JFM Civil Contracting Pty Ltd v Mr Cameron Fraser

[2020] FWC 2546

[2020] FWC 2546

FAIR WORK COMMISSION

DECISION

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

JFM Civil Contracting Pty Ltd
v
Mr Cameron Fraser
(C2020/2036)

COMMISSIONER SPENCER BRISBANE, 15 MAY 2020

Variation of redundancy pay – incapacity to pay – redundancy pay reduced.

INTRODUCTION

[1] An application was made by JFM Civil Contracting Pty Ltd (JFM, the Applicant)pursuant to s.120(1)(b)(ii) Fair Work Act 2009 (the Act) seeking a determination under s.120(2) of the Act to have the Commission reduce the redundancy entitlement of Mr Cameron Fraser (the Respondent, the employee), a former employee of JFM, to nil, on the basis that the Applicant cannot pay the amount due.

[2] Mr Fraser was employed under the Building and Construction General On-site Award 2010 (the Award) which contains an industry specific redundancy scheme.

[3] In the course of filing material, certain documents were filed which JFM requested be made confidential. I issued a Confidentiality Order on 14 April 2020 that ordered that all material and documents provided by both parties was to be treated as confidential, is prohibited from publication, and were only authorised to be used in connection with this case, in the proceedings before the Commission. The Applicant agreed to lift the suppression Order to allow for figures to be used in the decision.

BACKGROUND

[4] It was agreed that JFM is a small business with less than 15 employees. Section 121 (1)(b) of the Act provides an exclusion for small business employers that exempts them from the obligation to pay for redundancy. However, s.123(4)(b) of the Act removes this exclusion for small business employers if there is an industry specific redundancy scheme that is applicable. In the current circumstances, clause 17.1 of the Award provides for an industry specific redundancy scheme and that the exclusion for small business employers is not applicable, therefore making the redundancy payable in accordance with clause 17.3 of the Award, where an employee ceases to be employed by an employer.

[5] Mr Fraser was employed for over four years. In accordance with s.119 of the Act, the redundancy pay equivalent to this redundancy period is 8 weeks. Mr Fraser communicated his resignation to take up other work during the notice period. The employer, in accordance with clause 17.6 of the Award, is therefore at liberty to deduct a week of notice off the redundancy period; therefore, the claim is reduced to 7 weeks.

RELEVANT LEGISLATION

[6] Mr Fraser was employed under the Building and Construction General On-site Award 2010 which contains an industry specific redundancy scheme. Clause 17 of the Award sets out the scheme as follows:

“17. Industry specific redundancy scheme

17.1 The following redundancy clause for the on-site building, engineering and civil construction industry (as defined) is an industry specific redundancy scheme as defined in s.12 of the Act. In accordance with s.123(4)(b) of the Act the provisions of Subdivision B—Redundancy payof Division 11 of the NES do not apply to employers and employees covered by this award.

17.2 Definition

For the purposes of this clause, redundancy means a situation where an employee ceases to be employed by an employer to whom this award applies, other than for reasons of misconduct or refusal of duty. Redundant has a corresponding meaning.

17.3 Redundancy pay

(a) A redundant employee will receive redundancy/severance payments, calculated as follows, in respect of all continuous service with the employer:

Period of continuous service with an employer	Redundancy/severance pay
1 year or more but less than 2 years	2.4 weeks ‘pay plus for all service in excess of 1 year,1.75 hours pay per completed week of service up to a maximum of 4.8 weeks ‘pay
2 years or more but less than 3 years	4.8 weeks ‘pay plus, for all service in excess of 2 years,1.6 hours pay per completed week of service up to a maximum of 7 weeks ‘pay
3 years or more than but less than 4 years	7 weeks ‘pay plus, for all service in excess of 3 years,0.73 hours pay per completed week of service up to a maximum of 8 weeks ‘pay
4 years or more	8 weeks ‘pay

(b) Provided that an employee employed for less than 12 months will be entitled to a redundancy/severance payment of 1.75 hours per week of service if, and only if, redundancy is occasioned otherwise than by the employee.

(c) Week’s pay means the ordinary time hourly rate at the time of termination multiplied by 38. Hour’s pay means the ordinary time hourly rate at the time of termination.

(d) If an employee dies with a period of eligible service which would have entitled that employee to redundancy pay, such redundancy pay entitlement will be paid to the estate of the employee.

