a provision found in the Clerks Private Sector Modern Award, that preserved NAPSA redundancy entitlements. Therelevant provision stated “The Commission may vary the severance pay prescriptionon the basis of an employer's incapacity to pay”, on application by an employer. TheCommissioner found the application was not in reality a section 120 application but one arising under the Modern Award. He dismissed the application to varyredundancy pay.

20. In Moltoni Waste Management v P. Fairs and Ors [2012] FWA 5590, Bissett C dealt with a section 120 application based on an incapacity to pay claim in a situation where the employer had ceased to trade and had no source of income. She stated:

“[25] The discretion to grant an application to vary redundancy pay is a broad discretion.

[26] On the basis of the material presented to me it is apparent that the company had no or minimal cash in hand at the time the applications were made.

[27] I accept that at the time the applications were made MWM had ceased trading. Mr Moltoni does not indicate that he intends to place the company in voluntary administration. It is clear however that the company has substantial debts to Baw Baw Shire Council and, should the Council seek to act on those debts, the status of the company will inevitably change.

[28] What has not been made clear is why the employee entitlements were not paid at the time of the termination of their employment. Mr Moltoni had the option of making these payments. The company was not under administration such that these decisions were taken out of his hand. That the Respondents were not paid at the time of the termination of their employment seems to have been a deliberate decision of the company.

[29] It would indeed be wrong if an employer could voluntarily wind up their company, run down the accounts of the company over time and then apply to the tribunal for relief from the obligation to make redundancy payments. This is not to say an employer cannot cease to operate a business if they so choose. That is their right but the obligations of the business to employees cannot go unheeded in the process.

[30] I am mindful of the fact that the Respondents in this matter were not highly paid. There are questions as to whether MWM has met its obligations to pay superannuation or full termination payments to the Respondents including outstanding leave entitlements. To grant the applications will further penalise them by denying them any right to access GEERS payments should these become available.

[31] Further the granting of the applications will not absolve MWM of any obligation to the Respondents as they may still have claims for outstanding leave and other entitlements.

[32] The granting of the applications will not alter the position of the MWM in any material sense - it will not save MWM from creditors (if there are any) nor will it ensure the company remains in a viable situation (given that it is not trading).

[33] In all of these circumstances I have determined not to grant the applications as sought by MWM. I shall not reduce the amount of redundancy pay on the basis that the employer cannot pay.

[34] The applications are dismissed.”

Consideration

21. It is not clear whether Suzanne Walsh and Louise Evans have an entitlement to redundancy pay pursuant to Clause 36.11 of the Enterprise Agreement because of the requirement in Clause 36.11(a) that the Preschool employed 15 employees “immediately prior to the termination of employment of employees”. As at the date of termination of employment in the case of Suzanne Walsh and Louise Evans there were not 15 employees as they worked an additional period after the other employees. The Union would submit however that the reference to “immediately prior to the termination of employment of employees” could be an earlier date than the date at which the termination of these two employees took effect. . At the 21 May 2018 when notice was given , there were 15 employees whereas as at 29 June 2018 there were only two employees. As at the date Ms Roberts finished up, 18 June 2018, there were 15 employees.

22. The provisions of the NES in relation to timing of the calculation of 15 employees differ from those of the Enterprise Agreement The NES gives an entitlement if there are 15 employees immediately prior to the time of the termination or at the time the employee was given notice of the termination, whichever is earlier (section 121 (1). As notice was given on 21 May 2018, under the NES all three employees would have an entitlement to redundancy pursuant to s119 of the Act. This entitlement is in parallel to an entitlement under the Enterprise Agreement ( see The Maritime Unionof Australia v FBIS International Protective Services (Aust) Pty Ltd ).

23. The Union contends that whether or not the application is regarded as strictly pursuant to section 120 of the Act or the relevant provisions of the Enterprise Agreement, the consideration in all the cases outlined above has regard to similar factors.

22. The following factors have been considered relevant to the exercise of discretion by the Commission:

* whether or not there are remaining employees of the employer who would be affected adversely if the applications were dismissed;

*if the applications were granted, whether employee entitlements under the Fair Entitlements Guarantee scheme would be adversely affected should the employer subsequently be placed in liquidation or be wound up;

*whether or not the applicant has other unmet liabilities, including entitlements owed to employees;

*whether granting the applications would benefit the applicant in any way.

