Mildren Automotive Pty Ltd

[2013] FWC 2113

[2013] FWC 2113

FAIR WORK COMMISSION

DECISION

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

Mildren Automotive Pty Ltd
(C2012/6738)

VEHICLE INDUSTRY (SOUTH AUSTRALIA) REPAIR SERVICE AND RETAIL AWARD
(ODN 180 OF 1975)  [AN150167]

VEHICLE MANUFACTURING, REPAIR, SERVICES AND RETAIL AWARD 2010

MA000089

Vehicle industry
COMMISSIONER HAMPTON	ADELAIDE, 4 JULY 2013

Application to vary redundancy pay for other employment or incapacity to pay - redundancy provisions of NAPSA preserved by modern award - whether employer obtained acceptable alternative employment - whether employer lacks capacity to pay redundancy payments - application allowed in part.

1. Background

[1] Mildren Automotive Pty Ltd (Mildren Automotive) has made application to vary the redundancy pay otherwise due to its former employees, Mr Darryl Gabbusch and Mr Samuel Johnson. The application was made on the basis that Mildren Automotive has found acceptable alternative employment for Mr Gabbusch and Mr Johnson as part of the winding down of its business. Mildren Automotive also contends that it does not have the financial capacity to make the redundancy payments and in that context seeks that the redundancy payments be reduced to zero.

[2] The application also originally applied to another employee however that aspect was resolved by consent. 1

[3] Mildren Automotive conducted an automotive repair and service business in South Australia that specialised in rotary engines. It is a privately owned incorporated business.

[4] There is no dispute that the two employees have been made redundant and that the business has ceased to employ staff in the process of shutting down.

[5] Mr Gabbusch and Mr Johnson oppose the application on the basis that neither of the alleged grounds apply to the circumstances of their redundancy. Mr Gabbusch supplied some evidentiary material supporting his opposition to the application. Despite the same opportunity, Mr Johnson did not participate in the proceedings beyond the initial directions conference. I have however not taken his inaction to be consent to the application.

[6] Neither party sought a hearing for the purposes of challenging the evidence of the other. I also note that given the circumstances of the parties, including the location of Mr Gabbusch, this would not have been feasible.

[7] Accordingly, I have determined the application based upon the material and evidence filed by the parties. I would note however that certain matters raised by Mr Gabbusch concern events and circumstances that are beyond the scope of this application and I have not considered them.

2. The relevant award provisions

[8] Although the application has been made pursuant s.120 of the Fair Work Act 2009 (the Act) it is in reality an application to vary the severance pay entitlements arising from the Vehicle Industry (South Australia) Repair Service and Retail Award 2 (the VIRS&R Award); being a former instrument of the Industrial Relations Commission of SA (the IRCSA).

[9] The redundancy provisions of the VIRS&R Award have been preserved by virtue of clause 18.5 of the Vehicle Manufacturing, Repair, Services and Retail Award 2010 3 (the modern award) and other statutory transitional provisions.

[10] Clause 18.5 of the modern award provides as follows:

“18.5 Transitional provisions – NAPSA employees

(a) Subject to clause 18.5(b), an employee whose employment is terminated by an employer is entitled to redundancy pay in accordance with terms of a notional agreement preserving a State award:

(i) that would have applied to the employee immediately prior to 1 January 2010, if the employee had at that time been in their current circumstances of employment and no agreement-based transitional instrument or enterprise agreement had applied to the employee; and

(ii) that would have entitled the employee to redundancy pay in excess of the employee’s entitlement to redundancy pay, if any, under the NES.

(b) The employee’s entitlement to redundancy pay under the notional agreement preserving a State award is limited to the amount of redundancy pay which exceeds the employee’s entitlement to redundancy pay, if any, under the NES.

(c) This clause does not operate to diminish an employee’s entitlement to redundancy pay under any other instrument.

(d) Clause 18.5 ceases to operate on 31 December 2014.”

[11] The two former employees, and Mildren Automotive, were subject to the terms of the VIRS&R Award and were NAPSA 4 employees for present purposes. They were not subject to an agreement-based transitional instrument or an enterprise agreement.

[12] The VIRS&R Award provided severance pay in the case of a redundancy for small business 5 employers as follows:

“4.6.7 Severance pay

4.6.7.1 Employees are entitled to severance pay as prescribed below in addition to the period of notice prescribed for termination in clause 4.5 and 4.6.4.

