Timbercraft Pty Ltd

[2011] FWA 6283

[2011] FWA 6283

FAIR WORK AUSTRALIA

DECISION

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

Timbercraft Pty Ltd
(C2011/5200)

SENIOR DEPUTY PRESIDENT O'CALLAGHAN ADELAIDE, 13 SEPTEMBER 2011

Application to vary redundancy pay for other employment or incapacity to pay.

[1] On 22 July 2011 Timbercraft Pty Ltd (Timbercraft) lodged an application with Fair Work Australia (FWA) to set aside, or reduce redundancy payments due to its current and/or former employees. Those employees were engaged under the terms of the Joinery and Building Trades Award 2010 and the Clerks Private Sector Award 2010. Both awards refer to the redundancy provisions set out as National Employment Standards in the Fair Work Act 2009 (the FW Act). This standard applies at s.119:

“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

.....”

[2] The Timbercraft application was made pursuant to s.120 of the FW Act which 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, FWA may determine that the amount of redundancy pay is reduced to a specified amount (which may be nil) that FWA 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.”

[3] In the application, Timbercraft asserted that 24 of its 25 employees would be made redundant on or around 29 July 2011. Timbercraft asserted that some employees had access to a portable industry redundancy scheme (BIRST) to offset redundancy entitlements to some extent. Information to establish the extent of BIRST entitlements was not clear to me in these proceedings and I have not further addressed this issue. Timbercraft asserted that it had sought and found suitable alternative employment for some employees and that the redundancy entitlements for the remaining employees should be reduced to nil, or an amount specified by FWA as a requirement to pay those employees redundancy entitlements would force the employer to become insolvent.

[4] On 25 July 2011 I issued directions in which I summarised the Timbercraft application, and confirmed that the matter would be the subject of a hearing on 8 August 2011. Timbercraft was required to publish these directions on employee noticeboards. My directions invited employees who wished to be heard relative to the application to contact my office or attend this hearing.

[5] A number of employees contacted my office. Some employees forwarded written information to my office. In a number of cases this was in the form of formal Fair Work Ombudsman Workplace Complaints. In summary, the majority of those employees who expressed an opinion indicated that they strongly opposed the application. Some indicated a desire not to have their names disclosed to Timbercraft.

[6] At the hearing on 8 August 2011 Timbercraft was represented by Mr Coull, a Director, and his partner, Ms Boyd. Both worked for Timbercraft and were also identified as employees.

[7] A significant number of the former Timbercraft employees attended the hearing. However, only two employees, Mr Firka and Mr Miller made submissions. These former employees made statements on their own behalf and that of employees generally. However, they advised that they were not representing other employees.

[8] The initial Timbercraft position was that suitable alternative employment had been found for 10 employees such that the redundancy payments due to those employees should be reduced to nil, or, in the alternative, by an amount determined by FWA. Timbercraft provided some limited information relative to the alternative employment found for these employees. Timbercraft conceded that one of these employees, Mr Miller had been found employment which was at a significantly lower remuneration rate and, as such, it did not pursue a reduction in redundancy entitlements for Mr Miller on that basis.

[9] Secondly, Timbercraft sought that redundancy entitlements for 15 other employees made redundant on or around 29 July 2011, should be reduced to nil, or to an amount determined by FWA on the basis that Timbercraft could not pay that amount. In this respect, Timbercraft advised that it had sold almost all of its plant and equipment and was now no longer achieving income other than by way of the sale of its limited remaining assets. Timbercraft provided me with a form of cash flow statement which, as at 6 August 2011 showed that it had cash at hand of $328,534.61. This same statement showed projected costs and final contract payments such that by October 2012 cash at hand would amount to $69,243.51 without the payment of redundancies. These costs included ongoing payments in some form to Mr Coull.

[10] Timbercraft advised that all employee entitlements other than redundancy had been paid to employees. Outstanding redundancy payments due to employees were estimated at $176,236.50.

[11] At the hearing on 8 August 2011 Mr Coull briefly referenced the actions taken to obtain suitable alternative employment for various employees. The basis upon which Mr Coull claimed that Timbercraft was unable to pay any employee redundancy entitlements caused me substantial concern. As a result, I requested that Mr Coull obtain advice from the Timbercraft accountant with respect to the proposition that redundancy payments not be required in order to allow Timbercraft to make other payments as a matter of preference. I also asked Mr Coull to detail the specific actions Timbercraft had taken to obtain suitable alternative employment for Timbercraft employees.

