Lotus Barangaroo Pty Ltd T/A Lotus Barangaroo v Benny Wong

[2020] FWC 4910

[2020] FWC 4910

FAIR WORK COMMISSION

EX-TEMPORE DECISION

Fair Work Act 2009
s.120—Redundancy pay

Lotus Barangaroo Pty Ltd T/A Lotus Barangaroo
v
Benny Wong
(C2020/5151)

DEPUTY PRESIDENT BULL SYDNEY, 11 SEPTEMBER 2020

Variation of redundancy pay - incapacity to pay - redundancy pay reduced from seven weeks to four weeks.

[1] This matter was heard before me on 3 September 2020 and, as advised to the parties, on the following day I delivered my decision on transcript. As advised at the time, a published decision would be issued; this is now the published version of the decision, edited for style and clarity. 1

[2] Lotus Barangaroo Pty Ltd trading as Lotus Barangaroo (the Applicant) has applied to reduce the redundancy entitlement of its ex-employee, Mr Benny Wong, whom it made redundant effective from 20 May 2020, due to a downturn in business related to the Coronavirus pandemic, which it submits has seriously affected its ability to trade profitably as a restaurant.

[3] The applicant states that Mr Wong worked for the employer for a period of three years and seven months, and pursuant to s.19 of the Fair Work Act 2009 (the Act), is entitled to payment of seven weeks' redundancy. The applicant seeks that the redundancy entitlement be reduced to nil.

[4] The application was made by Mr Hao Shan Chen, a director of the applicant company, and is made pursuant to s.120 of the Act, which provides that on application by the employer the Commission may determine that the amount of redundancy pay due to an employee is reduced to a specified amount, (which may be nil), that the Commission considers appropriate on the ground that the employer cannot pay the amount otherwise due.

[5] Mr Wong opposes the application and requests that no order issue reducing his statutory entitlement.

[6] The matter proceeded in person, with Mr Chen representing the applicant company, and Mr Soo, a solicitor, representing Mr Wong. Mr Soo was granted leave to appear pursuant to s.596(2)(a) on the ground that his representation would enable the matter to be dealt with more efficiently.

The employer's evidence and submissions

[7] Mr Chen gave evidence and relied on the documentation attached to the application and further submissions and documents filed in accordance with the directions of the Commission. Mr Chen described the parlous financial state of the business as having commenced with its shutdown on 30 March 2020 until 28 April 2020, due to the direction of the NSW government.

[8] From 29 April 2020, the business ran as a takeaway restaurant only until 18 May 2020.

[9] From 19 May 2020 to 31 May 2020 guests were able to dine in, but only to a maximum of 10 guests at any one time. Mr Chen states that the income received during this period was insufficient to cover daily operating costs and money was borrowed to allow the business to continue operating.

[10] Since June 2020, the business has been able to operate subject to social distancing limitations, which has limited the number of guests to a maximum of 50 at any one time, which is half the normal capacity.

[11] Mr Chen stated that the business ordinarily relied for the majority of its guests on workers from surrounding offices, who have not fully returned to their offices. Businesses have extended their work from home policies, which meant that they lost these corporate office staff as customers.

[12] On occasions where bookings are poor the restaurant does not open, which is mainly on Mondays and Tuesdays.

[13] In respect to the financial aspects of the business, Mr Chen stated that, as of Friday 14 August 2020, the business owed the Australian Tax Office $214,984 and provided a copy of this debt. Further, the business had long overdue rental payments of $118,630.70 and was negotiating a payment plan where this amount could be paid off in instalments. Documentation reflecting this was also provided.

[14] Mr Chen stated the business had overdue utility payments of $7,381 and also provided documentation to support this assertion. Mr Chen stated that the business was currently experiencing a severe cash flow issue. It was constantly struggling to meet obligations, and as at 16 August 2020, the business had a total of $28,115.71 cash available, as demonstrated with bank extracts. This cash, together with daily takings, are used to meet payroll payments to employees and if there is any money left over to purchase food for the next week's trading. With the very tight cash flow, the business can only afford to cover the daily operating costs and is unable to absorb the redundancy pay-out to Mr Wong. Any large payment would jeopardise the viability of the business.

