Proware Pty Ltd T/A The Service Manager

[2015] FWC 2893

[2015] FWC 2893

FAIR WORK COMMISSION

DECISION

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

Proware Pty Ltd T/A The Service Manager
(C2015/2228)

DEPUTY PRESIDENT LAWRENCE SYDNEY, 1 MAY 2015

Variation of redundancy pay.

Introduction

[1] On 21 March 2015, David Younger, the Director of Proware Pty Ltd trading as The Service Manager (the Applicant) lodged an application to vary redundancy pay which would otherwise be available under the National Employment Standards pursuant to s.120 of the Fair Work Act 2009 (the Act) on the ground of inability to pay. The Applicant is an information technology company.

[2] The employee made redundant was Mr George Kin Lung Cheng (the Respondent). He was terminated on 18 February 2015 verbally, and finished work on 5 March 2015. He had two years and four months service. The Applicant says that the Respondent’s salary was $65,000 per annum and that the redundancy pay should be reduced to zero. The Applicant referred to financial advice that it could not afford to pay redundancy.

[3] The Applicant’s submission was that it had about 20 staff at the time of the redundancy but would have less than 15 employees at the end of the process.

[4] The matter was set down for hearing on 15 April 2015. Directions were issued for the filing of submissions and evidence by the Applicant and Respondent. These were complied with.

[5] Mr Younger represented the Applicant at the hearing. The Respondent appeared for himself.

Legislative Provisions

[6] The redundancy pay entitlement is contained in s.119 of the Act. It is agreed that the Respondent would be entitled to six weeks pay.

[7] S.120 provides:

“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.”

Award Coverage

[8] The Respondent submitted that he was covered by the Professional Employees Award 2010 [MA000065](the Award). The Applicant initially resisted this but ultimately appeared to concede it. The Award has an information technology and telecommunications services stream as defined in detail in clause 3.3.

[9] I am satisfied that the Applicant’s business comes within the “Information Technology Industry” as provided for in Clause 4 “Coverage”. I am also satisfied that the Respondent’s duties are also provided for within the classifications in clause 3.3. Accordingly, I determine that the Award covers the Applicant and Respondent.

[10] The significance of the Award coverage lies in clause 12.2 of the Award which provides that an employer who terminates an employee must give a minimum of one month’s notice, in lieu of s.117(3)(a) of the Act. Clause 13.1 provides that redundancy pay is provided for in the NES.

[11] The Respondent was provided with two week’s notice. Therefore, his total claim is for eight weeks pay, made up of six weeks redundancy pay and two week’s pay in lieu of notice an amount of $10,000 approximately.

Case for the Applicant

[12] The Applicant provided a range of documents including reports from its accountant and bank statements with respect to its extremely difficult financial position. These were supplemented by Mr Younger at the hearing. In the interests of confidentiality, I will not detail these. I accept that the Applicant is in a difficult position. It is, however, continuing to operate and trade but with a range of liabilities.

Case for the Respondent

[13] The Respondent took issue with the Applicant’s claim that its financial position was the reason for his redundancy. He submitted that his work had been taken over by a new business partner. The Respondent continued to trade and it should be required to meet its legal liabilities, including redundancy pay. The financial hardship issue was a “last minute” excuse for the redundancy.

[14] It appears that the Applicant had offered to pay the six week’s redundancy due in stages, but required the Respondent to work out the additional two week’s notice. The Respondent was unable to do this because of his wife’s illness.

Approach of the Commission

[15] In Moltoni Waste Management v P. Fairs and Ors[2012] FWA 5590, Bissett C dealt with a s.120 application based on an incapacity to pay claim in a situation where the employer had ceased to trade and had no source of income. She stated:

“[25] The discretion to grant an application to vary redundancy pay is a broad discretion.

[26] On the basis of the material presented to me it is apparent that the company had no or minimal cash in hand at the time the applications were made.

[27] I accept that at the time the applications were made MWM had ceased trading. Mr Moltoni does not indicate that he intends to place the company in voluntary administration. It is clear however that the company has substantial debts to Baw Baw Shire Council and, should the Council seek to act on those debts, the status of the company will inevitably change.