[12] The matter was the subject of a second hearing on 10 August 2011. Timbercraft provided a detailed statement of the actions taken to obtain suitable alternative employment for nominated employees.

[13] At this second hearing, I advised that I would send this information to the former employees concerned and give them an opportunity to respond to it. I also decided that it was appropriate to give the remaining former employees the opportunity to comment on the Timbercraft position.

[14] At the hearing Mr Coull confirmed his earlier position that Timbercraft sought that all redundancy entitlements be reduced to nil because of Timbercraft’s inability to pay. He advised that he was committed to ensuring that Timbercraft did not become insolvent and that the requirement to make redundancy payments would mean that he had to sell properties personally owned by him to inject those funds into Timbercraft.

[15] Employees were provided with the relevant information and invited to respond by 18 August 2011. A significant proportion of the employees responded. Those responses were then provided to Timbercraft. On 24 August 2011 Mr Coull advised that he did not seek a further hearing but provided additional information in support of his position.

[16] In reaching a decision in relation to this application I have taken into account all of the information provided to me. In doing so, I note that a substantial amount of this information is of a personal nature and reflects the somewhat acrimonious relationship that now exists between Timbercraft and some of its former employees.

Findings

[17] The obligation to pay redundancy pay in accordance with the FW Act may be modified by relevant modern award provisions. I do not consider that the applicable modern awards alter the obligation to make the redundancy payments specified in s.119.

[18] There are two discrete grounds upon which Timbercraft seek relief from the obligation to make redundancy payments. The first is dependent upon Timbercraft establishing to me that it obtained acceptable alternative employment for nominated employees. The second ground is more broadly based and applies to all employees who are entitled to redundancy payments on the basis that Timbercraft advises that it cannot pay those redundancy payments.

[19] I have initially considered whether any of the redundancy payments should be reduced because Timbercraft obtained acceptable alternative employment for certain employees.

[20] The capacity to reduce redundancy entitlements on the basis of the obtaining of acceptable alternative employment or an inability to pay has been generally available from the time that redundancy provisions were initially included in awards.

[21] In the Australian Industrial Relations Commission’s supplementary decision in the 1984 Termination, Change and Redundancy Case 1, the Full Bench adopted a provision which closely reflects s.120(1)(b)(i).

[22] Whilst dealing with an award provision in very similar terms to s.120, a Full Bench in Australian Chamber of Manufacturers and Derole Nominees  2 (ACM) confirmed:

“The provision does no more than provide an avenue by which an employer may apply to the Commission to vary the obligation which otherwise would be imposed by the award. It does not follow from the terms of the clause that an employer coming within its scope will achieve necessarily full or partial relief. The level of relief, if any, to apply in a given case is a matter to be determined as an exercise of discretion in the circumstances of that case. The provision has two aspects which have been of particular importance in the circumstances of this appeal. They are the meaning of the phrase "acceptable alternative employment" and the word "obtains" in the context.”

[23] Three considerations may become relevant in this respect. Firstly, Timbercraft needs to establish that it obtained the employment in question. Secondly, there is the question of whether that alternative employment is "acceptable". Finally, is the issue of what level of reduction, if any, is appropriate.

"Obtains"

[24] As the Full Bench in ACM acknowledged, the term "obtains" originated from the initial 1984 Termination Change and Redundancy Test Case 3 decision where the Full Bench stated:

“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."

(reference removed)

[25] In ACM the Full Bench observed:

“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.” 4

(reference removed)

[26] I have applied this approach to the consideration of the steps taken by Timbercraft to achieve alternative employment for its employees. I note that the concept of obtaining acceptable alternative employment does not necessitate that an employee actually accepts that employment.

Acceptable alternative employment

[27] In ACM the Full Bench concluded:

“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.

This approach to the test demonstrates that any alternative employment available to the eighteen former employees of the company cannot be regarded as "acceptable" merely because a number of other former employees took up employment at the new location. The relevant aspects of the job must be examined objectively to determine whether the employment is "acceptable".” 5

[28] In that matter the Full Bench considered:

• payments to employees and the basis for those payments



• the nature of the work



• the loss or otherwise of continuity of employment



• working conditions



• recognition of security



• travel to work conditions.

[29] Other decisions (most notably Clothing and Allied Trades Union v Hot Tuna 6) have added factors such as:

• fringe benefits



• hours of work

[30] In as much as the information before me permits it, I have applied these factors to my consideration of the work involved.

