Company A v First Respondent
[2020] FWC 381
•24 JANUARY 2020
| [2020] FWC 381 |
| FAIR WORK COMMISSION |
DECISION |
Fair Work Act 2009
s.120—Redundancy pay
Company A
v
First Respondent
(C2019/7456)
Company A
v
Second Respondent
(C2019/7457)
DEPUTY PRESIDENT MANSINI | MELBOURNE, 24 JANUARY 2020 |
Redundancy - applications to vary NES entitlement, to reduce entitlements to nil - whether employer has capacity to pay – applications not granted.
[1] An entity which shall be referred to as “Company A” has applied to reduce the redundancy entitlements of two former employees to nil on grounds of incapacity to pay pursuant to s.120 of the Fair Work Act 2009 (Cth) (Act).
[2] I have determined to dismiss the applications. The reasons for this decision follow.
Procedural context
[3] On 6 December 2019, the Respondents were notified that their employment was terminated effective 20 December 2019. The reason given for termination in each case was redundancy.
[4] Also, on 6 December 2019, these applications for the Commission to reduce the statutory redundancy entitlements to nil because it cannot pay were filed by a Director of Company A. The reasons provided in support of the applications are identical.
[5] As the Respondents did not consent to the applications, a date for hearing was set along with a program for the filing of materials in advance.
[6] On 2 January 2020, I determined to issue Confidentiality Orders in both matters.
[7] On 10 January 2020, by consent of the parties, the applications were heard together. Each party was self-represented. After the conclusion of the hearing, further materials were filed by Company A at the request of the Commission.
[8] The applicant entity name, names of its Directors and the Respondent names are suppressed from this Decision to protect confidentiality of the confidential materials in this matter consistent with the Confidentiality Orders.
Statutory context
[9] The National Employment Standards (NES) in the Act comprise a set of minimum employment conditions, including a statutory entitlement to redundancy pay:
“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 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.”
[10] There are some exclusions to the entitlement to redundancy pay at s.119, in circumstances of:
(a) less than 12 months’ continuous service (s.121(1)(a));
(b) a small business employer, meaning an employer with fewer than 15 employees calculated at the particular time for s.119, being on termination and including the terminated employees (s.121(1)(b) and s.23); and
(c) as may be provided by an applicable modern award (s.121(1)(c)).
[11] Subject to the application of an exclusion under s.121, s.119 provides the amount of redundancy pay by reference to the employee’s period of continuous service with the employer on termination.
[12] However, if an employee is entitled to be paid an amount by the employer because of s.119, and the employer cannot pay the amount, then section 120(2) of the Act provides the Commission with discretion to reduce the entitlement to an amount that the Commission considers appropriate (which may be nil). Section 120 provides as follows:
“120 Variation of redundancy pay for other employment or incapacity to pay
(1) [When sections applies]
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 employer; or
(ii) cannot pay the amount.
(2) [Amount may be reduced by amount FWC considers appropriate]
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) [Redundancy pay is amount in determination]
The amount of redundancy pay to which the employee is entitled under section 119 is the reduced amount specified in the determination.”
Summary of the materials before the Commission
[13] Company A is a vehicle processing and custom fleet build facility.
[14] Since at least early 2019, Company A has experienced a downturn in business primarily due to the loss of work from its most significant customer (estimated to have represented around 80 percent of its business at its peak). The loss of this work, and another contract, became apparent in around early 2019 and was confirmed in around July 2019. At the time of the Hearing, a Director of Company A acknowledged the business got “a little busier” in October 2019 however said that there are presently no substantial order numbers.
[15] In November and December 2019, in response to the downturn in its business, Company A decided it would endeavour to cut costs, including (but not limited to) the following:
(a) A decision was made to “let go of” its storage yard, which represents a cost reduction of around $64,000 per annum (effective late December 2019); and
(b) Despite “holding on” as long as possible, a decision was made to make two roles redundant (affecting the Respondents to this application) and to try to retain 14 full time and 4 casual employees (also effective late December 2019),
(other measures included negotiated reductions in business overheads such as information technology and insurances, and an unsuccessful attempt to end a lease on business premises/accommodation).
[16] The First Respondent accepts that his role was redundant; whereas the Second Respondent queries whether his redundancy was “genuine” because he was not offered redeployment and he believed there were other duties at Company A that he could perform (including given his qualifications in Transport and Logistics and Sheetmetal). 1 Company A Director’s evidence in response was that the Second Respondent was employed to support its storage of trucks, such work no longer exists, and the Second Respondent had been retained as a courtesy to drive trucks around for customers. Company A could no longer afford to offer that service. In December 2019, Company A decided to let go of its storage yard and accordingly Company A no longer required the Second Respondent’s role (as it then was) to be performed by anyone. The Director also said that, to the extent that there may still be truck driving duties required on occasion, these would be split between two team leaders who would do so among the other duties they are engaged to perform.
