Baywood Products Pty Ltd v Inall
[2010] FWA 9303
•2 DECEMBER 2010
[2010] FWA 9303 |
|
DECISION |
Fair Work Act 2009
s.120 - Application to vary redundancy pay for other employment or incapacity to pay
Baywood Products Pty Ltd
v
Mr Mervyn Inall
(C2010/3835)
COMMISSIONER ASBURY | BRISBANE, 2 DECEMBER 2010 |
Order sought re reduction of redundancy pay to employee - case law and principles re exercise of discretion to reduce redundancy pay - whether employer cannot pay amount - whether employer obtained acceptable alternative employment - application granted in part - redundancy payment reduced to half the amount of entitlement.
[1] This is an application by Baywood Products Pty Ltd in respect of redundancy payments to Mr Mervyn Inall. The application is said to have been made under the National Employment Standards (NES) Division 10, Subdivision B, s.61. The relief sought is: “Reduction of owed redundancy pay to employee.” The grounds upon which the application is made are:
- Alternative employment was arranged for Mervyn Inall with Wood Industries Pty Ltd before termination date;
- Baywood Products Pty Ltd is struggling financially.
[2] The application states that Mr Inall’s employment was subject to the Timber Industry Award - 2010.
[3] Notwithstanding that the application cited s.61 of the Act, it was accepted that it was made pursuant to s.120. Directions were issued setting out s.120 of the Act and requiring the parties to file submissions, witness statements or documents in support of, and in response to, the application.
[4] By virtue of s.119 of the Act:
(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 ordinary and customary turnover of labour;
(b) because of the insolvency or bankruptcy of the employer.
[5] Section 120 of the Act provides 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, FWA may determine that the amount of redundancy pay is reduced to a specified amount (which may be nil) that FWA 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.”
[6] It is not in dispute that Mr Inall was employed by Baywood Products from 9 January 2006, in the position of Production Supervisor. Mr Inall said in his statement that he was appointed to the position of Production Manager on 4 August 2009. A letter of offer in respect of this position states:
“Position: | Production Manager |
Place of Employment: | Baywood Products’ Facilities |
Commencement Date: | 4th August 2009 |
Status of Employment: | Permanent Full-Time |
Hours of Work: | Flexible [Normal Operational Hours = 7.6 hours daily] |
Days of Work: | Generally Monday to Friday inclusive |
Remuneration Package: | Includes annual salary of $59,280, plus Employer Superannuation Contribution of 9% |
Employment Conditions: | As per salary staff - • Annual Leave of 4 weeks (plus 17.5% loading) |
Supervisor: | General Manager for Baywood Products |
Purpose of Role Staffing responsibilities | |
[7] It is not in dispute that Mr Inall was employed under the Forest Resources Industry Award - State 2003 and from 1 January 2010, under the Timber Industry Award 2010. Accordingly, Mr Inall’s service prior to 1 January 2010 is counted for the calculation of redundancy entitlements under the NES: clause 5(4), Schedule 4, Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 (TCPA Act). It is also not in dispute that Mr Inall is entitled to be paid redundancy pay under s.119 of the Act and on the basis of his service, the amount payable to Mr Inall is 8 weeks.
[8] Mr Nigel Pedersen, the Manager of Baywood Products, who represented the company in these proceedings, filed a submission and presented material in support of the application, which can be summarised as follows. The profit and loss statement for Baywood Products for the period December 2009 to March 2010 and the profit and loss statement for that period were tendered. There was no evidence other than the statements and an assertion in written submissions that this information is sufficient evidence that the Company cannot pay redundancy to Mr Inall. Essentially, the financial material provided demonstrates that in the period from October 2009 to March 2010, Baywood Products lost $298,896.70. In the same period, there were drawings for family wages of $90,355.10 and drawings for P and T Pedersen of $134,840.93.
