Devetu Pty Ltd T/A ADM Transport

[2016] FWC 7574

[2016] FWC 7574

FAIR WORK COMMISSION

DECISION

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

Devetu Pty Ltd T/A ADM Transport
(C2016/4638)

DEPUTY PRESIDENT BULL SYDNEY, 20 OCTOBER 2016

Redundancy - application to vary NES entitlement, application to reduce entitlements to nil, whether employer has capacity to pay, granted in part

[1] Devetu Pty Ltd trading as ADM Transport (the applicant) has applied to reduce the redundancy entitlement of four employees it has made redundant due to a downturn in business.

[2] The application was made by Mr Alan Morton, the applicant’s Managing Director. The reasons provided in support of the four applications are identical, with the exception of Mr John King, where it was submitted that the employer had obtained other acceptable employment for Mr King.

[3] The employees concerned and their relevant service details and specified redundancy entitlements as calculated by the applicant are as follows:

Employee	Years of service	Redundancy entitlement
Jennifer Morton	29.58	18,086
John King	5.27	13,600
Russell Hayes	9.67	15,590
Malcolm Whitby	3.85	6,190
$53,466

[4] Mr Morton states that his business has been operating for 27 years, and being a heavy haulage transport company in the mining industry, has suffered from a continual downturn and extreme pressure from customers to reduce the rates charged. The company was not successful in retaining a major coal haulage contract equivalent to 65% of the business’s revenue which took effect as of 31 July 2016.

[5] These factors have led to the downsizing of the business and hence the redundancies. Employee numbers have been reduced from 23 to 12, and Mr Morton stated that he does not want to reduce numbers further. In an effort to cut overheads Mr Morton has been selling equipment and states that the requirement to pay the redundancies to the value of $53,466 will make it impossible to cover other existing employee entitlements.

[6] The applications were not initially served on the respondents and Mr Morton was directed to do so by the Commission. The Commission then invited the respondents to provide any comment or response to the applications. Other than Mrs Morton, all employees opposed the applications to reduce their redundancy entitlement and Mr King further disputed that he was offered other acceptable employment.

Written responses

[7] Mrs Morton advised by email that she did not wish to provide a response.

[8] Mr Hayes provided a written response stating he had been employed as a heavy vehicle operator and commenced employment in April 2006. Mr Hayes’ response stated that he had been provided with correspondence from Mr Morton on 13 July 2016 stating that he would be paid his redundancy entitlement.

[9] Mr Whitby also provided a written response stating that it was a devastating blow to have been made redundant and that the prospect of not receiving any redundancy pay would cause financial hardship and that his health was suffering, having to visit the emergency department of the local hospital twice in the last two weeks. He had recently committed to building a new home and had no income protection. Mr Whitby advised he was 58 years of age with few qualifications.

[10] In an email dated 28 August 2016, Mr Whitby queried the cash funds available to the applicant and the Directors loan which had recently been reduced by $138,000

[11] Mr King also forwarded a written response and advised that he was 60 years of age and had been employed as the Safety Manager. He has financial commitments and had intended that this position take him through to retirement. He was initially provided with a termination letter, and subsequently provided with a redundancy letter which noted the payment of a redundancy amount. Sometime later Mr Morton advised him verbally that he had been thinking about the situation and that there could be a position in Operations. He was cautious of verbal job offers based on past experiences with the business in that verbal offers did not always eventuate or were changed.

[12] Mr King stated that he telephoned Mr Morton and advised that as he had already been told of his employment termination, his wife and he had been making alternate plans. Mr Morton accepted his position and confirmed the redundancy payment.

[13] Mr King stated that the applicant’s financial documents indicated that there was poor management of outgoing expenses.

[14] As the application was disputed by three of the named respondents the matter was listed for hearing.

[15] Mr Morton represented himself but declined to give evidence relying on oral submissions and his written material. Mr Whitby and Mr Hayes made oral submissions in addition to their written material. Mr King was not in attendance and the Commission was advised that he had broken his hip and was unable to attend.

[16] During the hearing and in response to a question from the Commission, Mr Morton advised that one of the four respondents, Mrs Helen Morton, is his wife and that she had no objection to the reduction of her redundancy entitlement to nil. Mr Morton did not produce any authority to represent his wife, however based on her correspondence to the Commission and Mr Morton’s assertion, the Commission accepts the position as put by Mr Morton in regard to Mrs Morton.

Relevant Legislation

[17] Section 119 of Fair Work Act 2009 provides a statutory right to redundancy pay in amounts calculated based on an employee’s continuous service.

[18] Section 120(2) of the Act provides the Commission with discretion to reduce or remove an entitlement to redundancy pay provided under s.119 on application should the Commission consider it appropriate. Section 120(2) of the Act is couched in the following terms:

“120(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.”

[19] Section 120(2) of the Act applies where the terms of s.120(1) are met:

“120(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.”

(my underline)

Background

[20] The applications are made on the basis that the employer cannot pay the redundancy entitlement as per s.120(1)(b)(ii) of the Act. In addition, there is a reference to having obtained other acceptable employment as per s.120(1)(b)(i) in respect of Mr King, although this was not fully developed by Mr Morton in his oral submissions.