(e) Any period of service as a casual will not entitle an employee to accrue service in accordance with this clause for that period.

(f) Service as an apprentice will entitle an employee to accumulate credits towards the payment of a redundancy benefit in accordance with this clause if the employee completes an apprenticeship and remains in employment with that employer for a further 12 months.

17.4 Redundancy pay schemes

(a) An employer may offset an employee’s redundancy pay entitlement in whole or in part by contributions to a redundancy pay scheme.

(b) Provided that where the employment of an employee is terminated and:

(i) the employee receives a benefit from a redundancy pay scheme, the employee will only receive the difference between the redundancy pay in this clause and the amount of the redundancy pay scheme benefit the employee receives which is attributable to employer contributions. If the redundancy pay scheme benefit is greater than the amount payable under clause 17.3 then the employee will receive no redundancy payment under clause 17.3; or

(ii) the employee does not receive a benefit from a redundancy pay scheme, contributions made by an employer on behalf of an employee to the scheme will,to the extent of those contributions, be offset against the liability of the employer under clause 17.3,and payments to the employee will be made in accordance with the rules of the redundancy pay scheme fund or any agreement relating thereto. The employee will be entitled to the fund benefit or the award benefit whichever is greater but not both.

(c) The redundancy pay scheme must be an Approved Worker Entitlement Fund under the Fringe Benefits Tax Assessment Act 1986.

17.5 Service as an employee for the Crown in the Right of the State of Western Australia, the Crown in the Right of the State of New South Wales, Victorian Statutory Authorities, or the Crown in the Right of the State of Victoria will not be counted as service for the purpose of this clause.

17.6 Employee leaving during notice period

An employee whose employment is to be terminated in accordance with this clause may terminate their employment during the period of notice and if this occurs, the employee will be entitled to the provisions of this clause as if the employee remains with the employer until expiry of such notice. Provided that in such circumstances, the employee will not be entitled to payment instead of notice.”

[7] Section 123 of the Act provides:

“Limits on scope of this Division

Employees not covered by this Division

(1)  This Division does not apply to any of the following employees:

(a)  an employee employed for a specified period of time, for a specified task, or for the duration of a specified season;

(b)  an employee whose employment is terminated because of serious misconduct;

(c)  a casual employee;

(d)  an employee (other than an apprentice) to whom a training arrangement applies and whose employment is for a specified period of time or is, for any reason, limited to the duration of the training arrangement;

(e)  an employee prescribed by the regulations as an employee to whom this Division does not apply.

(2)  Paragraph (1)(a) does not prevent this Division from applying to an employee if a substantial reason for employing the employee as described in that paragraph was to avoid the application of this Division.

Other employees not covered by notice of termination provisions

(3)  Subdivision A does not apply to:

(b)  a daily hire employee working in the building and construction industry (including working in connection with the erection, repair, renovation, maintenance, ornamentation or demolition of buildings or structures); or

(c)  a daily hire employee working in the meat industry in connection with the slaughter of livestock; or

(d)  a weekly hire employee working in connection with the meat industry and whose termination of employment is determined solely by seasonal factors; or

(e)  an employee prescribed by the regulations as an employee to whom that Subdivision does not apply.

Other employees not covered by redundancy pay provisions

(4)  Subdivision B does not apply to:

(a)  an employee who is an apprentice; or

(b)  an employee to whom an industry-specific redundancy scheme in a modern award applies; or

(c)  an employee to whom a redundancy scheme in an enterprise agreement applies if:

(i)  the scheme is an industry-specific redundancy scheme that is incorporated by reference (and as in force from time to time) into the enterprise agreement from a modern award that is in operation; and

(ii)  the employee is covered by the industry-specific redundancy scheme in the modern award; or

(d)  an employee prescribed by the regulations as an employee to whom that Subdivision does not apply.”

[8] Section 119 and 120 of the Act provide:

“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.”

[9] Section 121 of the Act provides:

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.

[10] Section 120 confers on the Commission a discretion to reduce the amount of redundancy pay to which an employee would otherwise have been entitled under s.119 of the Act.