4.6.7.2 Severance pay - employees of a small business

An employee of a small business as defined in 4.6.1 whose employment is terminated by reason of redundancy is entitled to the following amount of severance pay in respect of a period of continuous service:

Period of continuous service	Severance Pay
Less than 1 year	Nil
1 year and less than 2 years	4 weeks pay*
2 years and less than 3 years	6 weeks pay
3 years and less than 4 years	7 weeks pay
4 years and less than 5 years	8 weeks pay

* Week's pay is defined in 4.6.1.”

[13] The redundancy pay obligations established by s.119 of the Act does not apply where the employer is a small business, which is defined in the same manner as the VIRS&R Award.

[14] As a result, there is no entitlement to redundancy payments under s.119 of the Act. However, the modern award applies to provide an entitlement in the circumstances of these parties.

[15] The VIRS&R Award also relevantly provided as follows:

“4.6.8 Incapacity to pay

The Commission may vary the severance pay prescription on the basis of an employer's incapacity to pay. An application for variation may be made by an employer or a group of employers.

4.6.9 Alternative employment

An employer may make application to the Commission to have the severance pay prescription varied if the employer obtains acceptable alternative employment for an employee.”

[16] I have dealt with this application on the basis that the preserved transitional provisions for redundancy include the capacity for the Commission to vary redundancy obligations in the event that the employer obtains other acceptable alternative employment for the employee and/or where there is an incapacity to pay as provided in the VIRS&R Award redundancy provisions. No party contended otherwise.

[17] I understand that the severance entitlements arising from these provisions amount to some eight weeks pay for Mr Gabbusch and four weeks for Mr Johnson. 6

3. The basis of the Mildred Automotive’s application

[18] Milden Automotive contend that its business effectively ceased to operate in late 2012 and as a result, the relevant employees became redundant. This prospect had been advised to the employees in late September 2012 and during the period immediately thereafter, it held discussions with the employees and pursued alternative employment options both with them and on their behalf.

[19] Mildren Automotive contend that notice of termination and redundancy was given to each of the employees on 7 December 2012.

[20] In the case of Mr Gabbusch, the discussions about alternative employment involved him purchasing the rotary engine part of the business, which Mildren Automotive contends was initially agreed in principle and subsequently rejected by him. In that context, Mildren Automotive then arranged for discussions with three potential employers for Mr Gabbusch in the capacity as a mechanic.

[21] Mildren Automotive contend that these options would have represented suitable alternative employment and that Mr Gabbusch did not properly consider or purse them.

[22] In terms of Mr Johnson, Mildren Automotive contend that it organised an alternative position which involved better pay and conditions and that he subsequently left that employment in order to pursue an interest in high performance cars.

[23] In terms of its financial position, Mildren Automotive initially provided a statement from its accountant which indicted that net assets as at 31 December 2012 exceeded net liabilities by over $7,000. That figure did not include a probable overstatement of stock values or the provisions for unpaid wages, annual leave or Long Service Leave for Mr Greg Mildren, the employed director of the business and the effective owner.

[24] In response to certain issues raised by Mr Gabbusch, Mildren Automotive contended that most of the plant and equipment had now been sold and the funds used to pay ongoing expenses as part of the winding up of the business, including some creditors. Other plant, including vehicles and some parts remain and it is intended that these be sold in due course to further pay for creditors and statutory expenses.

[25] Mildren Automotive subsequently provided further financial information that took into account all of its liabilities and these confirmed that its net liabilities significantly exceeded its net assets by over $300,000 and that its trading profit whilst it was operating was in the order of only $26,000 between July 2012 and 30 April 2013.

4. The position of the employees concerned

[26] Mr Gabbusch had over 17 years service with Mildren Automotive at the time of the redundancy. Mr Johnson had 18 months service at that time.

[27] Mr Gabbusch opposes the application and contends that none of the alternative job propositions were suitable or appropriate. One of the proposals involved him becoming a contractor and there was no actual job proposal made by the other two potential employers.

[28] In terms of the potential sale of the rotary engine business, this was always subject to finance, which did not eventuate, and involved Mr Gabbusch becoming a business owner, which he did not want to do.