[9] Mr Nigel Pedersen stated in his submissions that this material established that the Company was going backwards and had to take drastic action to resurrect its financial position. Mr Nigel Pedersen also stated that the Company had done the best it could to find Mr Inall another position. The Company was unable to find another position for its other employee, and reached an agreement with that employee to pay redundancy entitlements in instalments.
[10] In relation to the alternative employment for Mr Inall, Mr Nigel Pedersen tendered a document dated 23 July 2010, headed: “This is a Statement Relating to the Sourcing of Alternative Employment for Mervyn Inall”. That statement said that on 11 March 2010 Mr Inall was given a letter stating the Company’s reasons for not being able to continue his employment. Mr Inall was informed that Mr Phillip Pederson would do his best over the next four weeks, through known business associates, to find employment for Mr Inall. Mr Phil Pedersen contacted Akara Timbers in Gympie, a company owned by long term friends and business associates. After some discussion an interview with that Company was arranged for Mr Inall and Mr Phillip Pedersen provided oral references in relation to Mr Inall’s loyalty and reliability to Akara Timbers. Mr Phillip Pedersen believed that he was largely responsible for finding alternative employment for Mr Inall.
[11] A letter under the signature of the General Manager of Akara Timbers, addressed “To Whom it May Concern” was also tendered, stating:
“This is to certify that ‘This is a Statement Relating to the Sourcing of Alternative Employment for Mervyn Inall’ from Baywood Products dated the 23 of the 7th 2010 is an accurate relating of the proceedings relating to our employment of Mr Mervyn Inall on the 6th of April 2010.”
[12] According to the submissions for Baywood Products, the alternative employment is more than acceptable for Mr Inall for the following reasons:
- The position is very similar in nature (timber industry)
- Akara Timber’s pay/salary is more than Baywood Products rate ($1,260 per annum extra);
- The position at Akara carries less responsibility and is therefore less stressful for an older employee;
- Akara Timbers is located in Gympie, resulting in reduced travel expenses on weekends.
[13] Mr Inall said in his statement that he lived in Gympie with his wife at the time of commencing employment with Baywood Products, but purchased a house in Toogoom in Hervey Bay where he would stay during the working week, returning to Gympie for weekends. On occasion Mr Inall’s wife would come to Toogoom for weekends.
[14] Mr Inall said that his hours of work for Baywood Products were 38 per week. He started work at around 5.30 am Monday to Friday and did a variety of tasks to ensure that work could start at 6.00 am. Mr Inall officially finished work at 2.06 pm every day but rarely left at this time. On average, Mr Inall worked half an hour extra each day. Mr Inall listed a range of tasks including reviewing orders for the day; arranging coverage when staff were absent; prioritising workloads; supervision; purchase orders; organising removal of waste products; disciplining and warning staff where necessary; conducting pre-employment interviews. There were 28 employees including three team leaders, who were managed and supervised by Mr Inall.
[15] Mr Inall also said that he would assist when the Company was short staffed by operating machinery in the factory and driving a forklift to unload trucks. On average, while employed by Baywood Products, Mr Inall worked a maximum of 30 minutes per day assisting with operating machinery in the factory and driving a forklift.
[16] In February 2010 Mr Inall was asked to attend a meeting with the Director of Baywood Products. At that meeting, Mr Inall was informed that things were going badly for the business and that he would have to take a pay cut from his present rate of $30.00 per hour to $19.00 per hour. Mr Inall considered this option, and responded by indicating that he would accept a reduction in his salary to $25.00 per hour to assist the Company while it was in financial difficulty. On 11 March, Mr Inall was given a letter indicating that his position was to be made redundant. Mr Inall was also told that the Administration Manager’s position was also redundant. The letter to Mr Inall was in the following terms:
“Dear Merv
It is with deep regret, due to lack of sales and a negative financial position, we are unable to continue employing your services. As of today (11/03/10) we are happy to retain your services for another 4 weeks unless you find alternative employment before this date.
We will endeavour to do our best in recommending you for employment amongst our business contacts.
Unfortunately, due to our financial position we will have difficulty covering the full lump sum redundancy due, however, we are willing to negotiate with you.