[15] In response to a question during cross-examination, Mr Chen stated that the business assets were mainly in the restaurant's kitchen equipment required to run the business. No other assets and/or liabilities of the business were identified.

[16] Mr  Chen stated that payment of the seven weeks' redundancy to Mr Wong would put at risk the status of existing workers, of whom there are approximately 30, half of whom are employed as casuals. These employees are not all rostered to work at the same time.

[17] During the lockdown, the business had to throw away food and was at the time technically insolvent, which required him to personally contribute his own money to pay annual leave entitlements to employees who had been stood down and had elected to take their annual leave entitlements.

[18] Mr Chen stated that Mr Wong was only spending around 20 per cent of his time with the business, and the balance of his time was with other companies unrelated to the business, which had arisen from the restaurant having previously been run by a service company, Lotus Dining Management Pty Ltd, which had arranged for Mr Wong's salary to be paid entirely by his business, Lotus Barangaroo Pty Ltd, although he was spending 80 per cent of his time working for other restaurants connected with the service company. This was a matter that Mr Wong stated he was separately taking up with the service company in an attempt to have rectified. This issue was not identified by Mr Wong until he took over in a management role in December 2019. Mr Chen was also of the view that Mr Wong's salary was artificially inflated by the previous service company at $117,640 per annum.

[19] As Mr Wong, although paid by the business, was not fully employed by the business, it was stated that it was also inappropriate for the business to claim the Commonwealth Government Jobkeeper subsidy in respect of his position.

[20] Currently most food suppliers to the business are now requiring payment on delivery, whereas previously these accounts could be paid at a later date.

[21] The priority for the business was to pay for all food ordered and employee wages and finally any other outstanding debts.

[22] The business required a minimum turnover of $105,000 per week to break even. Mr Chen provided figures to indicate that business income made up of beverage, food and takeaway sales had dropped by 57.2 per cent in March 2020 compared to March 2019. The April 2020 income was down 99.7 per cent compared to April 2019, and the May 2020 income was down by 83.9 per cent compared to the comparative period in 2019.

[23] Mr Chen stated that his efforts were now entirely devoted to saving the restaurant from bankruptcy. In determining that Mr Wong's position was redundant, there was no criticism made of Mr Wong's work performance.

Mr Wong’s Submissions and Evidence

[24] As already stated, Mr Wong opposes any reduction in his statutory redundancy entitlement. Mr Wong provided a statutory declaration in support of his opposition to the application, which stated that he had been employed with the applicant since 19 September 2016 in the position of Dumpling Head Chef. Mr Wong submits that the applicant continues to operate a successful and profitable restaurant business, and that the claim of financial hardship and incapacity to pay is an exaggeration and contrived.

[25] It was put that there needed to be exceptional circumstances for the discretion of the Commission to be exercised in a manner which reduced Mr Wong's redundancy entitlement. It was further put that the onus in demonstrating incapacity lies with the applicant and this onus had not been discharged.

[26] While at the same time as submitting that there was no financial hardship or incapacity to pay, it was put by Mr Wong that the Commission should consider that if the company is liquidated, an order to reduce the redundancy entitlement would affect Mr Wong as a potential creditor. It was also put that if the applicant became insolvent, it is unlikely the entitlements to Mr Wong can be recovered as there are many other secured creditors that will have higher priority.

[27] It was submitted that it is not sufficient to allege that it would be beneficial or inconvenient for the employer not to pay the redundancy entitlement.

[28] Mr Wong's submissions were that the applicant's intentions were designed to mislead and deceive and Mr Wong goes on to state that the applicant's claim of financial hardship is a blatant lie and has been fabricated to avoid paying his redundancy entitlements.