23. In this case

*there are no remaining employees of the employer who would be adversely affected;

* employee entitlements under the Fair Entitlements Guarantee scheme would be adversely affected should the Preschool subsequently be placed in liquidation or be wound up;

*it seems the Preschool has other unmet liabilities, including notice owed to employees;

* granting the application would not benefit the Preschool in any way.

The applications should therefore be dismissed.”

Enterprise Agreement or National Employment Standards?

[12] As is apparent from the submission of the IEU, an issue has arisen about whether an enterprise agreement or the National Employment Standards (NES) applies to the employees in relation to their entitlement to redundancy pay. An application under section 120 of the FW Act only applies to employees who have an entitlement under section 119 of the FW Act. A section 119 entitlement is a part of the NES.

[13] The IEU contended that the Ashmont Preschool Centre Teachers’ Early Childhood Services Agreement 2014 (Agreement) applied to the employment of teachers at Ashmont. This included their members Suzanne Walsh, Erin Roberts and Louise Evans.

[14] The Agreement commenced on 24 April 2014. It had a nominal expiry date of 31 October 2015. It appears not to have been replaced or terminated. Consequently, it continues to apply to Ashmont. The IEU is covered by the Agreement.

[15] The Agreement provides as follows in relation to redundancy:

“36.11 Severance Pay

a) The provisions of this clause shall only apply to an employer if it employees (sic) 15 or more employees immediately prior to the termination of employment of employees. Where a Teacher’s employment is to be terminated pursuant to subclause 36.2, the Centre shall pay the following severance pay in respect of a continues period of service:

[the table provides for entitlements greater than the NES]

…

c) Subject to an application by the Employer and further order of the Fair Work Commission an Employer may pay a lesser amount (or no amount) of severance pay than that contained in subclause 36.11.

The Fair Work Commission shall have regard to such financial and other resources of the Employer concerned as the Fair Work Commission considers relevant, and the probable effect that paying the amount of severance pay in subclause 36.11 above will have on the Employer.”

[16] The applications made to the Commission in relation to the Affected Employees were made under section 120. They were not made under clause 36.11(c) of the Agreement. Consequently, to the extent that the Affected Employees’ entitlement derives from the Agreement and not the NES, this decision is not relevant to them. That is to say, if any of the Affected Employees have an entitlement under the Agreement, then the applications made to the Commission under section 120 of the FW Act must fail because of an absence of jurisdiction. However, because of the decision I have made (below) about the section 120 applications I do not need to express a view about the jurisdictional issue.

[17] Clearly the terms of the Agreement are similar to, but differ from the terms of section 120 of the FW Act.

Section 120 of the FW Act

Clause 36.11(c) of the Agreement

(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:

…

(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.

Subject to an application by the Employer and further order of the Fair Work Commission an Employer may pay a lesser amount (or no amount) of severance pay than that contained in subclause 36.11.

The Fair Work Commission shall have regard to such financial and other resources of the Employer concerned as the Fair Work Commission considers relevant, and the probable effect that paying the amount of severance pay in subclause 36.11 above will have on the Employer.

[18] It may be that the differences are material. However, because there are no applications before me seeking to vary any entitlement under the Agreement (as opposed to applications made under section 120 to vary entitlements under section 119) I do not propose to express a view about the differences in the terms as between the Agreement and the NES. In the current context it is unnecessary for me to do so.

Consideration

[19] Division 11 of Part 2-2 of Ch 2 of the Act sets out the minimum entitlements with respect to notice of termination redundancy pay. Section 120 of the Act provides:

‘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.’

[20] The discretion to grant an application to vary redundancy pay is a broad discretion. 6 It does not follow that, if I find Ashmont cannot pay the redundancy amounts (or has an incapacity to pay), I must reduce the amount payable. It clear from the use of the word “may” in section 120(2) of the FW Act that the Commission has a discretion.

[21] As has been noted in other decisions involving like applications (see for example Tunnelcorp Pty Ltd v David Pollock 7), if the applications in the present matter were granted in part or in full, in the event Ashmont later become liquidated, the Affected Employees would not have capacity to bring a claim under the Commonwealth Fair Entitlements Guarantee (FEG).8 I consider this potential adverse effect on the Affected Employees to be relevant in the exercise of my discretion.

[22] In PYL Nominees Pty Ltd as Trustee of the Lesina Family Trust t/as Mundi Clothing Co, 9 Rafaelli C rejected an application by PYL Nominees to reduce the amount of redundancy pay to nil based on incapacity of the employer to pay. The Commissioner found:

“[28]I accept that Mundi faces financial difficulties. However, I also note the following:

- the possibility that Mundi is or will be insolvent and the effect that any order may have on the status of employees as potential creditors;

- the impact of any order on the employees’ rights under GEERS;

- the fact that reducing the entitlements of these employees will have no beneficial effect on other employees. This is not a case where reducing the payments to some, may enhance the prospects of other employees being able to remain in employment;

- the service of the employees and their relatively low level of remuneration.”