[11] Section 120(1) states that the section applies if an employee is entitled to be paid an amount of redundancy pay under s.119, and the employer cannot pay the amount. Section 120(2) then states that the Commission ‘may determine that the amount of redundancy pay is reduced to a specified amount (which may be nil) that the FWC considers appropriate’. If the Commission makes an order under s.120(2), the amount of redundancy pay to which the employee is entitled is the reduced amount specified in the determination (see s.120(3)).” This matter requires the assessment of both parties’ positions in relation to the incapacity to pay the redundancy pay.

APPLICANT’S SUBMISSIONS

[12] Mr John McFaul, Managing Director for JFM, provided submissions in the matter. Mr McFaul submitted that the business had been trading under negative profit conditions for over twelve months, and that even though JFM had no work, it could not afford to put off any employees as it could not afford redundancies or payment in lieu of notice. Mr McFaul submitted that he had borrowed from friends and family to pay wages almost every week.

[13] JFM submitted that it primarily tendered to Gold Coast City Council and had done so since 1984 and had completed some $360 million of infrastructure work in that time. JFM submitted that in September 2019, it was overlooked for two contracts worth a combined total of $7.2 million. Subsequent to this, JFM issued a five-week Potential Notice of Redundancy to all Employees on 11 November 2019.

[14] JFM submitted that it stopped work for Christmas on 12 December 2019, 5 weeks after the Notice was issued. JFM submitted that during the Christmas break, employees were advised that the business would see how things went for whoever did not find other work and came back to work. JFM submitted the business was still without work on 13 January 2020.

[15] Mr McFaul said that on 22 January 2020, Mr Fraser indicated that he could get some casual work with a company called Dynamic Excavations (Dynamic).

[16] Shortly after this and some days later, Mr McFaul said Mr Fraser contacted him and said that he would be starting with Dynamic the next day. Mr McFaul said to see how it goes and if the business “kick[ed] on” (obtained other work) he would give Mr Fraser his job back if the job at Dynamic did not work out.

[17] Mr McFaul said he sent Mr Fraser a letter saying he was not laid off and could come back as JFM had won a contract, but Mr Fraser declined the offer. JFM submitted that this contract has since been postponed due to the COVID-19 outbreak. Correspondence received on this basis was provided to my Chambers.

[18] JFM submitted that approximately two weeks later, JFM received a claim for 8 weeks’ redundancy pay from Mr Fraser and two other employees, who left without providing notice and claimed 8 weeks’ redundancy pay.

[19] JFM submitted that the employees who still work for JFM are all stood down, and JFM has sought eligibility for Jobkeeper payments for them. A number have found casual work with other companies.

[20] JFM submitted a Profit and Loss statement for January, February, and March 2020 which show negative trading and further financial documents for the period prior to Mr Fraser leaving. The Profit and Loss statements demonstrate significant losses for January, February, and March, with a significant negative net income.

[21] The BAS statement provided for the January to March 2019 quarter recorded total sales for this period of $451,537. The corresponding January to March 2020 quarter BAS statement recorded total sales of $37,380. This demonstrated an 84% downturn in income between the corresponding quarter in 2019.

[22] JFM also provided a profit and loss statement for the period of July 2019 until March 2020. This statement demonstrated a total income of $650,040.14 and total wages and salaries for this period of $852,209.85.

[23] Individual profit and loss statements were also provided for January, February and March 2020. The January statement recorded a net income of -$69,258.82, the February statement recorded a net income of -$123,936.35 and the March statement recorded a net income of -$241,844.02. Mr McFaul also provided a statutory declaration confirming these statements to be true and accurate.

[24] JFM submitted that two contracts have been postponed due to the COVID-19 situation, with the relevant correspondence being submitted. Mr McFaul provided the following email of 3 March 2020 from one of the companies informing Mr McFaul that a contract awarded to the Applicant had been postponed due to the COVID-19 situation:

“Hi John,

It is with regret that I inform you that the above job will not be proceeding in the current environment.

The bank has withdrawn its letter of offer for financing.

So please do not proceed.

Ian”

[25] The following email was also provided, sent from a representative of a second company on 23 March 2020:

“John

I regret to advise that due to the uncertainties resulting from the Covid-19 crisis, the Essence project has been suspended.

We will be in touch once the project is restarted.

Regards

Mark”

[26] Mr McFaul stated in further support of his claim, JFM cannot afford to pay Mr Fraser's redundancy claim due to downturn in business at the time Mr Fraser resigned and the conditions imposed from the Coronavirus. Mr McFaul said two contracts have been cancelled due to the  Coronavirus and JFM have at present stood all employees down without pay, except two who came to work for two days to make repairs on the depot roof which was leaking badly and could not be left as is.

