| [2020] FWC 3128 |
| FAIR WORK COMMISSION |
DECISION |
Fair Work Act 2009
s.120–Redundancy pay
Print Logistics Unit Trust
(C2020/2331)
COMMISSIONER LEE |
MELBOURNE, 19 JUNE 2020 |
Application to vary redundancy pay on the basis of cannot pay the amount - whether employer cannot pay redundancy payments – not satisfied employer cannot pay redundancy entitlements - application dismissed.
[1] Print Logistics (Aust) Pty Ltd (the Applicant) has made an application to vary the redundancy pay otherwise due to one of its former employees Ms Sophida Karwa (the Respondent). The application was made on the basis that the Applicant does not have the financial capacity to make the redundancy payment and in that context seeks that the redundancy payments be reduced.
[2] The Respondent is entitled to a redundancy payment of eight weeks pay. She was paid $874.00 gross per week. Therefore, the entitlement to redundancy pay totals to $6,992.00. The Respondent is covered by the Graphic Arts, Printing and Publishing Award 2010. In the original application, the Applicant sought to have the amount of redundancy pay reduced to four weeks and that remained the situation at the Mention Hearing held on 17 April 2020. 1
[3] Following the Mention Hearing the Applicant filed materials in accordance with the directions in support of the application. In the materials filed on 22 April 2020 the Applicant had changed the application to request a reduction of 80% of the total amount of redundancy pay. This represents a reduction of $5,593.60 to $1,398.40.
[4] During the subsequent Hearing on 7 May 2020 Ms Aliye Ibrahim, of the Applicant, explained why the change was made to the quantum of the reduction sought:
“The position is that when we first initially put the application in we thought that we would be able to deal with the four weeks plus the four weeks’ notice, in total of eight weeks. But when I wrote the letter out, our business just went completely down. So at this moment we’ve put a hold on payments to our supplier just to ensure that we have cash flow for our payroll.” 2
“… just to be clear, then, your position is now that you want to reduce the amount of redundancy pay by 80 per cent. Right? -Yes. Only because in the last few weeks we’ve had nothing coming in. We’ve had no funds coming in, our debtors are climbing, our creditors are climbing, and we’re sort of a bit worried – or very worried at the moment. So we just put that in you see, you know, how we would go, because I don’t know what’s going to happen in the next month or so.” 3
[5] There is no dispute that the Respondent has been made redundant. The Applicant has more than 15 employees and therefore is not a small business within the meaning of the Act. 4
[6] The Respondent is represented by the “Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union” known as the Australian Manufacturing Workers’ Union (the AMWU). The Respondent opposes the application on the basis that the Applicant is able to pay the redundancy payment, and should do so. 5 Alternatively, the Respondent submits that:
“… if the Commission is satisfied that the Applicant cannot pay the amount, the Respondent submits that it is not appropriate to make an order reducing the payment due to the diminution of the Respondent’s right to seek payment of the sum as a creditor and/or through the FEG scheme should the Applicant become insolvent.” 6
[7] The Respondent is entitled to redundancy pay pursuant to s.119 of the Act.
[8] Following the Mention Hearing, the parties lodged written submissions and materials.
[9] The material that was filed by the Applicant included bank statements, email exchanges with debtors and creditors of the business, supplier and customer payment arrangements and accounts payable and receivable reports.
[10] I note that the Applicant, via an email sent on 5 May 2020 to my Chambers, objected to the material they supplied being forwarded to the AMWU and the Respondent. In the email the Applicant stated they did not know this would occur and that the information was private and confidential commercial information. I note that the Directions made clear that the material would be served on the other party and therefore the complaint of the Applicant that it was not made clear in the communication that this would occur is without foundation. Nevertheless, in response to the complaint of the Applicant I immediately made confidentiality orders over all of the material filed. The making of the confidentiality order satisfied the Applicant’s concerns about the confidentiality of the material. 7 The AMWU did not object to the making of the confidentiality order.8
[11] A Hearing was held on 7 May 2020. Mr Sinan Dumanli and Ms Ibrahim appeared for the Applicant, and evidence was given by Ms Ibrahim. Mr Joshua Gardner and Mr Robert Gee of the AMWU appeared for the Respondent. As a result, I have determined the application based upon the submissions and material filed by the parties and the evidence adduced at the Hearing.
[12] The National Employment Standards (the NES) provide as follows:
“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 |
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.”
[13] It is common ground that the Respondent has worked for the Applicant for a period of at least four years but less than five years. Therefore, the Respondent is entitled to a redundancy payment of eight weeks.
