Clinton Built Pty Ltd v Mr Shannon King
[2020] FWC 5369
•7 OCTOBER 2020
| [2020] FWC 5369 |
| FAIR WORK COMMISSION |
DECISION |
Fair Work Act 2009
s.120 - Application to vary redundancy pay for other employment or incapacity to pay
Clinton Built Pty Ltd
v
Mr Shannon King
(C2020/6271)
DEPUTY PRESIDENT CROSS | SYDNEY, 7 OCTOBER 2020 |
Variation of redundancy pay.
[1] This is an application under s.120 of the Fair Work Act 2009 (the “Act”) by Clinton Built Pty Ltd (“Clinton Built”) to reduce the redundancy pay otherwise due under National Employment Standards (the “NES”), as varied by Clause 17.4 of the Joinery and Building Trades Award 2010 (the “Award”), to nil, on the grounds that:
(a) Clinton Built has suffered a 48.35% downturn in income due to the Covid-19 crisis;
(b) Mr King took 38 days of unpaid leave during his employment period of 407 days, and had no accrued annual leave, resulting in his period of continuous service being 369 days, or only three days more than one years’ service in this leap year; and
(c) Clinton Built arranged another job for Mr King at a separate employer, Leading Edge Kitchens.
[2] The application was filed on 13 August 2020, and was heard on 29 September 2020. Directions were issued for the filing of submissions, statements and other materials upon which each party sought to rely, and each party filed a number of documents.
Factual Background
[3] The relevant facts of this matter, as disclosed by the materials filed and the evidence adduced at the hearing of the matter, are as follows:
(a) In June/July 2020, Clinton Built employed between 9 and 13 employees.
(b) In March 2020, as NSW went into lockdown due to the Covid-19 Pandemic, Clinton Built’s commercial joinery and building work in aged care facilities, Sydney University, NSW University, University of Technology Sydney and in NSW schools ceased and has not since resumed. Clinton Built relied upon the following income analysis:
CLINTON BUILT Pty Ltd Income Analysis with Last Year | ||||
April 2020 To June 2020 | ||||
This Year | Last Year | $ Difference | % Difference | |
Income | ||||
Commercial Labour | $91,357.33 | $739,310.52 | ($647,953.19) | -87.60% |
Residential Labour | $683,171.20 | $760,385.13 | ($77,213.93) | -10.20% |
Total Income | $774,528.53 | $1,499,695.65 | ($725,167.12) | -48.35% |
(c) Mr King acknowledged that there had been a downturn in business for Clinton Built, though he was unable to assess how much business had been lost as he was not privy to the financial records of the company. He stated that jobs that he was working on did cease due to Covid-19, and he was allocated to other projects. Mr King did note, however, that to his knowledge he was the only full-time staff member who was made redundant.
(d) The sole Director of Clinton Built, Mr Clinton Meagher, stated that he persevered for the first three months of the Covid-19 Pandemic trying to keep all employees employed with no reduction in hours or wages. After exhausting all other options and alternatives, Mr Meagher made Mr King’s position redundant together with that of another employee. He has since made a further employee, formerly his second-in-charge, redundant. Mr Meagher states that he currently has six staff on wages, and he has undertaken other cost cutting measures such as selling work vehicles.
(e) Mr King commenced employment on 3 June 2019. In the six months to December 2019 Mr King requested three separate periods of annual leave totaling seven weeks leave, of which 38 days were unpaid leave as Mr King did not have enough accrued annual leave at the time to cover the leave.
(f) Mr King’s employment was made redundant on 13 July 2020. It was accepted that Mr King’s continuous period of service was 369 days, being 407 days (from 3 June 2019 to 13 July 2020) less 38 days of unpaid leave.
(g) Prior to making Mr King’s position redundant, Mr Meagher contacted four joinery companies to enquire as to whether they could employ Mr King. On the morning of Monday, 13 July 2020, Mr Meagher phoned Leading Edge Kitchens and spoke to a woman who advised him that they did not have any positions available, and the joiners position they had previously advertised on Facebook on 19 June 2020, had already been filled. She said she would let Mark Newnham, the owner of Leading Edge Kitchens, know that Mr Meagher had called.
