South East Conveyors Pty Ltd T/A South East Conveyors & Engineering

[2017] FWC 77

[2017] FWC 77

FAIR WORK COMMISSION

DECISION

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

South East Conveyors Pty Ltd T/A South East Conveyors & Engineering
(C2016/6775)

SENIOR DEPUTY PRESIDENT O'CALLAGHAN ADELAIDE, 6 JANUARY 2017

Application for variation of redundancy pay – redundancy provisions in agreement – s.120 jurisdiction limited – application dismissed.

[1] On 16 November 2016 South East Conveyors Pty Ltd T/A South East Conveyors & Engineering lodged an application pursuant to s.120 of the Fair Work Act 2009 (the FW Act) to set aside or reduce redundancy payments due to a former employee, Mr Johnston.

[2] The application was the subject of a hearing on 25 November 2016. At this hearing I invited the provision of further documentation relative to Mr Johnston’s employment. The information provided to me raised a concern about the jurisdiction available to the Commission and necessitated a further telephone hearing on 22 December 2016. I have taken all of the information provided to me into account in reaching a conclusion with respect to this application.

[3] Mr Johnston had been employed for some 12 years. He commenced employment in November 2004 as an apprentice. Having completed that apprenticeship, Mr Johnston continued as a trades employee. I have been provided with an employment contract dated 9 December 2011 which does not describe his position. Additionally, a contract dated 22 March 2013 describes Mr Johnston’s position as that of a Machinist. Mr Johnston’s appointment to the position of Drafting Junior was confirmed in correspondence dated 29 May 2014. Significantly, the parties have both agreed that Mr Johnston’s employment, as both a trades employee, and as a Drafting Junior, was covered by the South East Conveyors Pty Ltd Enterprise Agreement 2011 (the Agreement).

[4] The Agreement addresses termination of employment and provides for redundancy entitlements in the following terms:

“8. Termination

8.1 Termination of employment by either party will be by the giving of notice in writing or by the payment in lieu of notice in the case of the Company or by the forfeiture of monies in lieu of notice in the case of the Employee in accordance with the table below:

Employees' period of continuous service with the Company	Period of Notice
Not more than 1 year	At least 1 week
More than 1 year but not more than 3 years	At least 2 weeks
More than 3 years but not more than 5 years	At least 3 weeks
More than 5 years	At least 4 weeks

If the Company agrees an Employee may give a lesser period of notice however, this agreement must be in writing.

8.2 If at the date of termination an Employee is over 45 years old and has completed two (2) years continuous service with the Company, they are entitled to an additional one (1) weeks' notice.

8.3 Payment in lieu of notice will equal the amounts the Employee would have received had the employment continued to the end of the notice period.

8.4 The Company shall have the right to terminate an Employee without notice for conduct that justifies instant dismissal. In such cases the Employee will be paid up to the time of dismissal only.

8.5 If an Employee fails to attend for work for a period of three (3) consecutive working days without the approval of or contacting the Employer (unless the circumstances prevented the Employee from communicating with the Employer) the Employee will be deemed to have abandoned their employment.

9. Redundancy

9.1 Redundancy occurs where an Company has made a definite decision that the Company no longer wishes the job the Employee has been doing done by anyone and that decision leads to the termination of employment of the Employee, except where this is due to the ordinary and customary turnover of labour.

9.2 Employees terminated as a result of redundancy will be entitled to notice in accordance with the provisions of sub clause 9.1.

9.3 Employees who are terminated as a result of redundancy will be entitled to the following:

Period of continuous service	Severance Pay
1 year or less	Nil
1 year or up to the completion of 2 years	4 weeks
2 years and up to the completion of 3 years	6 weeks
3 years and up to the completion of 4 years	7 weeks
4 years and up to the completion of 5 years	8 weeks
5 years and up to the completion of 6 years	10 weeks
6 years and up to the completion of 7 years	11 weeks
7 years and up to the completion of 8 years	13 weeks
8 years and up to the completion of 9 years	14 weeks
9 years and up to the completion of 10 years	16 weeks
10 years and over	12 weeks

9.4 Transfer of Business and Alternative Employment

Sub clauses 8.2 and 8.3 will not apply and there will be no entitlement to severance pay in the event of a succession, assignment or transmission of business where you are offered reasonable alternate employment by the Company, the transferee or a related entity.

In any assessment of what constitutes reasonable alternate employment consideration will be given, but not limited to, the following:

• The location of the alternate offer:



• The nature and duties of the alternate employment;



• The remuneration attached to the alternate offer; and



• The level of responsibility.”

[5] I note in passing, the potential for some confusion over the effect of clause 9.4 on redundancy pay entitlements specified in clause 9.3, in that clause 9.4 refers to clauses 8.2 and 8.3 and to “severance pay”. I have also noted that clause 9.2 refers to notice payments in clause 9.1 whilst these are set out in clause 8.

