MJ and RA Clarke P/L T/A Bakers Delight Strath Village v Ben Hall

[2017] FWC 6735

[2017] FWC 6735

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.120—Redundancy pay

MJ & RA Clarke P/L T/A Bakers Delight Strath Village
v
Ben Hall
(C2017/4279)

and

MJ & RA Clarke P/L T/A Bakers Delight Strath Village
v
Robert Shay
(C2017/4281)

DEPUTY PRESIDENT CLANCY MELBOURNE, 14 DECEMBER 2017

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

[1] MJ & RA Clarke P/L trading as Bakers Delight Strath Village (the employer company) has applied to reduce the redundancy entitlement of two employees. They were made redundant due to the sale of the employer company’s business and its subsequent ceasing of trading on 5 July 2017.

[2] The applications 1 were made by Mr Michael Clarke, the employer company’s Managing Director on the basis that the employer company cannot pay the two employees their National Employment Standards (NES) redundancy entitlement.2 The reasons provided in support of the two applications are essentially the same.

[3] The two employees concerned are Mr Ben Hall and Mr Robert Shay. Their relevant service details, redundancy entitlements pursuant to the NES (as calculated by the Applicant), amounts paid to date and balance payable are not in dispute and are as follows:

Employee	Service	Redundancy entitlement	Paid to date	Balance payable
Ben Hall	6 years	$9,906.60 (11 weeks)	$1,500.00	$8,406.60
Robert Shay	1 year, 7 months	$3,330.32 (4 weeks)	$1,400.00	$1,930.32
$10,336.92

[4] In addition to the information in the two application forms, Mr Clarke filed submissions dated 2 October 2017. Included with the submissions was a letter and business review and analysis report 3 prepared by the employer company’s accountants, Philip J Eddy & Partners Pty Ltd. This report outlined the financial position of the employer company for the period 1 July 2017 – 30 September 2017 inclusive (the financial report). At the hearing of the applications, Mr Clarke gave evidence and was available for cross examination.

[5] As the applications were disputed by both Mr Hall and Mr Shay, they were both provided with the opportunity to file submissions and were given notice of the hearing.

[6] At the hearing,Mr Hall represented himself but elected not to give evidence, relying on his written material filed on 28 September 2017 4 and 14 November 2017.5 Mr Shay was also in attendance at the hearing and also elected not to give evidence. Mr Shay had elected not to take up the invitation from the Commission to file written material. Neither Mr Hall nor Mr Shay put any questions to Mr Clarke during the course of the hearing, despite being given the opportunity to do so.

Relevant Legislation

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

[8] Section 120(2) of the Act provides the Commission with discretion to reduce or remove altogether an entitlement to redundancy pay provided under s.119 on application by the employer, 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.”

[9] 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 emphasis)

Background

[10] The applications are made on the basis that the employer company cannot pay the redundancy entitlement as per s.120(1)(b)(ii) of the Act. The employer company seeks a reduction in the redundancy pay due to Mr Hall and Mr Shay to the amounts already paid to them ($1,500 to Mr Hall and $1,400 to Mr Shay).

[11] The applications were accompanied by the financial details relating to the employer company’s incapacity to pay the NES redundancy entitlements of Mr Hall and Mr Shay. The financial report outlined the financial position of the employer company for the period 1 July 2017 – 30 September 2017 inclusive. Although not audited, I accept that the documentation provided was an accurate reflection of the employer company’s financial status as at 30 September 2017. At the hearing, Mr Clarke gave evidence that updated the information in the financial report.

[12] Mr Clarke said he was the sole directorof the employer company and its business had been sold. He also said it ceased trading on 5 July 2017, the proceeds from the sale did not cover all of its debts and it has no further income.

[13] Mr Clarke said the employer company had been trading by virtue of a bank overdraft for the two years prior to the sale. The offer for the purchase of business had been made in February 2017 and Mr Clarke said he personally loaned the employer company $20,000 during the last full financial year prior to sale, in order that it could keep trading until the sale was completed. Mr Clarke said that while the employees of the business had been aware that there were some tough times in operating the business, they were not aware of just how tough things were.

[14] All staff members were given a letter dated 29 May 2017 advising them their employment was to be terminated at the request of the incoming owner upon the sale of the business on 28 June 2017. Mr Clarke said Mr Hall was on leave on 29 May 2017 and was advised by phone and that the sale date was subsequently put back to 5 July 2017. Mr Clarke said his understanding is that the incoming owner subsequently offered employment to all of the employer company’s employees, bar Mr Hall and Mr Shay. Mr Clarke said Mr Hall and Mr Shay secured offers for employment elsewhere and commenced work for a new employer within a week of ceasing their employment with Bakers Delight Strath Village.

[15] The financial report disclosed that the business of the employer company was sold for $390,000, with the proceeds applied as follows:

•  $324,335.94 to the National Australia Bank to discharge the business loan;

•  $52,401.80 to Bakers Delight for additional franchise agreement purchase fee and an administration fee in relation to the sale. This sum included a $10,000 retention payment to be held by the franchisor;

•  $5,954.80 to JLC lawyers for legal fees;

•  $1,555.54 for vendor adjustments; and

•  $5,357.55 deposited to the employer company’s account.