(h) On Tuesday, 14 July 2020, at approx. 5.00 pm, Mark Newnham from Leading Edge Kitchens telephoned Mr Meagher and had a lengthy conversation about Mr King. Mr Meagher advised Mr Newnham that Mr King was a highly skilled and valuable employee. Mr Newnham asked Mr Meagher to arrange for Mr King to call him as soon as possible to arrange a meeting. Mr Meagher telephoned Mr King, told him about his conversation with Mr Newnham, gave him Mr Newnham’s telephone number, and advised him to call Mr Newnham straight away.
(i) The following morning, Mr King telephoned Mr Newnham at Leading Edge Kitchens and arranged an interview. Mr King attended the interview where his abilities and work experience were discussed, and he was subsequently offered a position of Cabinet Maker within Leading Edge Kitchens. Mr King states that at no time during the interview did Mr Newnham mention Mr Meagher, or in any way suggest that he was offering the position within the company because of Mr Meagher. Mr King asked Mr Newnham if he knew Mr Meagher outside of their telephone call and Mr Newnham said “no”.
(j) Mr King noted that the job with Leading Edge Kitchens, which did not commence until approximately two weeks after he ceased working at Clinton Built, is a factory position and does not require him to be on site for installation or other joinery work. He is paid approximately $2.00 less per hour than he was paid at Clinton Built, and he is still on six months’ probation. Mr King further noted that he travels an extra 40 minutes per day for work. The reason Mr King took the position with Leading Edge Kitchens was because he could not afford to be out of work (particularly during this uncertain time) and he is the sole earner in his family as his wife is on maternity leave.
Statutory provisions
[4] The legislative provisions relevant to this application are to be found in ss. 119, 120 and 121 of the Act as follows:
‘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.’
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.
[5] A modern award must not exclude the NES, or any provisions of the NES, although it may include terms with respect to the NES that it is expressly permitted to include under the NES or the relevant regulations. 1 A modern award may include terms ancillary or incidental to the NES, or supplement the NES, but only to the extent that the effect of those terms is not detrimental to any employee in any respect when compared to the NES.2
[6] Clause 17.4 of the Award provides:
17.4 Redundancy pay for employee of small business employer
(a) Clause 17.4 applies to an employee of a small business employer except for an employee who is excluded from redundancy pay under the NES by sections 121(1)(a), 123(1), 123(4)(a) or 123(4)(d) of the Act.
(b) In paragraph (a) an employee is an employee of a small business employer if, immediately before the time the employee’s employment is terminated, or at the time when the employee is given notice of termination as described in section 117(1) of the Act (whichever happens first), the employer is a small business employer as defined by section 23 of the Act.
(c) Subject to paragraphs (f) and (g), an employee is entitled to be paid redundancy pay by the employer if the employee’s employment is terminated:
(i) 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
(ii) because of the insolvency or bankruptcy of the employer.
(d) The amount of the redundancy pay in paragraph (c) equals the total amount payable to the employee for the redundancy pay period specified in column 2 of Table 2—Redundancy pay period according to the period of continuous service of the employee specified in column 1, worked out at the employee’s base rate of pay for his or her ordinary hours of work.
Table 2—Redundancy pay period
Column 1 | Column 2 |
Less than 1 year | Nil |
At least 1 year but less than 2 years | 4 weeks |
At least 2 years but less than 3 years | 6 weeks |
At least 3 years but less than 4 years | 7 weeks |
At least 4 years and over | 8 weeks |
(e) In paragraph (d) continuous service has the same meaning as in section 119 of the Act.
(f) The terms of section 120 of the Act apply as if section 120 referred to ‘paragraph 17.4(c) above’ rather than ‘section 119’.