We would like to take this opportunity to thank you immensely for your trustworthy and reliable service to our company and trust you are able to move on successfully.”
[17] Mr Inall said that he was surprised that his position was made redundant and he expected that his pay rate would be cut for a period. Mr Inall was told that a member of the Pedersen family would be taking on the role as Production Manager. Mr Inall was also told that the Company wanted to reach agreement about making the redundancy payment in instalments. He subsequently told Mr Pedersen that he would not negotiate about redundancy payments, and that he would like full payment of his redundancy entitlements.
[18] A few days later, Mr Phillip Pedersen told Mr Inall that he would have discussions with his business associates to see if he could find employment for Mr Inall. Mr Phillip Pedersen also told Mr Inall that he had been talking to the Manager of Wood Industries (Akara Timber) and that the Manager of that Company was interested in employing a Production Manager to take over some of his workload. A note was placed on Mr Inall’s desk stating that Mr Ken Baker, the CEO of Akara would like to interview him at 7.00 am on 15 March 2010. Mr Inall attended that interview and was paid by Baywood Products for the time spent at the interview at Akara. Mr Inall was interviewed by Mr Ken Baker and Mr Russell Baker. At the interview, Mr Inall’s experience was discussed and he was told that his experience with hoop pine would be valuable for Akara’s business. Mr Inall was also asked what his current wages were and was told that this would not be a problem. Mr Inall could not recall Mr Ken Baker or Mr Russell Baker making any mention of contact from Baywood Products.
[19] Several weeks later Mr Inall was contacted by Mr Ken Baker and told that he had been successful in obtaining a position with Akara. Mr Inall ceased employment with Baywood Products on 8 April 2010, and started work at Akara on Monday 12 April 2010. Mr Inall said that his hours of work at Akara are 40 - 45 per week and he is not paid overtime. The business operates from 6.30 am to 3.30 pm Monday to Thursday and 6.30 am to 12.30 pm on Friday.
[20] In his position with Akara, Mr Inall arrives for work at 6.15 am for a 6.30 am start Monday to Friday. There are nine employees including Mr Inall, and two team leaders. The daily tasks are set by the General Manager and Mr Inall supervises the employees completing the tasks. Mr Inall spends around 5 or 6 hours per day operating forklifts and assisting employees to manually stack timber. Mr Inall is not involved in production planning; ordering of material; purchase orders or pre-employment interviews.
[21] Mr Inall said that he understood his accrued sick leave and long service have not been transferred to Akara. While the new position is a similar role and Mr Inall is receiving similar wages, he is disadvantaged by the loss of his job because:
- He has a house in Toogoom that he has to try to rent or sell;
- He has lost accumulated sick leave of 30 days;
- He has lost four years of service for the purposes of long service leave;
- He is 61 years of age;
- Employment at Akara is under the Timber Industry Award 2010 but no written letter of employment or a position description has been received;
- The hours of work in the new position are longer - 40 to 45 hours per week.
[22] It was submitted for Mr Inall that Baywood Products had not established on an objective basis, that it obtained other acceptable employment for Mr Inall. It was conceded that assuming the veracity of the statement made on behalf of Baywood Products, that Baywood Products took action that caused other employment to become available to Mr Inall. However it was also contended that Mr Inall obtained the other employment based on merit and that in accepting that position, he was mitigating the circumstances relating to the termination of his employment. It was also submitted that the new position was materially different from Mr Inall’s position with Baywood Products and the wages are less overall when considered on the basis of hourly amounts.
[23] In this regard it was submitted that Mr Inall’s hourly rate when employed with Baywood Products was $30 per hour and the hourly rate with the new employer is $30.7895. However it was also submitted that as Mr Inall is required to work a 40 hour week in his new position, the hourly rate is $29.25. As a result, Mr Inall’s wages are between 5% and 15% less than his wages were when employed by Baywood Products.