[29] As can be seen, the submissions of Mr Wong involve a degree of approbation and reprobation in respect of submitting that there is no financial hardship being experienced, and at the same time raising concerns should the company become insolvent.

[30] Further, some submissions have no basis in fact. It is alleged that the applicant continues to operate a successful and profitable business together with a chain of restaurants within the group. This submission was not able to be substantiated, and Mr Chen was categoric in his evidence that there is no group or chain of restaurants. The business operates separately and there are no other related restaurants. Further, it was not contended by the applicant that it is beneficial or convenient that they do not pay the redundancy entitlement. The argument was centred on their incapacity to make the payment.

[31] No authority was produced to state, (unlike some other sections of the Act), that the applicant needs to demonstrate exceptional circumstances. While Mr Wong was represented by a solicitor, no application was made seeking discovery of documentation which may have demonstrated the assertion that the claim of financial hardship and incapacity to pay was exaggerated and contrived. All that was provided were photos taken of diners at the restaurant said to support the assertion that the business was not in financial difficulty.

[32] Mr Chen was subject to cross-examination. Nothing was solicited during this evidence to support Mr Wong's contention that the business was not in financial difficulty.

[33] Mr Wong accepted that he had only been spending around 20 per cent of his working hours in the applicant's business, with the balance of his hours in other restaurants unconnected to the business. This was at the direction of a Mr Yi Jiang, who apparently is the sole director of Lotus Dining Management Pty Ltd.

Relevant Legislation

[34] Section 119 of the Act provides a statutory right to redundancy pay in amounts calculated based on continuous service.

[35] Section 120(2) 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) 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.”

[36] The provision has application where the terms of s.120(1) are met. Section 120(1) states:

“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 …”

as is relevant in this application:

“(ii) cannot pay the amount.”

(My underline)

[37] Redundancy payments are intended to compensate for the loss of non-transferrable credit, such as sick and long service leave, as well as other entitlements based on an employee's length of service and the inconvenience and hardship imposed on employees, as discussed in the Termination, Change and Redundancy Case 2 of the Australian Industrial Relations Commission.

[38] It is well-established that the onus lies with the employer who seeks an exemption from redundancy payment obligations, as illustrated in the decision of Clothing & Allied Trades Union v Hot Tuna Pty Ltd 3. While the discretion exists for the Commission to reduce an employee's redundancy entitlement, it is no doubt a significant step to make an order to that effect.

Conclusion

[39] Mr Chen has satisfied the Commission that the financial position of the applicant has declined rapidly in recent months as a result of the impact of COVID-19 and the associated lockdown and general deterioration in economic activity. He has produced evidence that at this point in time the business is operating under severe financial strain and that any large additional payment will hamper his attempts to remain trading and retaining its existing employees. Nothing provided by Mr Wong went to seriously challenge the employer's position in this regard.

[40] The seven-week redundancy payment results in a figure of approximately $15,800 that would be needed to be found within the business. Mr Chen asserts that the business has no capacity to pay this amount as taking this amount from the business will have a detrimental impact, and on the figures supplied by Mr Chen amounts to reducing the cash on hand by around 50 per cent.

[41] I am satisfied that the seven-week redundancy payment of $15,800 is at present an impost on the business beyond its capacity. However, there is capacity for the business to withstand a reduced payment to Mr Wong, which I determine to be a period of four weeks, being a period of three weeks less than the statutory obligation.

[42] An order [PR722583] reducing the redundancy entitlement of Mr Wong to four weeks was issued on 7 September 2020.

DEPUTY PRESIDENT

Appearances:

Mr H Chen on behalf of Lotus Barangaroo Pty Ltd
Mr P Soo Solicitor on behalf of Mr Wong

Hearing details:

2020
Sydney
September 3

Printed by authority of the Commonwealth Government Printer

<PR722741>

 1   See extra curial publication (1997) 9 Judicial Officers’ Bulletin, per Gleeson CJ at 25

 2 (1984) 8 IR 34

 3 (1988) 27 IR 226