[6] There is no dispute between the parties that South East Conveyors & Engineering has experienced a downturn in business in the period leading up to October 2016.

[7] Further, there is no dispute that South East Conveyors & Engineering confirmed the outcome of a review of its operational requirements in correspondence to Mr Johnston of 6 October 2016. This advice confirmed that the position of Junior Design Draughtsman was no longer sustainable as a full-time role. It advised that this did not reflect Mr Johnston’s performance and offered him redeployment to the position of Fitter and Turner/Design Draughtsman in accordance with an attached position description. This redeployment offer confirmed that Mr Johnston’s hourly rate of pay would not change and did not alter his accrued entitlements. It did however note normal work hours on shutdown projects outside of the South East Conveyors & Engineering workshop and specified that weekend work was a requirement of this position. Overtime rates were specified to apply for work outside the normal spread of hours.

[8] Mr Johnston declined to accept this redeployment offer. Following the provision of additional time for consideration of his position, his employment ultimately concluded on 3 November 2016. Mr Johnston was paid four week’s pay in lieu of notice.

[9] South East Conveying & Engineering acknowledged that Mr Johnston had been made redundant but asserted that it obtained other acceptable employment for him such that the amount of redundancy pay should be reduced to nil consistent with s.120 of the FW Act.

[10] Mr Johnston asserts that the alternative job offered to him should not be regarded as other acceptable employment. Specifically, he advised that a difference in required working hours with increased weekend work and travel requirements represented a significant change in the position which did not suit his family commitments. Further, he advised that he considered the redeployment opportunity to be a return to “blue collar work” when he had a “white-collar” drafting function. Mr Johnston advised that South East Conveying & Engineering had talked with him in May 2016 about requiring him to undertake Fitting work in addition to his drafting work. He declined that offer but later expressed interest in undertaking a combination of drafting and Quote/estimater duties. This did not eventuate and Mr Johnston asserts that he was given an ultimatum of accepting the redeployment position or leaving his employment. Mr Johnston asserted that South East Conveyors & Engineering had not provided more detailed information about the range of functions which he would be expected to undertake. Lastly, in the hearing, Mr Johnston advised that this change in occupational duties would impact on his health and life insurance arrangements. In his subsequent advice on 1 December 2016, Mr Johnston confirmed that the change did not impact on his health insurance and advised that he was unable to find any documentation demonstrating a change in the cost of his life insurance.

[11] Consequently, Mr Johnston contends that his entitlement to 12 weeks redundancy pay should not be reduced in any form.

Findings

[12] Section 120 of the FW Act states:

“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.”

[13] This section can only have application if Mr Johnston is entitled to be paid an amount of redundancy pay because of s.119. That section states:

“119 Redundancy pay

Entitlement to redundancy pay

(1) An employee is entitled to be paid redundancy pay by the employer if the employee’s employment is terminated:

(a) at the employer’s initiative because the employer no longer requires the job done by the employee to be done by anyone, except where this is due to the ordinary and customary turnover of labour; or

(b) because of the insolvency or bankruptcy of the employer.

Note: Sections 121, 122 and 123 describe situations in which the employee does not have this entitlement.

Amount of redundancy pay

(2) The amount of the redundancy pay equals the total amount payable to the employee for the redundancy pay period worked out using the following table at the employee’s base rate of pay for his or her ordinary hours of work:

Redundancy pay period
Employee’s period of continuous service with the employer on termination	Redundancy pay period
1	At least 1 year but less than 2 years	4 weeks
2	At least 2 years but less than 3 years	6 weeks
3	At least 3 years but less than 4 years	7 weeks
4	At least 4 years but less than 5 years	8 weeks
5	At least 5 years but less than 6 years	10 weeks
6	At least 6 years but less than 7 years	11 weeks
7	At least 7 years but less than 8 years	13 weeks
8	At least 8 years but less than 9 years	14 weeks
9	At least 9 years but less than 10 years	16 weeks
10	At least 10 years	12 weeks

[14] Because the Agreement deals with redundancy pay entitlements the provisions of s.55 of the FW Act are also relevant. This section states:

“55 Interaction between the National Employment Standards and a modern award or enterprise agreement

National Employment Standards must not be excluded

(1) A modern award or enterprise agreement must not exclude the National Employment Standards or any provision of the National Employment Standards.

Terms expressly permitted by Part 2 2 or regulations may be included

(2) A modern award or enterprise agreement may include any terms that the award or agreement is expressly permitted to include:

(a) by a provision of Part 2 2 (which deals with the National Employment Standards); or

(b) by regulations made for the purposes of section 127.

Note: In determining what is permitted to be included in a modern award or enterprise agreement by a provision referred to in paragraph (a), any regulations made for the purpose of section 127 that expressly prohibit certain terms must be taken into account.