[29] Mr Gabbusch also contended that Mildren Automotive was part of a series of inter-related trusts effectively owned and conducted by Mr Greg Mildren, and in effect, the assets and profits of the business had been siphoned off to the related businesses. Further, he contended that Mildren Automotive had significant assets (machinery and stock) that could be sold to pay for the redundancy payments.

[30] As outlined earlier, Mr Johnson did not seek to participate in these proceedings beyond the initial directions conference, however he did not consent to the application.

5. Consideration

5.1 Did Mildren Automotive obtain acceptable alternative employment?

[31] The historical context for the nature of provisions that are found in clause 4.6.9 of the VIRS&R Award, and for that matter s.120 of the Act, is common in that each draws upon a history and an approach to the issues summarised by the Full Bench of the Australian Industrial Relations Commission in Australian Chamber of Manufacturers and Derole Nominees Pty Ltd - Clothing Trades Award 1982 7 in the following terms:

“We do not wish to prevent an employer making an application to be exempted from the general prescription pursuant to this decision in cases where an employer obtains acceptable alternative employment for an employee but we would point out that, in our decision, severance payments are not made for the purpose of assisting employees to find alternative employment. Where such an application was made it would be important to consider whether previous service with the previous employer was recognized as service with the new employer.

The word "obtains" does not appear in its context to mean actually obtain in the fullest sense possible. In circumstances like those occurring at the company one employer is incapable in law of effecting a contract of employment between his employee and another employer whether by assignment or otherwise; the creation of the legal relationship of master and servant depends on a mutuality being arrived at between the individual and the incoming employer. Therefore, the pursuit of alternative employment by the outgoing employer cannot be expected, by reason of itself alone, to produce new employment; there will usually and perhaps always remain the opportunity for the incoming employer, and the employee, to disagree as to matters such as terms of employment, suitability of the job to the employee and vice versa so that alternative employment may not eventuate.

It follows that "obtain" must be given some lesser meaning. The Shorter Oxford Dictionary (third edition, revised) provides as its relevant meaning, the definition of "obtain" as "to procure or gain, as the result of purpose and effort". It seems to us that meaning is of assistance here; that is, the employer by purpose and effort may establish an opportunity which suits the employee and which crystallises as alternative employment of an acceptable kind.

This approach is supported if the passages quoted above from the Termination, Change and Redundancy Case are read in conjunction with what was said under the heading “assistance in seeking alternative employment”. There the Commission records the ACTU objective of achieving award provisions “designed to ensure that the employer assists the employee to find alternative employment”.

Reliance was placed by the ACTU on a decision of the South Australian Industrial Commission in the Milk Processing and Cheese Etc Manufacturing Case:

“where it was decided that there should be included in any detailed prescription on redundancy an obligation on the employer actively to offer, or to make reasonable endeavours to procure, suitable alternative employment for redundant employees.”

Dealing with the circumstances in which the general prescription the Full Bench was awarding might be departed from, the decision in the Termination, Change and Redundancy Case indicates that particular regard was paid to, inter alia, the S.A. Milk Processing and Cheese Etc. Manufacturing decision. Viewed in this way it will be seen that the intention is not to impose an absolute test on the employer’s ability to “obtain” alternative employment but rather it refers to action which causes acceptable alternative employment to become available to the redundant employee. The employer must be a strong, moving force towards the creation of the available opportunity.”  8

[32] On that basis, it is necessary to initially consider whether Mildren Automotive was the strong, moving force behind the creation of the available opportunities in the case of Mr Gabbusch and Mr Johnson. That is, it is necessary to consider whose actions caused acceptable alternative employment to become available. This is not an absolute test but rather one that needs to be realistically assessed in the particular circumstances of each case.

[33] It is also well established in this jurisdiction that the concept of acceptable alternative employment is to be determined objectively. As noted by a Full Bench in Australian Chamber of Manufacturers v Derole Nominees Pty Ltd:

“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.”  9

[34] The onus of establishing that the alternative employment in question is acceptable rests with the applicant employer. 10 In order to establish whether the alternative employment obtained by the employer is acceptable, it is necessary to have regard to such matters as pay levels, hours of work, seniority, fringe benefits, workload and speed, job security and other matters (including the location of the employment and travelling time).11

[35] It is also apparent from the text of the provision in the VIRS&R Award that the Commission may remove the employer’s severance benefit obligations completely or may simply reduce them if satisfied that either of the grounds is made out.