[24] It was also submitted that Baywood Products had not established that it was not financially competent or that it did not have the funds to make the payment. Profit and loss statements from October 2009 to March 2010 demonstrated that the Company had the capacity to pay wages and salaries of employees.
Case Law
[25] In Derole Nominees Pty Ltd and ACM 1 a Full Bench of the Australian Industrial Relations Commission considered the redundancy provisions of an Award in the following terms:
“An employer in a particular redundancy case, may make application to the Commission to have the general severance pay prescription varied if he/she obtains acceptable alternative employment for an employee.”
[26] The principles established in that case in relation to the meaning to be given to the phrase “obtains acceptable alternative employment” have been applied in cases considering s.120 of the Act, 2 and in my view are relevant to the present case. In Derole the Full Bench observed:
“The Award provision does no more than provide an avenue by which an employer may apply to the Commission to vary the obligation which would be otherwise imposed by the award. It does not follow from the terms of the clause that an employer coming within its scope will achieve necessarily full or partial relief. The level of relief, if any, to apply in a given case, is a matter to be determined as an exercise of discretion in the circumstances of that case.”
[27] The Full Bench cited the first decision in the Termination Change and Redundancy Case where it was stated that:
“We do not wish to prevent an employer making application to be exempted from the general prescription pursuant to this decision in cases where the employer obtains acceptable alternative employment for an employee but we would point out that, in our decision, severance payments are not made for the purpose of assisting employees to obtain alternative employment. Where such an application was made it would be important to consider whether previous service with the previous employer was recognised as service with the new employer.” 3
[28] The Full Bench noted that “obtains” does not appear in its context to mean actually obtain in the fullest sense possible, given that one employer is incapable in law of effecting a contract of employment between his or her employee and another employer, and went on to hold that:
“...the intention is not to impose an absolute test on the employer’s ability to ‘obtain’ alternative employment but rather it refers to an action which causes alternative employment to become available to the redundant employee. The employer must be a strong moving force towards the creation of the available opportunity.” 4
[29] In relation to the question of what constitutes “acceptable alternative employment” the Full Bench in Derole said that this is a matter to be determined on an objective basis.
“Alternative employment accepted by the employee (and its corollary, alternative employment acceptable to the employee) cannot be an appropriate application of the words because that meaning would give an employee an unreasonable and uncontrollable opportunity to reject the new employment in order to receive redundancy pay; the exemption provision would be without practical effect.
Yet the use of the qualification ‘acceptable’ is a clear indication that it is not any employment which complies but that which meets the relevant standard. In our opinion there are obvious elements of such a standard including the work being of a like nature; the location being not unreasonably distant; the pay arrangements complying with award requirements. There will probably be others.” 5
[30] The Full Bench went on to observe that employees in that case had a variety of reasons for declining alternative employment, including being too old; location; type of work; method of payment; and that these could not displace the objective test, and that:
“Given the size of our cities and the common need to travel some distance to work; the fact that redundancy pay has been designed in part to tide an employee over after the loss of employment pending the attainment of another job and the fact that to reject available alternative employment which is objectively acceptable, by an election based on personal preferences is to place the right to receive full redundancy pay at risk.
The exemption provision imports the notion that effort of a sufficient kind by an outgoing employer may cause his obligation for redundancy pay to be reduced; a decision by an employee not to co-operate with an employer may well disentitle the employee to all or some of the payment.” 6
[31] In Clothing and Allied Trades Union v Hot Tuna 7 a Full Bench of the AIRC held that the onus lies on an employer seeking exemption from redundancy provisions to establish the acceptability of alternative employment, and that the test is an objective one, involving a consideration of such matters as pay levels, hours of work, seniority, fringe benefits, workload and speed, job security and other matters.8 In that case, the employer failed to adduce evidence about these matters and did not succeed with the application for exemption from the obligation to make redundancy payments.
[32] In relation to incapacity to pay, as O’Callaghan SDP held in the key determinant is whether the employer can be regarded as financially competent, or possessed of the necessary funds to make the payment.
