RingIR Pty Ltd v Maryanne Spiers

[2023] FWC 2184

[2023] FWC 2184

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009

s.120—Redundancy pay

RingIR Pty Ltd

v
Maryanne Spiers; Lisa Linssen; Richard Hebden; Jacob Filiti; Alex Barry

(C2023/4168; C2023/4170; C2023/4171; C2023/4172; C2023/4174)

COMMISSIONER MCKINNON SYDNEY, 4 SEPTEMBER 2023

Applications to vary redundancy pay obligation – whether small business employer – whether can afford to pay redundancy pay

1. RingIR Pty Ltd (RingIR) employed Dr Maryanne Spiers, Ms Lisa Linssen, Mr Richard Hebden, Mr Jacob Filiti and Mr Alex Barry (the five respondents) as permanent employees for periods ranging from 2 to almost 6 years until their employment ended by reason of redundancy in July and August 2023.

1. The five respondents are each entitled to be paid an amount of redundancy pay by RingIR because of section 119 of the Fair Work Act 2009 (Cth) (the Act). RingIR has applied to reduce these amounts to nil on the basis that it cannot pay the amounts. The question is whether the redundancy pay amounts should be reduced, and if so, to what extent.

1. RingIR separately queries whether it has, or should have, an obligation under section 119 to pay redundancy pay on the basis that it is a small business employer. However, for the reasons below, RingIR is not a small business employer. Section 119 applies to the five respondents in relation to their employment with RingIR.

1. I have decided not to reduce the redundancy pay amounts that are payable by RingIR in relation to the five respondents. The applications will be dismissed, and my reasons follow.

RingIR is not a small business employer

1. RingIR asks the Commission to exercise its ‘discretion’ and confer the small business employer exemption in relation to redundancy pay upon it, on the basis that it operates at ‘arms length’ from its US parent company, RingIR Inc. The Commission has no such discretion. Whether an employer is a ‘small business employer’ for the purposes of the Act is a question of fact, including in relation to whether they are an associated entity of another employer.

1. The term ‘associated entity’ has the meaning given to it by section 50AAA of the Corporations Act 2001 (Cth) (Corporations Act). That includes the concept of ‘control’ in section 50AA of the Corporations Act, which means having the “capacity to determine the outcome of decisions about the second entity’s financial and operating policies”. “Capacity” is determined by reference to the practical influence one can exert over the other, taking into account any practice or pattern of behaviour affecting the financial or operating policies of the entity said to be under control. It is not enough to hold joint control over an entity. It is also not sufficient if the capacity to influence decisions arises in the context of a legal obligation to act beneficially for someone other than one’s own shareholders.

1. Two businesses will be associated entities if:

1. They are related bodies corporate (for example, one is a holding or subsidiary company of the other entity, or they are two subsidiaries of the same holding company),
2. One business controls the other, including where the operations, resources or affairs of one are material to the other,
3. One has a significant influence over the other, as well as a material qualifying investment in the other, either in the form of an asset or control over a beneficial interest in the investment, or
4. A third entity controls the two businesses, where the operations, resources, or affairs of those entities are both material to the third entity.

1. It appears to be conceded by RingIR that it is an associated entity of RingIR Incorporated (RingIR Inc.). RingIR Inc. is a US-based company controlled by Charles and Anna Harb that is the sole (100%) shareholder in RingIR.

1. It is not necessary to look beyond the first limb of the definition of ‘associated entity’ in s.50AAA of the Corporations Act. RingIR Inc. is the holding company of RingIR. It holds more than one-half of the issued share capital of RingIR and as a result, the two are related bodies corporate. If I am wrong about that, RingIR and RingIR Inc. are also associated entities because:

1. RingIR Inc. controls RingIR, whose operations, resources and affairs are material to it. It is the sole shareholder in the business with control over its budgets, payroll, employment and major investment and project decisions. RingIR generates and pays management and licensing fees to RingIR Inc for the use of its technology. It relies on employees of RingIR Inc. to perform significant aspects of its work.
2. RingIR Inc. has a significant influence over RingIR and a material qualifying investment in it. It is the sole shareholder in the business with control over its budgets, payroll, investment and purchase decisions.  Ring IR’s directors, Charles and Anna Harb, are also directors of RingIR Inc. (along with 5 others). They control RingIR in circumstances where the operations, resources or affairs of both RingIR and RingIR Inc. are material to them.

1. At the time of the decision to make the five respondents’ positions redundant, RingIR Inc. had 10 employees and RingIR had 7 employees. Together, they had more than 15 employees. Accordingly, RingIR was not a small business employer. It has an obligation to pay redundancy pay to each of the five respondents under s.119 of the Act.

The redundancy pay obligations

1. The obligations of RingIR in relation to redundancy pay are these:

Former employee	Period of service	NES Entitlement	Weekly salary*	Total entitlement
Lisa Linssen	5 years 11 months	10 weeks	$3653.85	$36,538.46
Maryanne Spiers	2 years 2 months	6 weeks	$2211.54	$13,269.23
Richard Hebden	5 years 5 months	10 weeks	$2980.76	$29,807.69
Jacob Filiti	2 years 1 month	6 weeks	$1817.31	$10,903.85
Alex Barry	2 years 6 months	6 weeks	$2692.31	$16,153.85

* Annual salary divided by 52

1. The gross value of these redundancy pay entitlements together is $106,673.08.

Should the redundancy pay obligation be varied?