[16] From my questioning of Mr Clarke at the hearing, it was apparent that part of the $324,335.94 that was paid to the National Australia Bank cleared the employer company’s overdraft and another component paid the balance of a National Australia Bank credit card held by the employer company that was used to purchase business stock, predominantly flour, from suppliers.

[17] Mr Clarke said the $5,357.55 referred to was used to pay various business running costs incurred up to 5 July 2017. He also said that Bakers Delight subsequently released $8,682 of the $10,000 retention sum so that employee superannuation benefits applicable to the 2016/2017 financial year would be paid and that this has occurred.

[18] As to a liability to the Australian Taxation Office (ATO) totalling $12,917.22 at the time the employer company was sold, Mr Clarke told me part of this was paid off by virtue of the ATO retaining a tax refund payable to the employer company following the assessment of the employer company’s taxation return for 2016/2017. My additional questioning of Mr Clarke established that the various payments made to the employer company during its final period of trading were used to pay for wages (approximately $7,000.00), employee annual leave entitlements (approximately $4,000.00) and the partial redundancy payments to Mr Hall and Mr Shay ($2,900.00), together with some final, minor invoices.

[19] Mr Clarke advised that in terms of money currently available to the employer company, there is now only cash totalling $82.66 in its bank account, together with the remaining $1,318.00 of the retention monies, with no indication having been given as to when Bakers Delight might release it.

[20] The financial report indicated the following liabilities of the employer company, as at 30 September 2017:

•  ATO: $4,309.09;

•  Loan – Michael Clarke: $1,916.97;

•  Momentum Energy: $1,570.07;

•  Employee superannuation benefits for the 2017/2018 financial year: $1,115.26;

•  Philip J Eddy & Partners Pty Ltd: $5,170.00; and

•  Outstanding redundancy entitlements (B Hall and R Shay): $10,336.92

[21] At the hearing, I sought an update in relation to each of these items from Mr Clarke, apart from the $10,336.92 for outstanding redundancy entitlements due to Mr Hall and Mr Shay.

[22] In relation to the ATO debt, Mr Clarke advised that the ATO had retained a tax refund due to the employer company from the 2016/2017 financial year and, together with sums paid by his wife, it has decreased to $3,059.12. Further, a payment plan has been agreed with the ATO that requires payments of $250 per fortnight.

[23] The loan from Michael Clarke for $1,916.97 remains unpaid.

[24] The outstanding amount payable to Momentum Energy is now approximately $1,400.00, with a payment plan having been agreed requiring payments of $90 per month.

[25] As to the outstanding employee superannuation benefits payable for the 2017/2018 financial year, Mr Clarke advised that his wife had loaned the employer company the sum of $1,115.26 to make payment for these.

[26] The accountancy fees dues to Philip J Eddy & Partners Pty Ltd have reduced from $5,170.00 to approximately $4,500.00, because Mr Clarke authorised them to retain the taxation refund he had received following the assessment of his 2016/2017 income tax return by the ATO.

[27] My additional questioning of Mr Clarke led me to the conclusion that there are no remaining assets held by the employer company that could be applied towards the liability for the redundancy entitlements due to Mr Hall and Mr Shay.

[28] I also asked Mr Clarke as to whether placing the employer company in liquidation had been considered and in doing so, drew the parties’ attention to the Fair Entitlements Guarantee (FEG) scheme provided by the Australian Government, which provides financial assistance to eligible employees for redundancy pay and other entitlements. Mr Clarke said that he had been advised that the cost of liquidating the employer company had been quoted to be approximately $10,000.00 and the employer company simply did not have the funds to do this.

[29] As to the views of the employees, in his submission filed on 28 September 2017, Mr Hall said he was advised that he had been made redundant on approximately 14June 2017 and his employment would be terminated as of 28 June 2017. He said he was provided with a payment advice stating that the payment of $9,006.00 would not be paid in full and was paid $1,500.00 with advice that the balance would follow in 30 days from 5 July 2017. Mr Hall submitted that given that Mr Clarke received a substantial amount from the sale of the employer company he considered it would be an extremely unfair outcome if he and a fellow worker were not to be paid their redundancy entitlements.

[30] Mr Hall also said he had found new employment through his own means, he has six children and a wife to support and this situation has caused him and his family considerable stress and hardship.

[31] In his further submission dated 14 November 2017, Mr Hall said his redundancy payment should have been paid before any of the other loans and bills of the employer company were finalised and that Mr Clarke should have to pay what is owed. He also said he had been told that he would be paid within 30 days after Bakers Delight had repaid the money it owed the employer company and that his rights had been denied.

[32] As indicated above, Mr Shay attended the hearing but elected not to give evidence. He also did not file any material in response to the application.

[33] The exclusions from redundancy pay provided for in s.121 of the Act were not raised in this application.