[27] Mr McFaul stated a few of his employees have picked up some short-term work with his daughter’s company. To access the Jobkeeper allowance, Mr McFaul said JFM had completed and lodged the March Quarter BAS for comparison to demonstrate the business’s eligibility.

RESPONDENT’S SUBMISSIONS

[28] Mr Fraser made submissions in the form of email correspondence to my Chambers as well as a Form 5 – Small claim under the Fair Work Act. Mr Fraser also submitted supporting material including a chronology of events described as a summary of facts and events running from October 2019 to 22 January 2020, correspondence between himself, the Applicant, and the Fair Work Ombudsman, and a copy of his employment contract.

[29] Mr Fraser submitted that the notice of his position being made redundant was received on 11 November 2019 and stated it was a potential redundancy. Mr Fraser said he sought legal advice and was advised there was no such thing as potential redundancy, and after several emails to the Mr McFaul seeking his redundancy pay, he had not received it.

[30] Mr Fraser said he contacted the Fair Work Ombudsman on 12 December 2019 and that the Ombudsman contacted Mr McFaul and advised him of the redundancy payment due to be paid per the Award. Mr Fraser said he and Mr McFaul negotiated an amount which was accepted on 20 December 2019 but that the payment was never received, and he followed up after several weeks as it had been the Christmas period. Mr Fraser said Mr McFaul then advised on 21 January 2020 that the company had run out of work and money.

[31] With his submissions Mr Fraser attached a chain of emails from 16 December 2019 to 21 January 2020 between himself, Mr McFaul, and the Fair Work Ombudsman regarding his redundancy pay. This included an email from Mr McFaul dated 18 December 2019 which included a breakdown of what appeared to be Mr McFaul’s understanding of the amount owed in redundancy pay minus deductions for one weeks’ notice and the cost of collecting the work vehicle from Mr Fraser’s house, as well as a figure calculated at the Award rate rather than Mr Fraser’s hourly rate.

[32] Mr Fraser accepted the financial reports Mr McFaul provided to the Commission but said that these did not indicate the true status of the company financially. He did not provide reasons for why this is so. Mr Fraser also said that he had a permanent job to go to which he put off due to Mr McFaul stating he did not want to lose him, and that he now had very casual work and due to Mr Fraser’s age was finding it hard to find more work.

[33] On 28 April my Associate wrote to Mr Fraser requesting that he provide more detail as to why he considered the statements did not demonstrate the picture of the company and requested further detail regarding the permanent job he could have gone to. Mr Fraser replied that day and said that he understood that the company has been losing money for the last 12 months but said it had also been working on several large contracts. Mr Fraser said that he had a job offer with another company as a foreman but decided to stay with Mr McFaul given their history.

EVIDENCE AT HEARING

[34] The parties agreed that the discussion regarding alternative work at Dynamic occurred on 22 November 2019 and work stopped on 12 December 2019. Mr Fraser resigned from his employment with the Applicant on 27 December 2019, having commenced work with Dynamic on that date.

[35] At the Hearing the parties agreed that Mr Fraser earned $40 per hour or $1,520 per week. The parties also agreed that Mr Fraser was paid for his accrued annual leave on 2 December 2019 and this was an amount of 3 weeks or $4,560.

[36] Following the Hearing, further Directions were issued seeking further financial information from the Applicant in order to determine the current financial status of JFM, and its status at the time that the Respondent resigned. In response to these Directions the Applicant provided a balance sheet for November 2019 and April 2020. Mr McFaul also provided a Statutory Declaration confirming that all financial information supplied by the Applicant was true and correct. The Respondent was provided with an opportunity to respond to this additional financial information.

CONSIDERATION

[37] Insufficient material was available at the hearing to undertake the appropriate assessment in relation to the financial capacity of the applicant company in relation to the redundancy entitlement. A direction was made for the company to provide additional documentation including the relevant balance sheets. These were provided under the cover of a statutory declaration and the respondent was given the opportunity to also assess these. Balance sheets were provided as at November 2019 and April 2020. An analysis of these Balance sheet indicated significantly reduced cash holdings between the periods of these two balance sheets. The company has trade debtors of some $135,000 and other current assets in terms of loans to the associated entity company and also a loan to Mr McFaul and other individuals (another presumed to be family). These overall total assets are undermined by greater total liabilities including current liabilities for the superannuation guarantee with significant losses overtaking the net income providing the total negative equity of -$5,782,302.