(3) The National Employment Standards have effect subject to terms included in a modern award or enterprise agreement as referred to in subsection (2).

Note: See also the note to section 63 (which deals with the effect of averaging arrangements).

Ancillary and supplementary terms may be included

(4) A modern award or enterprise agreement may also include the following kinds of terms:

(a) terms that are ancillary or incidental to the operation of an entitlement of an employee under the National Employment Standards;

(b) terms that supplement the National Employment Standards;

but only to the extent that the effect of those terms is not detrimental to an employee in any respect, when compared to the National Employment Standards.

Note 1: Ancillary or incidental terms permitted by paragraph (a) include (for example) terms:

(a) under which, instead of taking paid annual leave at the rate of pay required by section 90, an employee may take twice as much leave at half that rate of pay; or

(b) that specify when payment under section 90 for paid annual leave must be made.

Note 2: Supplementary terms permitted by paragraph (b) include (for example) terms:

(a) that increase the amount of paid annual leave to which an employee is entitled beyond the number of weeks that applies under section 87; or

(b) that provide for an employee to be paid for taking a period of paid annual leave or paid/personal carer’s leave at a rate of pay that is higher than the employee’s base rate of pay (which is the rate required by sections 90 and 99).

Note 3: Terms that would not be permitted by paragraph (a) or (b) include (for example) terms requiring an employee to give more notice of the taking of unpaid parental leave than is required by section 74.

Enterprise agreements may include terms that have the same effect as provisions of the National Employment Standards

(5) An enterprise agreement may include terms that have the same (or substantially the same) effect as provisions of the National Employment Standards, whether or not ancillary or supplementary terms are included as referred to in subsection (4).

Effect of terms that give an employee the same entitlement as under the National Employment Standards

(6) To avoid doubt, if a modern award includes terms permitted by subsection (4), or an enterprise agreement includes terms permitted by subsection (4) or (5), then, to the extent that the terms give an employee an entitlement (the award or agreement entitlement) that is the same as an entitlement (the NES entitlement) of the employee under the National Employment Standards:

(a) those terms operate in parallel with the employee’s NES entitlement, but not so as to give the employee a double benefit; and

(b) the provisions of the National Employment Standards relating to the NES entitlement apply, as a minimum standard, to the award or agreement entitlement.

Note: For example, if the award or agreement entitlement is to 6 weeks of paid annual leave per year, the provisions of the National Employment Standards relating to the accrual and taking of paid annual leave will apply, as a minimum standard, to 4 weeks of that leave.

Terms permitted by subsection (4) or (5) do not contravene subsection (1)

(7) To the extent that a term of a modern award or enterprise agreement is permitted by subsection (4) or (5), the term does not contravene subsection (1).

Note: A term of a modern award has no effect to the extent that it contravenes this section (see section 56). An enterprise agreement that includes a term that contravenes this section must not be approved (see section 186) and a term of an enterprise agreement has no effect to the extent that it contravenes this section (see section 56).”

[15] If a redundancy entitlement arises from the provisions of an agreement, I do not consider that s.120 of the FW Act provides the Commission with the jurisdiction to vary that redundancy entitlement. An agreement redundancy provision, provided it does not offend the provisions of s.55, must establish an entitlement in accordance with the agreement terms. That approach appears to be consistent with the Full Bench decision in CFMEU, CEPU and AMWU v Spotless Facility Services Pty Ltd T/A Spotless in the following terms:

“[56] By virtue of s.55 the parties to an enterprise agreement cannot exclude the operation of the redundancy provisions in s.119. The parties are permitted to include ancillary or supplementary terms in their enterprise agreement. Spotless submits that in the present case the parties have done so, but only to the extent that they have made provision for employees who commenced employment prior to 1 November 2005 (cl.6.3.1), re-location of employees in order to avoid ‘retrenchments’ (cl.6.3.5), alternative employment (cl.6.3.6) and transfer to lower paid duties (cl.6.3.7).

[57] Specifically, Spotless contends that the Agreement does not displace the meaning of ‘redundancy’ in s.119 of the FW Act. That is to say, the parties have not provided a ‘supplementary’ or ‘ancillary’ definition of ‘redundancy’ in the Agreement and nor have they excluded the concept of ‘redundancy’ in s.119(1) of the FW Act, which, it is submitted, continues to apply by virtue of s.55 of the FW Act.

[58] We do not find this submission persuasive. As we have mentioned, the scheme of the FW Act encourages enterprise bargaining underpinned by a guaranteed safety net of minimum terms and conditions established by, among other things, the NES. We see no warrant for implying into the Agreement the terms of s.119(1)(a) which limit an employee’s entitlement to redundancy pay to situations where the termination of their employment is not ‘due to the ordinary and customary turnover of labour’.