[21] The applications were not accompanied by any financial details relating to the employer’s incapacity to pay the statutory redundancy entitlements. As such the Commission directed the applicant to furnish its 2015/16 Profit and Loss Statement and its 2015/16 Balance Sheet including assets and cash in hand. These documents were duly provided. Although provided in a draft form and not audited, I accept that the documentation provided is an accurate reflection of the business’s financial status.

[22] The financial statements indicated that the business is under financial strain. Based on Mr Morton’s request for confidentiality, the financial figures are not repeated in this decision, other than to state that the business made a loss in the 2015 and 2016 financial years. Mr Morton advised that the last time the business made a profit was in 2013.

[23] The Commission was not advised that an enterprise agreement applied to the respondent employees and consequently that the redundancy provisions of any relevant modern award would apply. The applicant states that the Road Transport and Distribution Award 2010 (the Award) has application to Mr Hayes and Mr Whitby, whereas the redundancy entitlements provided under the National Employment Standards (NES) are applicable to Mrs Morton and Mr King.

[24] Clause 14 - Redundancy of the Award provides that the redundancy benefits provided under the NES are applicable to employees, resulting in the redundancy entitlements of all the respondents being that provided by the NES.

[25] Section 119 of the Act sets out the minimum NES entitlement to redundancy pay for national system employees. The exclusions from redundancy pay provided for in s.121 of the Act were not raised in this application.

[26] Mr Morton, as the Managing Director advised the Commission that he paid himself a salary of $3,000 per week. Mr Morton stated that the cash flow of the business was affected by the loss of contracts and that he was in the process of obtaining valuations and selling off vehicles which are no longer required. He stated that the business is close to insolvency but he was attempting to trade out of the difficulties by seeking haulage work outside of the mining industry. Having to pay the redundancy amounts would result in the redundant employees being paid over other creditors including the Australian Taxation Office.

[27] Mr Morton stated that he believed he could pay the redundancy amounts if he was given time to make the payments.

[28] At the hearing Mr Whitby told the Commission that since his termination he had been unable to find work and that this would result in having to sell his house and that his wife’s health is suffering. He questioned how Mr Morton had managed to reduced his loan from the business by approximately $138,000 from 2015 to 2016 and why the business’s motor vehicle assets had increased.

[29] Mr Hayes advised the Commission that he had obtained a part time temporary job which he expects will end shortly. As a 62 year old truck driver it was difficult finding other employment.

[30] In response Mr Morton advised that he had managed to reduce his Director’s loan through an inheritance and the cashing in of accrued annual leave.

Determination

[31] Redundancy payments are intended to compensate for the loss of non-transferrable credits such as sick and long service leave as well as other entitlements based on length of service and the inconvenience and hardship imposed on employees, as discussed in the Termination, Change and Redundancy Case 1. It is well established that the onus lies with the employer who seeks an exemption from redundancy payment obligations (Clothing and Allied Trades Union v Hot Tuna).2 While the discretion exists, it is a severe step for the Commission to make an order to limit or remove an employee’s statutory entitlement to redundancy pay.

[32] In this case, both Mr Whitby and Mr Hayes who appeared at the hearing described the hardship that they have faced since their redundancies.

[33] The desire of Mr Morton to avoid his business becoming insolvent is responsible and to be commended, but must be judged against a statutory entitlement to redundant employees that serves in part to mitigate the hardship they may suffer following a redundancy.

[34] I accept the submission of Mr Morton that the obligation to meet the redundancy payments may well affect the repayment of other commercial debts, but I am not satisfied that in this instance other commercial debts should be elevated in priority above those due to redundant employees. The financial consequences of not doing so were not sufficiently explained to the Commission, nor were any beneficial impacts on the remaining employees should the redundancies not be paid, explained in a persuasive manner.

[35] An order to reduce or remove an entitlement to redundancy would also remove the employees’ right to recover this payment should the business become insolvent. 3

[36] While I would be inclined to allow Mr Morton additional time to pay the amounts due to the employer’s financial difficulties as he proposed, the provisions of s.120(2) of the Act only allow a reduction to a specified amount, which may be nil. There is no capacity for the Commission to order payment over a period of time. 4

[37] Based on what was put before the Commission the applicant did not demonstrate that Mr King had been offered other acceptable employment.

[38] Accordingly, I am not satisfied that the Commission should exercise the discretion available to reduce or eliminate the applicant’s redundancy payment obligations in regard to Messer’s King, Hayes and Whitby.

[39] In the case of Mrs Morton who has the greatest financial entitlement ($18,086.40), I am prepared to reduce this entitlement to nil, based on there being no known objection from Mrs Morton and Mr Morton’s submission that his wife consents to this outcome. This reduction will reduce the employer’s financial obligations by approximately one third.

[1] An order [PR586656] reducing the redundancy entitlement of Ms Helen Morton to nil will issue, otherwise the applications are dismissed.

DEPUTY PRESIDENT

Appearances:

Mr A Morton on behalf of the applicant.

Mr M Whitby on his own behalf as a respondent

Mr R Hayes on his own behalf as a respondent

Hearing details:

2016

Newcastle

10 October

 1 (1984) 8 IR 34

 2 (1988) 27 IR 226

 3   See Villa Crerari Pty Ltd v Daniel Kahl[2013] FWC 903 at [10]

 4   Whether such an arrangement is reached is a matter for the parties

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<Price code C, PR586654>