1. RingIR submits that it cannot pay the amount of redundancy pay that is payable to each of the five respondents because of the risk that this will pose to its solvency “beyond a matter of weeks”. It submits that it is in “start up mode, on the edge of transitioning to production” and that it has recently experienced setbacks, including the cancellation or delay of major contracts due to government budget constraints and quality issues. These issues have required it to reduce its costs in order to “not become insolvent, deliver on” a current contract and “develop further opportunities that are imminent”.

1. The following facts and figures are pertinent to whether RingIR cannot afford to pay redundancy pay:

1. As noted above, the total redundancy pay due to the five respondents is $106,673.08.

2. As at 30 June 2023, cash at bank was $96,000. The net assets of the business were approximately $465,000, including the tax credit discussed below.

3. In the financial year 2022/23, the business operated at a net loss before taxation of approximately ‑$775,237. Management fees paid to RingIR Inc. over this period (plus an additional month) were approximately $278,000.

4. In May 2023, the business hired a new Chief Executive Officer, Mr Michael Robinson. Mr Robinson’s contract of employment provided for an initial salary of $190,000 (equivalent to the salary of the then General Manager, Ms Linssen). It also provided for a step up in salary to $300,000 upon achievement of certain targets. It is not apparent what those targets were, but they are said to have been met, and on that basis, Mr Robinson’s salary was increased to $300,000 in early July 2023.

5. On and from 10 July 2023, the roles of the five respondents were made redundant. Ms Linssen and Mr Barry ceased employment in July 2023 and Dr Spiers, Mr Filiti and Mr Hebden ceased employment on 9 August 2023. The cost of employee entitlements arising from redundancy had the effect of reducing RingIR’s cash reserves. Its predicted cash position in October 2023 is $39,000, although it does not appear that this figure takes into account the R&D tax credit below. Additional projected income for January 2024 is $168,000.

6. The business is due to receive a net cash injection of approximately $233,000 in connection with a research and development (R&D) tax credit due to the business in the next few weeks. The total value of the credit is $438,000, although its net value to the business is reduced by the amount of $205,000 which is required for the repayment of a related loan.

7. As at 30 June 2023, the business had trade debtors owing a total of $287,410.

8. RingIR is in early‑stage discussions with potential investors in the business. It has also approached RingIR Inc. for a loan of up to $300,000 and has been advised that this would be subject to a capital raise.

9. There is a prospect of increased sales revenue although this may not be realised for approximately 4 months.

1. The case in support of RingIR’s contention that it cannot afford to pay those amounts is not strong. I accept that its cash flow position is currently under pressure and that delays in the progress of Australian government contracts have contributed to this position. As it concedes, however, the solvency of a business is not determined on cash flow alone. The business has assets upon which it can call to meet its obligations. RingIR has a parent company which is currently trading. While there is no evidence of the financial position of either RingIR Inc or Charles and Anna Harb, it is apparent that RingIR Inc. is willing and able to provide resources for the beneficial use of RingIR, including specialist labour to deliver on existing commitments and take advantage of new and imminent development opportunities.

1. The current cash flow position is largely attributable to the payment of employee entitlements on termination. This is an extraordinary, rather than an ongoing, expense, and one that will achieve an overall reduction in the business’s annual labour costs of approximately $450,000 including superannuation. A gradual improvement in the business’s cash flow position is also likely in the near future, including upon receipt of the R&D tax credit. That alone is sufficient to cover the redundancy pay entitlements of the five respondents.

1. The decision to increase the CEO’s salary by $110,000, coinciding with the decision to make the five respondents redundant at an almost equivalent cost ($106,673.08) in addition to their notice and accrued leave entitlements, is also relevant. I accept that the salary increase was agreed some months earlier, and that payment of the increase is an obligation to be met over time rather than in a lump sum. However, there is no reason why, acting in good faith, the Harbs and Mr Robinson could not have agreed to defer the increase for a time, to ease the financial pressure on the business and assist with meeting its immediate obligations to the five respondents if RingIR was as close to insolvency as it submits.

1. In the circumstances, I am not persuaded that RingIR cannot afford to pay the redundancy pay entitlements of the five respondents. Nor do I consider it appropriate to reduce the amount of redundancy pay that is payable to each of the five respondents under section 119 of the Act. The purpose of redundancy pay is to compensate for the inconvenience of hardship associated with having to find another job, as well as the loss of non-transferable employment credits.[1] These experiences are apposite to the circumstances of the five respondents.

1. The applications in matters C2023/4168, C2023/4170, C2023/4171, C2023/4172 and C2023/4174 are dismissed.

COMMISSIONER

Appearances:

T Simmonds of Bonsella on behalf of the applicant.
M Spiers, L Linssen, R Hebden, J Filiti and A Barry on their own behalf.

Hearing details:

2023.
Sydney (by video):
August 23.

Final written submissions:

September 1.

[1] Termination, Change and Redundancy decision, 2 August 1984, Print F6230, (1984) 8 IR 34; Redundancy Case Decision, 26 March 2004, PR032004.

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