[23] At the time the applications were made to the Commission, Ashmont was not trading. Its unaudited accounts reflect that:

a) Ashmont’s income in the 6 months to June 2018 was $311,642.59.

b) Ashmont’s expenditure in the 6 months to June 2018 was $414,838.41.

c) In the 6 months to June 2018 Ashmont made an operating loss of $103,035.12.

d) As of 30 June 2013 Ashmont had:

i. Total Assets of $105,268.62 (inclusive of $62,888.86 cash on hand). Its total current assets (i.e. cash or other assets that can be converted to cash within 12 months) were $76,724.41.

ii. Total liabilities of $161,607.14 largely comprised of employee entitlements of $149,276.61:

A. Accrued wages $21,967.71

B. Payroll liabilities $82,109.81,

C. Provision for long service leave $24,391.09,

D. Provision for annual leave $20,808.00,

iii. Nets assets of negative $56,338.52 (its total negative equity was the same).

[24] Having regard to the unaudited accounts submitted by Ashmont I am satisfied that it is in dire financial situation. Its current assets ($76,724.41) are not even enough to meet current obligations to employees ($149,276.61). Those current employee entitlements do not include the total NES redundancy amount of (at least) $64,172.65.

[25] The IEU does not dispute that Ashmont has “insufficient cash to pay redundancy entitlements.”

[26] At the time the first 12 applications were made (on 21 June 2018) Ashmont had 3 remaining employees (Louise Evans, Suzanne Walsh who ceased working on 29 June 2018, and James Smith who ceased working on 27 June 2018). Most of the employees ceased employment on 18 June 2018. However, at the time that the notices of termination were given Ashmont employed 15 employees.

[27] No submission was made that this is a case where reducing the payment owed to the Affected Employees may enhance the prospects of other employees being able to remain in employment. This is because all employees have already ceased employment. In the exercise of my discretion I consider it relevant that no on-going employee would benefit from an order being made in the terms sought by Ashmont.

[28] On the basis of the material before me I am satisfied that, at the time of the applications:

a) Ashmont:

i. had no or minimal cash in hand,

ii. had ceased trading,

iii. had substantial debts,

iv. had only 3 remaining employees (soon to be dismissed),

b) the respondents were not highly paid employees,

c) likely other employee entitlements are outstanding and unlikely to be paid,

d) no employee would benefit from the orders being made, and

e) Ashmont will also not materially benefit from the orders being sought (in the sense that any orders would, once again, make Ashmont a viable undertaking).

[29] Consequently, in all of the circumstances, in the exercise of my discretion, I have determined not to grant the applications as sought by Ashmont. I will not reduce the amount of redundancy pay owed by Ashmont to the Affected Employees. Because I have decided not to reduce the amounts owing to any of the Affected Employees it is unnecessary for me to resolve the jurisdictional issues about whether any of their entitlements arise under section 119 or an enterprise agreement.

[30] The applications in respect of each of the Affected Employees are dismissed.

COMMISSIONER

Printed by authority of the Commonwealth Government Printer

<PR701396>

 1   Form F45 listed Suzanne Walsh’s hourly rate of pay as $33.63. The subsequent statutory declaration of Suzanne Walsh dated 14 July 2018 asserts the hourly rate at the time of dismissal was $39.47. As Ashmont has not disputed this I make the finding of fact that Suzanne Walsh’s hourly rate is $39.47.

 2   The length of service listed on the Form F45 for this employee is “13/12/20107 – 27/06/2018” and thus indeterminable.

 3   Form F45 did not specify how many hours per week this employee performed and thus the material redundancy entitlement is unable to be calculated.

 4   Amended Form F45 filed 29 June 2018did not specify how many hours per week this employee performed and thus the material redundancy entitlement is unable to be calculated.

 5   The amounts owing for James Smith, Amanda Sleaman and Cheryl Flanagan are unknown.

 6   Moltoni Waste Management v P Fairs, R Ellen and K Birkett[2012] FWC 5590 at [25] (Bisset C).

 7   [2018] FWC 482.

 8   The FEG replaced the former General Employee Entitlements and Redundancy Scheme (GEERS).

 9    [2011] FWA 1581.