Quantum of any reduction

[31] The obtaining of acceptable alternative employment is an essential prerequisite for the granting of any reduction in redundancy entitlements pursuant to s.120(1)(b)(i). The quantum of any such reduction is a matter of discretion. The factors associated with the assessment of whether the alternative work is acceptable may also become relevant to the quantum of any reduction. Additionally, I consider that the extent to which the alternative employment involves a loss of accrued entitlements and the likely duration of any employment, are particularly relevant as these employment entitlements have been regarded as an important element of redundancy payments since 1984. 7

Findings

[32] I have considered each of the employees in respect of whom Timbercraft seek the reduction of redundancy payments on the basis that it obtained all of those employees, acceptable alternative employment.

Mr Harnock

[33] Mr Harnock commenced with Timbercraft in 1984. He worked as a joiner.

[34] Mr Coull asserts that he unsuccessfully endeavoured to obtain acceptable alternative employment for Mr Harnock in the course of his discussions with a potential machine purchaser but that he was successful in doing so after he contacted a Mr Spry from Spry and Spry. Mr Coull advised that he arranged an interview which resulted in Mr Harnock being offered employment as a joiner. Mr Coull asserts that the new position involves minimal travel time, and improved weekly pay rate and comparable working hours.

[35] Mr Harnock seeks his full redundancy entitlements following 27 years of service. He referred to the difficulty he had in adjusting to the new work environment and his job uncertainty.

[36] I do not understand that Mr Harnock’s new employer recognises his service with Timbercraft.

[37] I am satisfied that Timbercraft obtained acceptable alternative employment for Mr Harnock and that there should be a reduction in the redundancy entitlement due to him. I have taken particular account of the uncertainty associated with Mr Harnock’s new employment and his long service with Timbercraft. I have concluded that the redundancy entitlement due to Mr Harnock should be reduced by 10%.

Mr Gustainus

[38] Mr Gustainus commenced employment with Timbercraft in 1995. He worked as a joiner/edge-bander operator.

[39] Mr Coull asserts that he obtained acceptable alternative employment for Mr Gustainus whilst discussing the sale of the Timbercraft edge-bander. He asserts that Mr Gustainus’ new employment, as an edge-bander operator provides for improved pay, minimal travel time and comparable working arrangements.

[40] Mr Gustainus concedes that Mr Coull introduced him to his new employer and facilitated an interview but argues that this was done by chance. Mr Gustainus advised that he was uncertain about the new position but took it following advice from Mr Coull that he would not be receiving redundancy payments.

[41] I do not understand that Mr Gustainus’ new employer recognises his service with Timbercraft.

[42] I am not satisfied that Timbercraft obtained acceptable alternative employment for Mr Gustainus and have not reduced the amount of Mr Gustainus’ redundancy entitlement, In reaching this conclusion I have had particular regard to the somewhat circumstantial nature under which the alternative employment was achieved, and Mr Gustainus’ long service with Timbercraft.

Mr Hitch

[43] Mr Hitch commenced employment with Timbercraft in 2000. He worked as a computer operator.

[44] Mr Coull asserts that he obtained acceptable alternative employment for Mr Hitch which recognised his computing and programming skills by contacting an employer close to Mr Hitch’s home. Timbercraft assert that Mr Hitch earns a comparable salary and enjoys a significant travel time benefit.

[45] Mr Hitch acknowledges that Mr Coull arranged an interview and asserts that he obtained the new job on merit. He advises that he earns less and works longer hours at a faster rate.

[46] I am satisfied that Timbercraft obtained acceptable alternative employment for Mr Hitch. In assessing the quantum of the reduction in redundancy payments, I have taken particular note of Mr Hitch’s advice about his work circumstances. I have reduced Mr Hitch’s redundancy entitlement by 10%.

Mr Darren Evans

[47] Mr D Evans commenced employment with Timbercraft in 1999. He worked as a Beam Saw Operator.

[48] Mr Coull asserts that he made substantial efforts to obtain acceptable alternative employment for Mr D Evans and that his efforts to do so with Steed Form overlapped Mr Evans own efforts to some extent.

[49] Timbercraft asserts that Mr D Evans’ new position is comparable, results in similar income and involves comparable travel time.