[33] From the case law, the following principles can be identified. Section 120 of the Act is an avenue for the employer to apply to the Commission to vary an obligation which would otherwise be imposed to make redundancy payments. That section provides that FWA “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.
[34] Where the ground for the application for a reduction in redundancy pay is that the employer cannot pay the amount, the employer must satisfy FWA that it is not financially competent or possessed of the necessary funds to make the payment, and has no reasonable source of funds.
[35] In deciding whether to exercise discretion on the grounds that the employer has obtained acceptable alternative employment, FWA must be satisfied that the employer took positive and proactive steps to obtain such employment, so that it can be said that the employer is a strong moving force towards the creation of the opportunity for the employee to gain alternative employment.
[36] The question of whether alternative employment is acceptable, must be assessed on an objective basis. It is relevant to the assessment that redundancy payments are not made solely for the purpose of assisting employees to find alternative employment. Redundancy payments are intended to tide an employee over during the search for alternative employment, and to compensate the employee for loss of credits for sick leave, long service leave and other entitlements based on length of service. The question of whether previous service with the previous employer is recognised as service with the new employer, will also be relevant.
[37] Other considerations will be whether the alternative employment is of a like nature; a reasonable distance from the previous employment; whether pay and conditions are comparable; hours of work and job security in relation to the new position. The fact that an alternative position does not meet the personal preferences of an employee, may place the right to receive full redundancy pay at risk, where the employee refuses a position that is found to be acceptable on an objective basis.
Conclusions
[38] The parties in this matter presented their respective cases by way of unsworn statements and documentary material. There were no requests from either party to cross-examine any person who made a statement. After assessing all of the material tendered by the parties, I have reached the following conclusions.
[39] Mr Inall is entitled to be paid an amount of redundancy pay under s.119 of the Act. His employment was terminated at the initiative of the employer because the employer no longer required the job to be done by anyone and this was not due to the ordinary and customary turnover of labour. It was not argued, and it is not relevant to this consideration that Mr Inall may have been replaced with a family member. Mr Inall is entitled to be paid 8 weeks redundancy pay in the amount of $9,120.00.
[40] It is convenient to deal first with the second limb of s.120(1)(b)(ii) in relation to whether Baywood Products has established that it cannot pay the amount of redundancy pay to which Mr Inall was entitled. I am unable to accept that Baywood Products has established that it cannot make the payment. In my view the profit and loss statements and balance sheet tendered on behalf of the Company, are not sufficient to establish that Baywood Products cannot pay the redundancy payments to which Mr Inall is entitled. There was no evidence to support the statements either orally or in the form of a witness statement, other than a bald assertion that the Company could not afford to pay. That assertion is not borne out by the material tendered.
[41] The case that the Application for exemption from the obligation to make redundancy payments to Mr Inall was filed on 27 March 2010 and directions for material in support of it were issued on 15 June 2010. The matter was heard on 27 July 2010. The financial statements tendered on behalf of the Company were for the period up to 30 March 2010. There was no material tendered past that date.
[42] The profit and loss statements and statement of assets and liabilities tendered on behalf of Baywood Products indicate that the Company continued to purchase raw materials, pay wages and superannuation for employees and to otherwise operate. Notwithstanding losses of $298,896.70 in the period October 2009 to March 2010, there were drawings for family wages and to P and T Pedersen totalling $225,196.03. Further, there is evidence that the company made redundancy payments, albeit in instalments, to another employee who was made redundant. There is also evidence that the Company attempted to negotiate with Mr Inall to make payments in instalments. This is suggestive of a company with capacity to pay the amount owed, that would prefer to pay it in instalments rather than a lump sum.
[43] I accept that Baywood Products is in some financial difficulty. However, I am not satisfied that the Company has established that the extent of that difficulty is such that the payment cannot be made.