[14] At the Mention Hearing before me on 17 April 2020 the AMWU raised the prospect of the company avoiding the redundancy of the Respondent altogether by in effect reinstating the Respondent and having her place on the JobKeeper scheme introduced by the Federal Government. I discussed with Mr Dumanli, Operations Manager for the Applicant, that option. Mr Dumanli did not want to utilise the JobKeeper scheme for the Respondent as once the JobKeeper scheme came to an end at the end of September he was not confident that there would be any work for the Respondent to do at that time. 9
[15] The evidence can be summarized as follows, based on the statements made by the Applicant and the AMWU, and the financial information provided which is marked confidential.
[16] In a letter sent to the Fair Work Commission (the Commission) on 22 April 2020, the Applicant stated that it could not make the redundancy payment in full because of the impact of the COVID-19 pandemic. Relevantly:
“As a result of the coronavirus outbreak Print Logistics is currently in a difficult financial situation and has seen a huge financial downturn.
We have experienced significant payment recovery issues in accounts receivables as customer invoice payment delinquency has increased. This has had a significant impact on our cash flow and our ability to sustain our business. We have had to work with our suppliers to extend payments for materials, equipment, loans, maintenance etc. Our revenue has also decreased significantly as a result of reduced sales during this time.
… As such, we have regretfully made the decision to terminate employment of some employee’s …
We understand that we are required to provide a redundancy and entitlements pay-out to this employee, however we are not in a financial position at this tie to afford a full pay-out. As such, we request a 80% reduction of the total amount in consideration of the current financial situation we are in. This will help reduce financial stress and avoid further detrimental impact on our business.” (errors in original)
[17] At the time of the Hearing the accounts payable of the Applicant were in the order of $520,000.00. Accounts receivable were in the order of $220,000.00. Approximately $214,000.00 of the $220,000.00 of the accounts receivable was overdue. Approximately $380,000.00 of the accounts payable were overdue. Consistent with that situation, numerous emails were supplied showing exchanges with the both creditors and debtors where payment terms have been renegotiated to reflect the financial pressure being felt by both the Applicant and the debtors.
[18] The bank statement supplied shows a balance of approximately $120,000.00. During the Hearing, Ms Ibrahim said that while the snapshot was on 23 April 2020, that on the day of the Hearing:
“The current balance of that account, has it changed substantially from where it is on that snapshot? -Okay. It has actually decreased. Decreased.
What would it be currently, approximately? -Well, we’re still in the process of processing today, so I can’t give you an actual figure, but it would probably be around about the same, or lower.
And in relation to your employees, how many employees does the business currently have? -We have under 20.” 10
[19] The Applicant’s evidence is that there were no other bank accounts, other than a credit card. 11
[20] Mr Dumanli summarised the position of the Applicant as follows:
“Couple of things, I think it’s worth discussing, because, yes, that’s - I don’t see how we can afford this now or in the future. I’m not quite sure. And I’m not a financial advisor as well. So we’ve got no jobs coming in, basically. So we’ve got 120 grand owing, no jobs coming in, 500-plus thousand dollars in debt; on top of that, when the banks re-kickstart our repayments and our rent in the CBD, and all our machinery and - I really don’t know what position we’re going to be in. To me it seems like the business is going under.” 12
[21] The Respondent opposes the application for any reduction in her severance/redundancy entitlement. The union filed written submissions which included the following:
• The Respondent acknowledges the Applicant’s present financial difficulties. Nevertheless, the material filed by the Applicant indicates that it has sufficient cash to cover the full redundancy payment owing to the Respondent.
• If the Applicant ultimately becomes insolvent, the preservation of the Respondent’s rights as a priority unsecured creditor and to access entitlements through FEG, is a significant factor weighing against the making of an order under s120.
• The Respondent submits that the payment of the full amount of $6,992 is unlikely to jeopardise the continued operation of the Applicant’s business and, in particular, the continued employment of its remaining employees. Given the Applicant’s financial position, it should be able to access significant assistance through the Federal Government’s JobKeeper scheme to assist it with payments to current employees.
• Should the Commission find that the Applicant cannot pay the amount of $6,992, in exercising its discretion to make an order for a reduction of the redundancy payment the Commission ought to consider that the Respondent was not a highly paid worker.
• The Respondent submits that the Applicant can pay the amount owing to the Respondent under s119 of the FW Act.
• Alternatively, if the Commission is satisfied that the Applicant cannot pay the amount, the Respondent submits that it is not appropriate to make an order reducing the payment due to the diminution of the Respondent’s right to seek payment of the sum as a creditor and/or through the FEG scheme should the Applicant become insolvent.” 13
[22] During the Hearing, Mr Gardner of the AMWU said that they relied on these submissions. 14 Further that the amount of reduction sought of $5,500.00 will not materially assist the business in keeping other workers employed.