[50] Mr D Evans advised of the efforts he took to obtain alternative employment. He explained his uncertainty about his current position. I am not satisfied that Timbercraft obtained acceptable alternative employment for Mr D Evans and have not reduced his redundancy entitlement.

Mr Firka

[51] Mr Firka commenced employment with Timbercraft in 1999. He worked as a joiner.

[52] Mr Coull asserts that he arranged an interview for Mr Firka which led to his employment. Timbercraft asserts that Mr Firka’s new position involves comparable duties, marginally increased pay and similar travel time from home.

[53] Mr Firka asserts that he had other employment options as a result of his own efforts but took his current position following advice from Mr Coull that he should do so and that any other employment would deprive him of redundancy entitlements. Mr Firka regards the position adopted by Mr Coull in this respect, as coercive. Mr Firka has reservations about his current working hours and observes that the pace of work is more rapid. He asserts that he is paid $39 per week less and must work different overtime arrangements.

[54] I do not understand that Mr Firka’s new employer recognises his previous service with Timbercraft.

[55] I am satisfied that Timbercraft obtained acceptable alternative employment for Mr Firka. Given that Timbercraft seek to avoid all redundancy payments I have not viewed the Timbercraft approach toward Mr Firka as coercive, but I have accepted Mr Firka’s advice about his income. Taking into account the specific circumstances which applied, I consider that a 10% reduction in Mr Firka’s redundancy entitlement is appropriate.

Mr Stephen Evans

[56] Mr S Evans commenced employment with Timbercraft in 2002. He worked as a foreman and cabinet maker.

[57] Mr Coull asserts that he obtained acceptable alternative employment for Mr S Evans although this did not involve duties as a factory foreman. Mr Coull asserts that Mr S Evans’ new position involves significantly higher weekly pay, comparable hours and travel time.

[58] Mr S Evans’ position is that he disputes that Timbercraft actively sought alternative employment for him and asserts that his new duties are substantially different in that his new position involves a significant pay reduction and longer travel time. He asserts that he was coerced into taking this position.

[59] I do not understand that Mr S Evans’ new employer recognises his previous service with Timbercraft.

[60] I am not satisfied that Timbercraft obtained acceptable alternative employment for Mr S Evans and have not reduced his redundancy entitlement.

Mr Khchao

[61] Mr Khchao commenced employment with Timbercraft in 2004. He worked as an assembler.

[62] Mr Coull asserts that he obtained acceptable alternative employment for Mr Khchao, that this involves comparable work and payments of over $100 per week above the Timbercraft rate, comparable work hours and travel time.

[63] Mr Khchao does not dispute that this work was obtained for him and advises that the pay differential is substantially less, the workload is higher and that he is uncertain about his future employment prospects.

[64] I do not understand that Mr Khchao’s new employer recognises his service with Timbercraft.

[65] I am satisfied that Timbercraft obtained acceptable alternative employment for Mr Khchao. I have concluded that Mr Khchao is better placed than Timbercraft to comment on his salary. Taking into account the specific circumstances I consider that a 20% reduction in Mr Khchao’s redundancy entitlement is appropriate.

Mr Tilley

[66] Mr Tilley commenced employment with Timbercraft in 2008. He worked as a machinist.

[67] Mr Coull asserts that he found two acceptable alternative jobs for Mr Tilley. He asserts both jobs were comparable, involved increased pay, comparable working hours and travel time in the order of half an hour from home. He asserts that Mr Tilley elected not to take either job.

[68] Mr Tilley's position is that neither job offer was actually put to him and neither position matched his skills.

[69] I am not satisfied that Timbercraft obtained acceptable alternative employment for Mr Tilley and have not reduced his redundancy entitlement.

Mr White

[70] Mr White commenced working for Timbercraft in 2009. He worked as an estimator.

[71] Mr Coull advises that he found a position for Mr White "by pure luck more than anything else". 8

[72] He advised that this position arose from discussions with another company which disclosed the possibility of a full-time estimating position. Timbercraft assert that this position was of a comparable nature, comparable hours and remuneration level and was in close proximity to Mr White's home.

[73] Mr White advised that he did not expect a redundancy payment. He confirmed the circumstances of his new employment and commended Timbercraft on its employment practices.

[74] I do not understand that Mr White's new employer recognises his service with Timbercraft.

[75] I am satisfied that, notwithstanding its "accidental" nature, Timbercraft obtained acceptable alternative employment for Mr White. Taking into account the specific circumstances I consider that a 25% reduction in Mr White’s redundancy entitlement is appropriate.