[17] Otherwise, the value of any entitlement under s.119 is agreed as follows:
Respondent | Commencement | Period of continuous service on termination | Redundancy pay period | Redundancy |
First Respondent | 19 March 2018 | 1 year, 6 months | 4 weeks | $3,731.60 gross |
Second Respondent | 30 March 2015 | 4 years, 8 months | 8 weeks | $7,904.00 gross |
$11,635.60 gross |
[18] In support of its contention that it cannot pay the redundancy entitlements at s.119, the original application includes a statement that Company A hopes management is able to turn things around and “this request to vary the redundancy payment will assist greatly”.
[19] Prior to the Hearing, Company A produced the following business records:
(a) Profit and Loss Statement for the period 1 July to 5 December 2019 (uncertified);
(b) Profit and Loss Statement for the period 1 January to 30 December 2019 (certified by a practising accountant);
(c) Balance Sheet as at 30 December 2019 (certified by a practising accountant);
(d) Current work in progress report (undated);
(e) A letter from Company A’s accountant dated 20 December 2019 confirming the value of personal loans owed to Directors of Company A; and
(f) A list of employees of Company A as at 8 January 2020.
[20] An analysis of the Balance Sheet as at 30 December 2019 shows the following cash available in business bank accounts:
(a) $301,306.65 (Business Cash Management -286 Account);
(b) $52,551.70 (Business Account -617); and
(c) $2,576.94 (PayPal account).
[21] However, the Director’s evidence at the Hearing was that there was significantly less cash in the Business Cash Management -286 Account than reflected in the Balance Sheet as at 30 December 2019. She estimated that this particular account held around $80,000 at the time of the Hearing on 10 January 2020. In response to the Commission’s inquiries, the Director explained the reduction in cash as due to recent payment of bills. She gave an example of a cash amount of $100,000 which was transferred to another Director of Company A, being for repayment of money he had personally loaned to the business. Another example of bills paid was payment of “holiday pay” to existing employees of Company A over the office closure period in December 2019/January 2020.
[22] At the request of the Commission, further evidence was provided after the Hearing in the form of:
(a) a bank statement and transaction list for Company A’s business account for the period 1 to 31 December 2019;
b) “batch payment summary reports” for the period 1 December 2019 and 10 January 2020; and
(c) an updated Profit and Loss Statement and Balance Sheet as at 10 January 2020. 2
[23] An analysis of the Balance Sheet as at 10 January 2020 shows the following cash available in business bank accounts:
• $138,354.62 (Business Cash Management -286 account);
• $48,309.93 (Business Account -617); and
• $2,576.94 (PayPal account).
[24] The bank statement as at 31 December 2019 also shows that a $100,000 loan repayment was made to a Company A Director on 13 December 2019 (not after 30 December 2019). However, there was other evidence (in the form of “batch payment summary reports”) which demonstrate payment of various bills in late December 2019 and early January 2020.
[25] The Respondents were afforded the opportunity to make submissions, file evidence and ask questions of the Director in evidence.
[26] The Respondents challenged the use of the business premises/accommodation and the number of employees on the books.
[27] In relation to their respective personal circumstances:
• the Second Respondent said a reduction in his redundancy entitlement would place him in a position of financial hardship, he provided evidence of his daily living expenses, and told the Commission he is having difficulty obtaining interviews for other jobs; and
• the First Respondent, who was otherwise due to retire within two years, considers he is unlikely to secure other employment, has suffered stress as a result of this application and emphasised that he is only seeking his basic right to redundancy pay.
[28] The Second Respondent also disputed that he was not given the option to work his notice period, and argues he was not paid for three public holidays which were owed.
Consideration
Are the Respondents entitled to redundancy pay?
[29] In determining an application to vary redundancy pay under s.120, the Commission must first be satisfied that there is an entitlement to be paid an amount of redundancy pay “because of” s.119. Subject to the specific exclusions at s.121, s.119 creates an entitlement in circumstances where an employee is terminated at the employer’s initiative because the employer no longer requires the job to be done by anyone, except where this is due to ordinary and customary turnover of labour; or in circumstances of insolvency or bankruptcy of the employer.