[28] What has not been made clear is why the employee entitlements were not paid at the time of the termination of their employment. Mr Moltoni had the option of making these payments. The company was not under administration such that these decisions were taken out of his hand. That the Respondents were not paid at the time of the termination of their employment seems to have been a deliberate decision of the company.

[29] It would indeed be wrong if an employer could voluntarily wind up their company, run down the accounts of the company over time and then apply to the tribunal for relief from the obligation to make redundancy payments. This is not to say an employer cannot cease to operate a business if they so chose. That is their right but the obligations of the business to employees cannot go unheeded in the process.

[30] I am mindful of the fact that the Respondents in this matter were not highly paid. There are questions as to whether MWM has met its obligations to pay superannuation or full termination payments to the Respondents including outstanding leave entitlements. To grant the applications will further penalise them by denying them any right to access GEERS payments should these become available.

[31] Further the granting of the applications will not absolve MWM of any obligation to the Respondents as they may still have claims for outstanding leave and other entitlements.

[32] The granting of the applications will not alter the position of the MWM in any material sense - it will not save MWM from creditors (if there are any) nor will it ensure the company remains in a viable situation (given that it is not trading).

[33] In all of these circumstances I have determined not to grant the applications as sought by MWM. I shall not reduce the amount of redundancy pay on the basis that the employer cannot pay.

[34] The applications are dismissed.”

[16] In Villa Crerarii Pty Ltd v Daniel Kohl[2013] FWC 903 Deegan C was prepared to make an order under s.120 on the following grounds:

“[12] Clearly there is no cash available to the company at this point in time with which the redundancy payment might be made to Mr Kahl. While I sympathise with Mr Kahl’s situation I must have regard to the evidence that the current employees have not been paid their wages on time and that any payment to Mr Kahl might reduce their prospects of receiving these payments.

[13]The legislation envisages that there will be cases in which it is appropriate to remove an employer’s obligation to make a redundancy payment on the ground that the employer is unable to pay. In very few cases would it be appropriate to do so, particularly given the effect such an order would have on the employee’s right should the company be wound up. The decisions acknowledge that an appropriate case for such an order is one where the order would have a beneficial effect on the prospects of other employees. It is my decision that this is such a case. If the company is required to make the payment to Mr Kahl it may well have the effect of putting in jeopardy the employment of the remaining employees. As Mr Kahl has found finding other employment in the area so difficult I am reluctant to take any course which may bring about such a result.

[14]I am satisfied that in this case the employer cannot pay the redundancy pay entitlement of Mr Kahl. I will grant the application and reduce the obligation upon the employer to nil. An order to that effect will issue separately.”

[17] In Company P. v D.S. [2014] FWC 4673 Hampton C summarised the principles to be applied in a s.120 application as follows:

“[32] The ability of an employer to apply to the Commission for a variation in relation to its obligation to pay redundancy has its origins in the Termination, Change and Redundancy Case of 1984.

[33]Drawing upon that decision and the various decisions of the Commission when applying provisions akin to those in the State 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.



• 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.



• 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.



• 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  (GEERS) or similar schemes.



• 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.”

Conclusion

[18] In accordance with the approach taken by the Commission in these cases, I have come to the conclusion that the Applicant has not discharged the onus of establishing sufficient grounds justifying the exercise of the discretion pursuant to s.120. I have therefore decided not to grant the application made pursuant to s.120.

[19] The following reasons have been taken into account in reaching this conclusion:

● The financial material shows that the Applicant has difficulties and liabilities, but it is still trading. There was no conclusive evidence that it could not meet its liabilities.

● The doubt the Respondent raised that there may have been other reasons for the redundancy, in reality. It appears that financial hardship was not the initial reason given to the Respondent.

● There was no evidence that the s.120 order would have a beneficial effect on other employees.

● The Applicant had agreed to pay the major portion of the claim in negotiations with the Respondent.

[20] The application is therefore dismissed.

DEPUTY PRESIDENT

Appearances:

D. Younger, for the applicant.

G. Cheng, respondent

Hearing details:

2015

Sydney:

April 15.

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