Mr O'Reilly

[76] Mr O'Reilly commenced working for Timbercraft in 2008. He worked as an apprentice cabinetmaker.

[77] Mr Coull asserts that Timbercraft contacted another employer about employment for Mr O'Reilly but Mr O'Reilly declined this offer. Mr Coull advised that he subsequently arranged an interview with Mr O'Reilly's current employer and that Mr O'Reilly took up the employment offer made to him.

[78] Information about alternative work functions is not available to me such that I can be satisfied that there should not be any reduction of redundancy entitlements which may be due to Mr O'Reilly.

Other Employees

[79] Timbercraft has provided other information with respect to efforts made to obtain acceptable alternative employment for other employees. However, I have relied on Mr Coull’s advice at the initial hearing of the matter such that the relief from redundancy on the basis of s.120(1)(b)(i) was only claimed with respect to employees named in Annexure C to the application and that its claim with respect to Mr Miller, who was included in this Annexure was now not pursued.

[80] Notwithstanding this, to the extent that the Timbercraft application seeks a reduction in redundancy entitlements for other employees on the basis that Timbercraft obtained suitable alternative employment for those employees but that these employees did not reasonably facilitate that alternative employment, I am not satisfied that, on the material before me there should be any reduction of entitlements pursuant to s.120(1)(b)(i).

Inability to pay

[81] Timbercraft seek the reduction of redundancy entitlements due to all other former employees, with the exception of Mr Cattermole, who was paid his redundancy payments in June 2011, on the basis that it is unable to pay these redundancy amounts. I have taken it that, to the extent that my earlier findings preserve all, or components of the redundancy entitlements for the first group of employees addressed in this decision, Timbercraft similarly seek that these entitlements be reduced. I have also noted that redundancy entitlements for Mr Coull and his partner Ms Boyd are included within this part of the application.

[82] The capacity to seek a reduction in redundancy entitlements as a result of an inability to pay similarly had its genesis in earlier award provisions. The 1984 Termination Change and Redundancy Test Case specifically recognised that this capacity which was argued in part, on the desirability of avoiding business insolvency. The operation of the Commonwealth Government General Employee Entitlements and Redundancy Scheme now provides the capacity for employees of businesses that become insolvent to receive redundancy and other accrued entitlements.

[83] Nevertheless, the issue of incapacity to pay may remain relevant to situations where payment of redundancy entitlements could impact on other existing employees. This is not the situation here.

[84] In simple terms, the issue here is whether the funds currently held by Timbercraft should be preserved for the payment of other commercial debts or substantially utilised for the payment of redundancy entitlements. The financial statements provided to me by Timbercraft indicated that as at 6 August 2011 cash at hand was $328,534.61. On the information provided to me I am satisfied that this exceeds the maximum redundancy entitlements due to employees.

[85] I have noted the positions put by various employees potentially affected by this part of the Timbercraft application. Again, these arguments are of a substantially personal nature and do not assist in the determination of this issue.

[86] Mr Coull’s desire to avoid Timbercraft becoming insolvent is both commendable and responsible. However, on the information before me, I am satisfied that Timbercraft has the funds to meet its redundancy obligations. The payment of those redundancy entitlements may well create a funding shortfall in terms of other commercial debts. How Timbercraft deals with this is a matter for its directors but, on the information before me, I am not satisfied that s.120(1)(b)(ii) should be applied so as to allow for preferential treatment of commercial debt obligations at the expense of employee entitlements for a business which is not insolvent.

[87] Accordingly, I am not satisfied that any redundancy entitlements should be reduced on the basis of Timbercraft’s inability to pay.

Conclusion

[88] An Order [PR514551] reflecting these reasons for decision will be published.

[89] The application is, in all other respects, dismissed.

SENIOR DEPUTY PRESIDENT

Appearances:

J Coull and T Boyd for Timbercraft Pty Ltd.

R Firka and S Miller on their own behalf.

Hearing details:

2011.
Adelaide:
August 8, 10.

 1   Print F7262

 2   Print J4414

 3   Print F6230, p. 48

 4   Print J4414, p. 4

 5   ibid, p. 5

 6 (1988) 27 IR 226

 7   Termination Change in Redundancy Test case Print F6230, pp. 48-51

 8   Timbercraft correspondence of 10 August 2011

Printed by authority of the Commonwealth Government Printer

<Price code C, PR514551>