[30] Company A asks the Commission to accept that an entitlement to redundancy pay exists under s.119 for both Respondents. The First Respondent does not dispute the redundancy but resists a reduction in his redundancy pay entitlement; whereas the Second Respondent has raised a concern about whether his redundancy is “genuine” which he intends to pursue in a separate application, but also resists a reduction in his redundancy pay entitlement.
[31] In determining these applications by Company A under s.120 to vary redundancy pay, and having considered the evidence before the Commission, I am satisfied that Company A is still trading, and that it terminated the employment of both Respondents at its own initiative because it no longer requires their former roles to be done by anyone. Specifically, in the case of the Second Respondent, the evidence is that his duties have been redistributed amongst other employees such that his former “job” no longer exists and is no longer required to be done by anyone. Beyond this, I make no finding that the circumstances of these Respondents would otherwise amount to a “genuine redundancy” within the meaning of s.389 of the Act and for the purposes of any application the Respondents may wish to pursue under the unfair dismissal provisions of the Act or for underpayment.
[32] For completeness, and although not argued before the Commission, I am also satisfied that neither is a case of ordinary and customary turnover of labour and that the exclusions to s.119 (at s.121) do not apply including because Company A is not “small business employer” (it had at least 16 full time, one part time and four casual employees at the relevant time) and there is no additional, applicable exclusion under an applicable modern award.
[33] Accordingly, I am satisfied that each Respondent has an entitlement to redundancy pay because of s.119 of the Act.
Is it the case that Company A cannot pay?
[34] Having identified entitlements to redundancy pay under s.119 in each case, I am required to consider whether Company A cannot pay.
[35] As outlined above, the combined total of redundancy pay entitlements is $11,635.60.
[36] Section 120 provides an avenue for an employer to apply to the Commission to vary an obligation that would otherwise exist to make redundancy payments in accordance with s.119, if it has either obtained acceptable alternative employment or cannot pay. There is no question in these applications that acceptable alternative employment has not been obtained.
[37] It is well established that the onus in an application of this kind rests with the employer who seeks to vary the redundancy payment entitlement. 3 In the present context, it is Company A that is required to demonstrate that it cannot pay. It has been held that the key determinant(s) in relation to incapacity to pay is whether the employer can be regarded as financially competent, possessed of the necessary funds or has no reasonable source of funds to make the payment.4
[38] On the evidence before the Commission in this case, it is plain that the Directors of Company A are concerned about their business becoming insolvent and are deploying a range of measures aimed at reducing costs whilst balancing their desire to continue operating.
[39] I have had regard to the evidence that Company A would need to balance other commercial costs of continuing to operate the business if redundancy entitlements were not reduced to nil. However, there is no evidence that the redundancy entitlements cannot be paid. There is no suggestion that an order to reduce the redundancy pay entitlements to nil would save the business from insolvency or other financial consequences or otherwise, sufficient to support a finding it “cannot pay”. To the contrary, the evidence as at 10 January 2020 is that there is sufficient cash in the bank to pay the entitlements of both Respondents being a combined total of $11,635.60.
[40] In addition, in the face of evidence that other commercial debts are being elevated in priority over that due to these individuals who have been made redundant, I am not satisfied (without more evidence) that there is sound basis to form the view that Company A cannot pay. For example, the Director at the Hearing did not provide any credible explanation for why another Director was repaid $100,000 just days after notice of redundancy was given, in preference to these individuals being paid their combined total of redundancy payments being $11,635.60. Conceivably, a further loan from that Director is a reasonable source of funding to pay the Respondents.
[41] Having regard to all of the materials and evidence before the Commission, I am not persuaded that Company A “cannot pay” the First and Second Respondents’ redundancy pay entitlements within the meaning of s.120(1)(b)(ii) of the Act. Therefore, the discretion under s.120(2) is not enlivened and there can be no order to reduce the redundancy pay entitlements of the Respondents.
[42] The applications are dismissed, with the result that the redundancy pay entitlements of the First Respondent and the Second Respondent are not reduced.
DEPUTY PRESIDENT
Appearances:
A Director of Company A, for the Applicant.
First and Second Respondent, on their own behalf.
Hearing details:
2020.
Melbourne:
10 January.
Printed by authority of the Commonwealth Government Printer
<PR716155>
1 The Second Respondent submitted that he has filed an application for a remedy alleging unfair dismissal.
2 It was agreed at the Hearing that these documents would be provided to the Commission and the Respondents did not seek further opportunity to respond to those further materials.
3 Clothing and Allied Trades Union v Hot Tuna (1988) 27 IR 226.
4 Company P v D.S. [2014] FWC 4673.
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