[23] Further it was submitted that:
“And if indeed the business is going under, as (indistinct) mentioned, but it seems like it may be going under, we believe that it’s important that Ms Karwa obtains her entitlement to a full redundancy payment, whether that’s to - creditor directly to the business, or through the Fair Entitlements Guarantee Scheme. If the redundancy amount is reduced and then the business goes under, she will have lost that opportunity, and that is a fairly substantial - a fairly significant effect, and that has been an issue that has been discussed in the previous decision.
So we don’t see there being - while we accept that the business is in a very bad financial state, and we sympathise with that, we don’t see the solution to that being reducing Ms Karwa’s redundancy payment.” 15
[24] In an earlier decision Company P v D.S., 16 Commissioner Hampton helpfully summarised some of the key principles, drawing on other decisions made by the Commission, that are relevant to the consideration as to whether it is appropriate to decrease redundancy entitlements on the basis of incapacity to pay. The relevant part of the Commissioners decision is reproduced below:
[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.” 17 (references omitted)
[25] I agree with the Commissioner that these are the relevant principles.
[26] I also agree with the submissions of the AMWU 18 that the Commission may order that the redundancy payment be reduced if the Applicant has established that it “cannot pay the amount”. It is not enough that it would be beneficial, or convenient, for the Applicant not to pay the amount. The Commission has previously stated that “[i]n very few cases would it be appropriate” to make such an order.19
[27] The financial reports provided make it clear that the company is in a poor financial position. Its accounts payable are approximately double that of accounts receivable and it has been renegotiating payments to suppliers in order to account for the financial difficulties that they are currently facing.
[28] However, the Applicant had at the time approximately $120,000.00 cash at bank. No information was provided as to the other assets and/or liabilities of the company.
[29] There is no doubt that the financial position of the Applicant has declined rapidly in recent months as a result of the significant impact of COVID-19 and the associated lockdown and deterioration in economic activity.
[30] A reduction of $5,593.60 in the amount of redundancy required to be paid will provide some small assistance to the financial position of the Applicant.
[31] However, I am not satisfied that the Applicant cannot pay the amount. It is not sufficient to demonstrate that it is merely beneficial to reduce the amount. The material filed indicates that the Applicant has sufficient cash to pay the full amount of the redundancy. This weighs against making the order sought.
[32] In the event the Applicant may ultimately become insolvent, it is relevant to consider the effect an order to reduce the amount payable would have on the status of the Respondent as a potential creditor, as is the impact of any order on the employee’s rights under GEERS. 20 The order sought will diminish those rights and thus is a factor weighing against making the order.
[33] Further, the evidence does not support a finding that the payment of the full amount will have a beneficial effect on other employees, thereby enhancing their prospects of being able to remain in employment. This is also a relevant consideration. 21
[34] Finally, the Respondent is not a highly paid worker, making $874.00 per week. This is a relevant consideration and weighs against a decision to reduce the amount. 22
Should there be a variation to the redundancy entitlement, and if so to what level?
[35] Given my findings, there is no basis for the exercise of a discretion to reduce the redundancy entitlement under the terms of s.119 of the Act.
[36] Based upon the material presently before the Commission, I am not persuaded that the applicant cannot pay the full amount of the redundancy entitlements to which the Respondent is entitled.
[37] The application is dismissed. An order to that effect will be issued concurrently with this decision.
COMMISSIONER
Appearances:
Ms A. Ibrahim and Mr S. Dumanli for the Applicant
Mr J. Gardner and Mr R. Gee for the Respondent
Hearing details:
7 May 2020
Printed by authority of the Commonwealth Government Printer
<PR720212>
1 PN140.
2 PN41.
3 PN47.
4 PN143.
5 The Respondent’s submissions dated 1 May 2020 at [6].
6 The Respondent’s submissions dated 1 May 2020 at [11].
7 PN24.
8 PN26.
9 PN98 – PN108.
10 PN99 – PN101.
11 PN76 – PN77.
12 PN120.
13 The Respondent’s submissions dated 1 May 2020.
14 PN131.
15 PN134 – PN135.
17 Ibid at [32] and [33].
18 The Respondent’s submissions dated 1 May 2020 at [4].
19 Villa Crerarii Pty Ltd v Kahl [2013] FWC 903 at [13].
20 GEERS is a Commonwealth scheme designed to provide certain entitlements when an employee ceases employment through liquidation or insolvency of their former employer. The Fair Entitlements Guarantee (FEG) is a more recent version of the scheme.
21 Villa Crerarii Pty Ltd v Daniel Kahl; PYL Nominees Pty Ltd [2011] FWA 1581; Moltoni Waste Management v P Fairs, R Ellen and K Birkett [2012] FWA 5590.
22 Moltoni Waste Management v P Fairs, R Ellen and K Birkett [2012] FWA 5590 at [30].