[38] The evidence of Mr McFaul reflected the current unprecedented trading circumstances and that the company had no committed future projects and significantly reduced cash reserves to meet payroll, particularly when the Jobkeeper wage subsidy period ended. It is recognised that there is an amount in accounts receivable, but there is uncertainty currently associated with receipt of trade debtors. Furthermore, there was evidence of secured projects that have since been cancelled due to COVID-19.

[39] The Respondent in these proceedings left the employment in circumstances where he was offered to return to the employer, in those circumstances, he would have been in receipt of the Jobkeeper payment. The Respondent was aware of the uncertain trading future of the company given the significant decline of projected work. These are matters relevant to the financial capacity of the employer to meet the redundancy payment. The current balance sheets demonstrates significantly reduced liquidity and significant liabilities.

[40] In the circumstances where the industry specific redundancy scheme has been taken into account, but on the actual assessment of the Applicant’s job it is not redundant. It is necessary in this matter where there is an industry specific provision when assessing the financial capacity to make the payment to take into account the industry specific circumstances of the employer. This is a long-term employer with a history in this industry that is not able to reliably point to any projects it can be confident of securing or proceeding with. I have taken into account also the circumstances of the Respondent. However the redundancy payment at any amount would further compromise the future sustainability of the employer and jeopardise its ability to maintain its workforce and its ability to continue to operate to meet further projects when these become available to trade out of the current position.

[41] The financial statements provided by the Employer, at the time the Respondent resigned, demonstrated the financial status of the Company at that stage was under significant pressure. This position has significantly deteriorated with the loss of contracts as the projects have not progressed due to Covid-19. The Applicant’s financial position on the BAS Statements forwarded by his Accountant demonstrates the decline in business income and cashflow and the lack of means to pay the full redundancy amount. The Applicant did however set out that he had secured the Jobkeeper payment for his workers and himself. It is noted this wage subsidy would not be available to the Respondent as he was not employed on 1 March 2020, having left prior to find alternative employment and therefore could not be reinstated to be eligible for the Jobkeeper payment. The Respondent received his accrued annual leave upon leaving the Applicant business and took up casual work.

[42] Under ordinary circumstances I would not consider that the Respondent’s departure from JFM would constitute a redundancy or enliven an obligation for the employer to make a redundancy payment, taking into consideration that the Respondent left the business voluntarily and Mr McFaul had made repeated offers for the Respondent to return to work. However, given the industry specific redundancy scheme that is contained within the Award, it is clear that the Respondent, having departed on his own volition, would still be entitled to redundancy pay. Clause 17.2 of the Award provides a broad definition of redundancy that does not exclude an employee having ended the employment relationship on their own accord. Clause 17.2 of the Award states:

“For the purposes of this clause, redundancy means a situation where an employee ceases to be employed by an employer to whom this award applies, other than for reasons of misconduct or refusal of duty. Redundant has a corresponding meaning.”

[43] I am therefore satisfied that the Applicant had an obligation to pay redundancy pursuant to the industry specific redundancy scheme.

[44] Accordingly, an analysis of the financial status of the Applicant, in terms of their capacity to pay has been undertaken. The series of losses established by the figures provided in evidence demonstrate an incapacity to pay the owing redundancy amount.

[45] The Respondent was seeking 8 weeks redundancy pay at $1,520 gross per week, for $12,160 gross total. Currently in terms of cash held on the balance sheet the employer has $16,957.89. In examining the financial statements from the Applicant, I am satisfied that there is a significant downturn in income when looking at March 2019 to March 2020.

[46] There is currently no committed project work. The financial circumstances of the Applicant, as per the financial statements set out the Applicant’s stark incapacity to pay and to remain operational.

CONCLUSION

[47] When taking all of the criteria and circumstances into account, in accordance with s.120(1)(b)(ii) and (3), and for the reasons set out above, the redundancy payment of eight (8) weeks is reduced to nil (0) pursuant to s.120 (2) of the Act.

[48] I Order accordingly.

COMMISSIONER

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