[36] The direct relevance of the above approaches to the application of the preserved provisions within the VIRS&R Award has also in effect been confirmed by a Full Bench of the IRCSA. 12

[37] In the case of Mr Gabbusch, I accept that Mildren Automotive actively and constructively sought to open up a series of alternatives for him. There is little detail about the potential positions before the Commission and although both parties have made various criticisms of each other’s motives and actions, that is not relevant for present purposes.

[38] It is not clear to me that any actual or concrete alternative positions became available to Mr Gabbusch and in any event, I cannot be satisfied that they would be considered to be acceptable within the meaning of the authorities given the paucity of material before me. In terms of the business opportunity said to have been presented to Mr Gabbusch, this was of such a different character to employment, and involved additional obligations such a obtaining finance and establishing a business operation, as to be beyond the scope of the present exercise.

[39] Accordingly, there are no grounds to consider the reduction in the severance payments to Mr Gabbusch on the basis of “obtaining” suitable alternative positions within the meaning of the award and the authorities.

[40] I should add that I do not doubt the bona fides of Mr Mildren in seeking business and employment opportunities for Mr Gabbusch. Indeed, I accept that he was genuinely motivated to reduce the impact of the redundancy upon his former employee. However, this is not the test arising from the relevant authorities.

[41] In the case of Mr Johnson, it would appear that a definite alternative position became available largely as a result of the efforts of Mildren Automotive and that this position was actually made available to him. Mr Mildren has confirmed that the terms and conditions of employment of the new position exceeded those applying to Mr Johnson at Mildren Automotive. I note that Mr Johnson’s service was not deemed to be continuous and this means that any accruals of leave, whilst paid out upon dismissal, resumed at zero with the new employer. In this case, given the short period of service involved, this factor is not significant. Mr Johnson has chosen not to participate in these proceedings beyond the initial conference and these contentions are therefore largely uncontested.

[42] In the circumstances, I accept that Mildren Automotive obtained acceptable alternative employment for Mr Johnson within the meaning of the award and relevant authorities.

5.2 Is there an incapacity to pay the redundancy entitlements?

[43] As with the above ground, the ability of an employer to apply to the Commission for a variation in relation to its obligation to pay redundancy also has its origins in the Termination, Change and Redundancy Case of 1984. 13

[44] Drawing upon various decisions of the Commission when applying provisions akin to those in the VIRS&R Award, the following principles appear:

• The provision means that the Commission “may” determine to reduce the amount of redundancy pay up to an amount of nil, indicating that the granting of full or partial relief from the obligation is an exercise of discretion in the circumstances of the case. The employer bears the onus of establishing that there are grounds justifying the exercise of the discretion. 14

• The employer must satisfy the FWC that it is not financially competent or possessed of the necessary funds to make the payment, and has no reasonable source of funds. 15



• The assessment of financial competence will include consideration of the financial standing of the business including its cash position and the assets of the business. 16



• The effect upon the employees immediately concerned will be considered including whether making an order prevents the employee from recovering the entitlement through other means should the company be liquidated; the effect that any order may have on the status of employees as potential creditors should the company become insolvent; and the impact of any order on the employee’s rights under the General Employee Entitlements and Redundancy Scheme 17 (GEERS) or similar schemes.18



• The effect upon the continuation of the business, including whether reducing the entitlement of dismissed employees may have a beneficial effect on other employees, thereby enhancing their prospects of being able to remain in employment, are also relevant considerations. 19

[45] Mildren Automotive has supplied unaudited financial statements prepared by its accountant and these indicate that current liabilities substantially exceed current assets. Some of the more significant liabilities arise from unpaid wages, annual leave and long service leave said to be owing to Mr Mildren as an employee of the company. I do not accept that the interests of Mr Mildren as an employee are irrelevant as contended by Mr Gabbusch.

[46] I do however accept Mr Gabbusch’s proposition that an owner/director of a company is able to take other benefits from a private company such as Mildren Automotive, and that these liabilities should be seen in that context. However, these liabilities account for about two thirds of the total liabilities and significant net “debt” still exists even if those elements are ignored.