Determination

[34] In the 2004 Redundancy Case, 6 the Full Bench of the Australian Industrial Relations Commission confirmed the purpose of redundancy pay is to compensate an employee for matters such as the trauma associated with the termination of employment, the loss of non-transferable credits such as sick leave, the loss of security and seniority, lower job satisfaction and diminished social status and conditions. In applications such as these, the onus lies on the employer company seeking the exemption from redundancy payment obligations and the discretion exists for the Commission to make an order to reduce or remove an employee’s statutory entitlement to redundancy pay to an amount, which may be nil, that it considers appropriate.

[35] I am not unsympathetic to the plight of Mr Hall and Mr Shay. Their redundancy, while legitimate, was not within their control. To their credit, they secured new employment which commenced very shortly after their employment with the employer company terminated.

[36] Mr Clarke and his wife have both made loans to the employer company, firstly to ensure it could continue to trade until the sale went through and then to enable it to meet not insignificant obligations to the ATO, its employees’ superannuation entitlements and other commercial debts. There is nothing before me to suggest they will ever recover those loans from the employer company. It would also seem that the employer company has not been able to direct funds returning to it from either the ATO or Bakers Delight to the payment of the remaining redundancy entitlements, with the funds instead being retained by the ATO to satisfy the employer company’s taxation liability and applied so as to satisfy its superannuation obligations to employees.

[37] Once various loan commitments to the National Australia Bank were met after the sale of the employer company’s business, there was only a small amount of sale proceeds remaining. I am satisfied this is not a case in which Mr Clarke, as director of the employer company, has sought to shirk his responsibilities as a corporate citizen or profit at the expense of the employees. He has ensured all employees could work out their notice period, that all wages were paid until the employer company ceased trading and that all leave and superannuation entitlements have been paid. He has attempted to ensure the employer company has discharged various financial obligations in as timely a manner as possible, through its own means and loans from him and his wife.

[38] The evidence before me is that with Mr Clarke and his wife having agreed to meet the employer company’s remaining obligations to the ATO and Momentum Energy, the employer company’s remaining liabilities are the $10,336.92 in redundancy entitlements owing to Mr Hall and Mr Shay and the $4,500 owing to its former accountants. It is also clear that the employer company has just $82.66 left in its bank account while incurring $20 in account fees each month. The employer company is no longer trading and the only further payment it is likely to receive is the $1,318.00 in retention monies due from Bakers Delight. I am satisfied the employer company cannot pay the amount of redundancy pay Mr Hall and Mr Shay are entitled to be paid.

[39] I consider it highly unlikely that the employer company will be placed into liquidation because of the cost involved in doing so and the almost complete absence of assets and receivables available for recovery if this was to occur. While an order of the Commission to reduce or remove an entitlement to redundancy would impact the employees’ right to recover their payments through the FEG scheme, should the employer company be liquidated, I consider there is virtually no risk of this occurring. There is, in my view, little if no incentive for anyone to place the employer company in liquidation. The costs required to do so would appear to outweigh the potential benefits anyone doing so would derive.

[40] The employer company is not trading. It has virtually no assets or receivables. There is next to no chance that it will be liquidated. As much as Mr Hall and Mr Shay want to be paid their outstanding redundancy entitlements by the employer company, I cannot see how this could occur on the facts before me and I am not empowered to order Mr Clarke to personally meet this obligation.

[41] Mr Shay was employed by the employer company for the shorter period (1 year and seven months). His weekly wage with the employer company was $832.58. To date, he has received $1,400.00 or 40% of his redundancy entitlement and has secured new employment, which commenced approximately a week after his employment with the employer company ceased. In all the circumstances of this case, I consider it appropriate to reduce his redundancy pay to the $1,400.00 he has already received.

[42] Mr Hall’s weekly wage with the employer company was $900.60, he was employed by it for 6 years and has received $1,500.00 or 15% of his redundancy entitlement to date. He has also secured new employment, which commenced approximately a week after his employment with the employer company ceased. Noting that it would seem the employer company will at some stage receive the remaining $1,318.00 of the retention monies from Bakers Delight, I consider it appropriate in all the circumstances of this case to reduce Mr Hall’s redundancy pay to the sum of the $1,500.00 he has already received, plus $1,318.00. As such, I will order the redundancy pay of Mr Hall be reduced to $2,818.00.

[43] Orders reducing the redundancy entitlements of Mr Shay and Mr Hall to these respective amounts will be issued with this decision.

DEPUTY PRESIDENT

Appearances:

Mr M Clarke for MJ & RA Clarke P/L T/A Bakers Delight Strath Village.

Mr B Hall on his own behalf.

Mr R Shay on his own behalf.

Hearing details:

2017.

Melbourne

December 12.

 1   C2017/4279 and C2017/4281.

 2   Fair Work Act2009, s.120(1)(b)(ii).

 3   Exhibit A1.

 4   Exhibit BH1.

 5   Exhibit BH2.

 6 (2004) 129 IR 155.

Printed by authority of the Commonwealth Government Printer

<Price code C, PR598737>