NOTE: Under section 120 of the Act the Fair Work Commission can determine that the amount of redundancy pay under the NES is to be reduced if the employer obtains other acceptable employment for the employee or cannot pay that amount. Paragraph (f) applies these arrangements also to redundancy pay under clause 17.4.
(g) The terms of section 122 of the Act apply as if section 122 referred to ‘clause 17.4’ rather than ‘this Subdivision’ and to ‘paragraph 17.4(c) above’ rather than ‘section 119’.
NOTE: Under section 122 of the Act transfer of employment situations can affect the obligation to pay redundancy pay under the NES and the Fair Work Commission can make orders affecting redundancy pay. Paragraph (g) applies these arrangements also to redundancy pay under clause 17.4.
[7] Clause 17.4 extends the NES to Small Business Employers covered by the Award. Pursuant to paragraph (f) of Clause 17.4, the operation of s.120 of the Act is preserved to allow the Commission to determine that the amount of redundancy pay be reduced if the employer obtains other acceptable employment for the employee or cannot pay that amount.
[8] Clinton Built relies on both limbs of paragraph (1)(b) of s.120, that is, that it has obtained other acceptable employment for Mr King, and it cannot pay the amount of redundancy pay. Clinton Built also relies on the fact that Mr King had only three days more than one years continuous service, and that he took 38 days of unpaid leave during his employment period of 407 days.
[9] In considering a similar provision to s.120 of the Act in the Clothing Trades Award 1982, a Full Bench of the Australian Industrial Relations Commission, in Derole Nominees Pty Ltd and ACM 3 (Derole), found that:
“The provision does no more than provide an avenue by which an employer may apply to the Commission to vary the obligation which otherwise would be 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.” 4
[10] This has not changed. The Fair Work Commission (the “Commission”) has a discretion to reduce redundancy pay if the requirements set out in s. 120(1)(b) of the Act are met. This is clear from the use of the word ‘may’ in subsection 120(2). In Datacom Systems Vic Pty Ltd v Kahn and Desai 5, Vice President Lawler provided the following summary of the purpose of redundancy pay pursuant to s. 119, and the operation of the discretion to reduce such payments pursuant to s. 120 of the Act:6
“In summary:
The purpose of the redundancy entitlement conferred by s.119 is primarily to compensate the employee for loss of non-transferrable credits, especially long service leave.
It is not the intention of s.119 to fully compensate the employee in all or even most cases. The specified amounts are manifestly inadequate for that purpose.
The redundancy entitlement in s.119 has no “income maintenance” purpose and is not intended to address the requirement to search for another job and/or to tide over an employee during a period of unemployment albeit that the it should be regarded as having a minor component referable to the inconvenience and hardship associated with redundancy.
To the extent that alternative employment is “obtained” by the outgoing employer, matters referred to Tontine (obvious including elements such as the work being of like nature; the location being not unreasonably distant; the pay arrangements complying with award requirements) are relevant in assessing whether that employment is “acceptable” which is in turn relevant in assessing what, if any, reduction is appropriate. [Note that in Tontine, the alternative employment was with the same employer and there was no loss of continuity or non-transferrable credits. Nevertheless, the alternative employment, while assessed as “acceptable” still had material disadvantages that rendered it appropriate to award a portion of the entitlement.]
Where there is no continuity of employment or recognition of long service and other non-transferrable credits that were not paid out by the outgoing employer then the employer (sic.) should be entitled to the majority of the s.119 entitlement. To the extent that the alternative employment is disadvantageous when compared to the previous employment that will also sound in lesser reduction than might otherwise have been the case.”
Consideration
(i) Period of Continuous Service
[11] It is irrelevant that Mr King had only three days more than one years continuous service, and that he took 38 days of unpaid leave during his employment period of 407 days. As he had at least one year but less than two years continuous service, and notwithstanding that he was employed by a small business employer, pursuant to Clause 17.4(d) of the Award, Mr King is entitled to four weeks redundancy pay. That entitlement may be reduced by the operation of s.120 of the Act.