[47] I have also considered the nature of the assets and stock in hand and even allowing for other stock said to be undervalued or ignored by Mr Babbusch, the material before the Commission is sufficient to confirm that Mildren Automotive is not financially competent or possessed of the necessary funds to make the severance payments.

[48] However, it is also evident that a reduction or elimination of the severance payments will not affect the trading status or continuation of the business, or enable most of the other debts to be paid. It is also clear that the business could be considered to be practically insolvent and if steps were taken to formalise that standing, the making of the order to reduce or eliminate the redundancy entitlements might well impact upon the rights of the two ex-employees as creditors. This includes the fact that in the absence of the orders being made, the employees may well be entitled to access the Fair Entitlements Guarantee scheme 20 in relation to their outstanding severance entitlements.

5.3 Should there be a variation to the redundancy entitlements and if so, to what level?

[49] I have found that Mildren Automotive obtained acceptable alternative employment for Mr Johnson. Given all of the relevant circumstances, I consider that a variation in the severance entitlements to zero is appropriate in that case.

[50] I have also found that no reduction on that basis is appropriate in relation to Mr Gabbusch.

[51] I consider that Mildren Automotive does not have the capacity to pay the severance payments due to Mr Gabbusch. However, there is a discretion given to the Commission in these circumstances as to whether a reduction should be made.

[52] In this case, whilst the reduction or elimination of the severance payments would assist the extent of liabilities for Mildren Automotive, the reduction would actually serve little purpose given the present financial and trading status of the business. Further given that any reduction or elimination could well impact upon Mr Gabbusch’s capacity to ultimately access his entitlements through the Fair Entitlements Guarantee scheme or similar arrangements, the balance of the considerations militate against adopting that course of action. This is particularly so, as it is apparently intended that the business will be fully wound up in due course.

6. CONCLUSIONS

[53] I have decided that a reduction to zero in the severance payments due to Mr Johnson will be made and an order 21 has been issued in conjunction with this decision.

[54] I have otherwise dismissed the application and no order will be made to vary Mr Gabbusch’s entitlements.

Appearances:

G Mildren of Mildren Automotive Pty Ltd.

D Gabbusch and S Johnson in person.

Hearing details:

Telephone Conference:

2013

February 1.

Written submissions:

2013

February 22

March 14

April 5

May 26

June 21.

 1   PR533924, issued 7 February 2013.

 2   AN150167.

 3   MA000089. The parties were subject to a NAPSA within the meaning of this provision.

 4   Notional Agreement Preserving a State Award.

 5   “Small business” under the VIRS&R Award was defined to mean an employer that employs less than 15 employees.

 6   This was agreed in the initial directions conference.

 7   Australian Chamber of Manufacturers and Derole Nominees Pty Ltd - Clothing Trades Award 1982 (1), (1990) 140 IR 123 per Peterson J, Marsh DP and Oldmeadow C.

 8   Ibid.

 9   Ibid at 124.

 10   Re Target Retail Agreement 2001, PR916204, at para 6.

 11   Re Clerks Salaried Staffs (Agriculture Award) 1999, Print S1216.

 12   Menzies International Australia Pty Ltd v ALHMWU [2002] SAIRComm 15, 21 March 2002 and also see the original decision of Dangerfield C [2001] SAIRComm 57.

 13   AIRC Print F7262 and AIRC Print F6230.

 14   Supra; Timbercraft Pty Ltd [2011] FWA 6283;

 15   Timbercraft; Baywood Products Pty Ltd v Mr Mervyn Inall[2010] FWA 9303;

 16   Timbercraft; Villa Crerarii Pty Ltd v Daniel Kahl [2013] FWA 903.

 17   GEERS is a Commonwealth scheme designed to provide certain entitlements when an employee losses their employment through liquidation or insolvency of their former employer. The Fair Entitlements Guarantee (FEG) is a more recent version of the scheme.

 18   Villa Crerarii Pty Ltd v Daniel Kahl; PYL Nominees Pty Ltd [2011] FWA 1581; Moltoni Waste Management v P Fairs, R Ellen and K Birkett [2012] FWA 5590.

 19   Supra.

 20   This scheme would be applicable given the timing of the redundancies.

 21   PR538473.

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<Price code C, AN150167  PR535475 >