[44] In relation to whether the amount of redundancy pay owing to Mr Inall should be reduced on the ground that Baywood Products obtained other acceptable employment for Mr Inall, I have reached the following conclusions. I am satisfied that Baywood Products obtained alternative employment for Mr Inall, in the sense that the Company was a “strong, moving force” 9 towards the creation of the opportunity available to Mr Inall at Akara Timbers. There is no evidence that Mr Inall contacted Akara Timbers in advance of the contact that was made by Mr Phillip Pedersen. There was a business relationship and a friendship between the owners of the two companies.
[45] Mr Inall’s evidence in relation to what Mr Phillip Pedersen told him about the position indicates that Mr Phillip Pedersen’s discussion about Mr Inall with the General Manager of Akara, caused the Manager of Akara to consider hiring a Production Manager to take on some of his work load. The interview with Akara was arranged by management of Baywood Products and Mr Inall attended in working time, and was paid by Baywood Products. There was no challenge to the version of events tendered by Baywood Products in relation to the steps that were taken to obtain employment for Mr Inall with Akara. That version of events was also supported in the form of a written statement made on behalf of Akara.
[46] I am also of the view that the employment obtained for Mr Inall is acceptable on an objective basis. The previous position and the new position are covered by the same Award. Although there is a different mix of duties in the new position, there are no duties in the new position that were not performed by Mr Inall in the old position. Further, there are no duties that Mr Inall could not have been lawfully and reasonably required to perform under the Award which covered his employment in both the old and new position.
[47] I do not accept that there is any significant difference in the hours of work required of Mr Inall in the new position. His evidence was that the previous position required him to report for work before his normal starting time, and to work on occasion past his normal finishing time. It is also the case that Mr Inall was a salaried employee and his salary was not expressed as an hourly rate. This can be contrasted with the employees in other cases where an hourly rate has been extrapolated. The salary paid to Mr Inall in the new positions is marginally higher than that paid to him in his previous position.
[48] There is insufficient material before me upon which I could form a view that the purchase of a house in Toogoom by Mr Inall, and a subsequent need to sell or rent that house, is a matter that can be considered in deciding whether the new position is acceptable alternative employment. Mr Inall resides in Gympie and the new position is located in Gympie. There will no longer be a need for Mr Inall or his wife to travel in order for him to work outside of Gympie. Mr Inall made the decision to purchase a house, and there is nothing to suggest that the house is not an asset or that any loss was sustained by Mr Inall in relation to the purchase.
[49] On the other hand, I accept that Mr Inall has suffered loss of 30 days of sick leave and long service leave credits from four years of employment, and that at 61 years of age, this loss is of some significance. These entitlements have not transferred to the new employer and this is a matter which must be taken into account.
[50] In all of the circumstances, I have decided to reduce the amount of redundancy pay to Mr Inall by an amount of four weeks. Given that Mr Inall was, but for this application entitled to redundancy pay in April 2010, and that the amount payable to Mr Inall has been reduced, I do not intend to further delay the payment by allowing it to be paid in instalments. Baywood Products Pty Ltd is to pay to Mr Mervyn Inall the sum of $4560.00 within seven days of the date of this decision. I can see no reason why the payment should not be made on the basis that it is a bona fide redundancy payment, although there were no submissions in relation to this matter. In any event, the amount should be taxed (or not) according to law.
COMMISSIONER
Appearances:
Mr N. Pedersen on behalf of the Applicant.
Ms A. Garrahy on behalf of the Respondent.
Hearing details:
2010.
Brisbane:
July 27.
1 (1990) 140 IR 123
2 [2010] FWA 3141
3 Amalgamated Metals, Foundry and Shipwrights Union v Broken Hill Pty Co Ltd, Whyalla (Termination, Change and Redundancy Case) (1984) 8 IR 34 at 75, Whyalla Termination, Change and Redundancy Case); Print F6230 at 48.
4 Derole Nominees Pty Ltd and The Australian Chamber of Manufactures (1990) 140 IR 123 at 128.
5 Ibid p. 128.
6 Ibid p. 129.
7 (1988) 27 IR 226.
8 Ibid at 230-231.
9 Derole op. cit. at 128.
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