(ii) Acceptable Alternative Employment
[12] In Derole the Full Bench considered the redundancy provisions of an Award. It found:
“What constitutes “acceptable alternative employment” is a matter to be determined, as we have said, 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 like nature; the location being not unreasonably distant; the pay arrangements complying with award requirements. There will probably be others.” 7 (emphasis added)
[13] The Full Bench in Derole had previously noted that the term “obtains” did not appear in its context to mean to 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: 8
“...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.”
[14] I accept that Mr Meagher was the moving force behind the opportunity for Mr King to commence working for Leading Edge Kitchens. He contacted Mr Newnham, and advocated on Mr King’s behalf. Mr Meagher then telephoned Mr King, gave him Mr Newnham’s telephone number, and advised him to call Mr Newnham straight away. While it is true that it was Mr King who subsequently met with Mr Newnham and actually secured the position, the efforts and actions of Mr Meagher in creating the opportunity cannot be disregarded.
[15] While there are elements of the position with Leading Edge Kitchens that are less advantageous than Mr King’s previous position with Clinton Built, those differences are not so significant as to render the position with Leading Edge Kitchens as not acceptable alternative employment. The most significant difference is the hourly rate of pay, but there is no suggestion that the pay arrangements with Leading Edge Kitchens do not comply with award requirements.
[16] While I accept that the reason Mr King took the position with Leading Edge Kitchens was because he could not afford to be out of work, particularly during the COVID-19 pandemic, and because he is the sole earner in his family as his wife is on maternity leave, that does not impact on the objective determination that the position with Leading Edge Kitchens is acceptable alternative employment.
(iii) Inability to Pay
[17] The amount of redundancy pay to which Mr King is entitled is approximately $6,500.00. Mr Meagher says Clinton Built cannot afford to pay that amount.
[18] There is no doubt that Clinton Built has suffered a significant downturn in business. Its commercial joinery and building work in aged care facilities, Sydney University, NSW University, University of Technology Sydney and in NSW schools ceased in March 2020, and has not since resumed, and its income has dropped by 48.35% from $1,499,695.65 to $774,528.53.
[19] The redundancy pay entitlement, however represents less than 1% of the income of Clinton Built. I do not accept that Clinton Built is incapable of making that payment. It simply would prefer, in the vastly challenging economic climate in which it now operates, not to make that payment.
Should the Amount of Redundancy Pay be Reduced?
[20] The amount of redundancy pay owing may be reduced in circumstances where the employer has found other acceptable employment or cannot pay the amount otherwise owing. If either or both circumstances are found to exist, I have discretion to determine the reduced amount of redundancy pay otherwise owing.
[21] I have determined that the employment found with Leading Edge Kitchens constitutes “other acceptable employment”. However, that new employment offers no continuity of employment or recognition of non-transferrable credits, and pays a lower rate of remuneration. Accordingly, Mr King should be entitled to a substantial portion of the redundancy entitlement, notwithstanding the fact that Clinton Built, and Mr Meagher, had a significant hand in facilitating the employment with Leading Edge Kitchens.
[22] In all the circumstances I determine that the amount due to Mr King under Clause 17.4(d) of the Award, should be reduced pursuant to Clause 17.4(f) of the Award, by 25%. This will leave Mr King with an entitlement to 75% of his previous entitlement to redundancy pay. An order reflecting this decision will issue with this decision.
DEPUTY PRESIDENT
Appearances:
Mr C Meagher appeared on behalf of Clinton Built Pty Ltd.
Mr C King appeared for himself.
Printed by authority of the Commonwealth Government Printer
<PR723384>
1 Section 55(1) and (2) of the Fair Work Act 2009.
2 Section 55(4) of the Fair Work Act 2009.
3 (1990) 140 IR 123.
4 Derole Page 2.
5 [2012] FWC 1327.
6 At [23].
7 Derole at P. 128.3.
8 Derole at P. 128.2.
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