[59] The NES set a minimum standard, they are not a code. It is clearly contemplated that enterprise agreements may supplement the NES in the manner contemplated by s.55(4). In this instance the parties have supplemented the NES provision by providing that all employees ‘whose employment is terminated by reason of redundancy’ are entitled to the payment of severance pay as prescribed in subclauses 6.3.2 and 6.3.4 depending on the commencement date of their employment. The structure of clause 6.3 is quite different to the terms of s.119 of the FW Act. Subclauses 6.3.2 and 6.3.4 set out the severance payments to which an employee who has been terminated by reason of redundancy are entitled. In other words, the entitlement to severance pay and the quantum of that entitlement are dealt with in the same subclauses. Section 119 is quite different. The entitlement to redundancy pay is dealt within s.119(1) whereas the quantum of the entitlement is dealt with in s.119(2).

[60] Further, s.119(1) does not define ‘redundancy’, rather it sets out the limited circumstances in which an employee becomes entitled to redundancy pay under the NES. Clause 6.3 of the Agreement also does not set out a definition of ‘redundancy’ but rather sets out the levels of severance entitlement to which an employee becomes entitled if that employee’s employment is terminated by reason of redundancy. Both the quantum of the entitlement and the class of persons to whom the entitlement is payable is expanded by clause 6.3 of the Agreement when compared to the NES, but neither provision defines redundancy.

[61] Definitions of redundancy are to be found in two of the incorporated instruments discussed earlier. Those definitions are not limited to the circumstances in which a redundancy pay entitlement will arise under the NES.

[62] We therefore see no persuasive reason to reading down the phrase ‘whose employment is terminated by reason of redundancy’ in clause 6.3 of the Agreement by limiting the entitlement only to the class of persons entitled to redundancy pay found in s.119(1)(a). As we have already indicated the latter does no more than scope out the class of persons to whom redundancy pay under the NES must be made. It does not define ‘redundancy’ and is therefore of little assistance in identifying a person ‘whose employment is terminated by reason of redundancy’ within the meaning of clause 6.3 of the Agreement.” 1

[16] Further clarification of the requirement for a redundancy entitlement to arise under s.119, as a prerequisite for consideration of s.120 was explained in the Full Bench decision in Australian Commercial Catering Pty Ltd v Powell and Togia 2in the following terms:

“[35] In considering an application made by an employer under s.120, the Commission must first consider whether either of the circumstances set out in paragraphs (a) or (b) of s.120(1) applies. Consideration under s.120 is enlivened upon an application being made by the employer for a reduction in the amount of redundancy pay otherwise payable under s.119. In dealing with such an application, the Commission must first determine whether the preconditions for the application of the section set out in s.120(1) are satisfied - that is, that the employee the subject of the application has an entitlement under s.119 to redundancy pay, and that the employer has either obtained other acceptable employment for the employee or cannot pay the redundancy entitlement.”

[17] In Mr Johnston’s case the redundancy entitlement arises pursuant to the Agreement and not s.119 of the FW Act. Consequently, I do not consider that the Commission has the jurisdiction, or in other words, the authority or power to determine the South East Conveyors & Engineering application, made under s.120 of the FW Act. An Order (PR589117) dismissing the application in accordance with this decision will be issued. That Order should not be misconstrued. It does not dictate that the redundancy payments must be made but simply confirms that issue cannot be addressed under s.120 of the FW Act.

[18] This decision then leaves the issue of Mr Johnston’s redundancy entitlements to be determined. In an effort to assist the parties in this regard, I have made the following, non-binding observations. I doubt that Mr Johnston is able to access the Agreement dispute resolution provisions at this point in time, simply because he is not now an employee covered by the Agreement. Those dispute resolution provisions, at clause 10 of the Agreement refer to “an employee” and Mr Johnston is no longer an employee. Commencing from the premise that South East Conveyors & Engineering continue to assert that the position offered to Mr Johnston in the 6 October 2016 advice was ‘reasonable alternate employment’, consistent with clause 9.4 of the agreement, the issue of his entitlement to redundancy pay is a matter which Mr Johnston may elect to pursue in the Court in order to pursue recovery of any entitlement which he contends is due to him under the Agreement. Before doing so I would recommend that Mr Johnston obtains advice about the extent to which the offer of 6 October 2016 of an alternative position within South East Conveyors & Engineering may be seen as reasonable alternative employment consistent with cl 9.4 of the Agreement and the costs and benefits of any such action.

Appearances:

S Holder and D Watson for South East Conveyors Pty Ltd

A Johnston on his own behalf.

Hearing details (by telephone):

2016.

Adelaide:

November 25.

December 22.

 1   [2015] FWCFB 1162, paras [56] – [62]

 2   [2016] FWCFB 5467

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