Redundancies are generally driven by factors such as technological advances, company restructuring and business closures. Now, of course, employers and employees alike need to deal with the challenges posed by a pandemic. Due to the COVID-19 crisis there has been a dramatic increase in the number of employees whose positions are being made redundant by businesses who can no longer afford to keep them usefully employed. While the JobKeeper scheme has sought to alleviate the current financial burden on some Australian employers, not all businesses are eligible, and they still may need to look at other options including redundancy.
In this regard, what happens when an employer is unable to afford redundancy pay, particularly in the midst of the current pandemic? This article looks at two recent
Redundancy overview
When an employee is made redundant, in almost all cases they will be entitled to receive redundancy pay from their employer, usually in accordance with the (service based) quantum specified in the Fair Work Act 2009 (Cth) (the Act).
There are two circumstances in which an employer can apply to the Commission to have the amount of redundancy they would otherwise have to pay under the Act reduced:
- the employer has found other acceptable employment for the employee; or
- the employer is unable to afford the full redundancy amount.
It is ultimately for the Commission to determine whether the redundancy pay will be reduced and by how much (including to nil). The recent cases of
In Mason, the relevant employee had been employed by
While the employer paid out the notice period, Commissioner McKinnon considered the employer's application to the Commission to vary the quantum of redundancy due to incapacity to pay.
Commissioner McKinnon noted that the employer was a small business suffering significant financial strain. Although the business had recently received one payment for a completed job, it had lost further work due to the pandemic and was "trying to work through the current crisis".
The Commission also observed that the employee had been able to find alternative work with a higher hourly rate, and that the short period for which the employee was out of work was sufficiently covered by the paid notice period.
In these circumstances, Commission McKinnon considered it appropriate to reduce the amount of redundancy pay to which the employee was entitled to one week's pay (from the seven weeks' pay to which he would otherwise have been entitled).
By contrast, in Worthington, Deputy
In his reasoning, Deputy
- [20] "Further, I highlighted the section of the FAQ dealing with the situation where a company might have let their workers go, which indicated that if such workers were rehired, they could immediately receive the JobKeeper Payment, even if it was necessary for the employer to immediately stand them down. I indicated that there was also a section entitled "What should I do if I want to re-hire an eligible employee who received a redundancy package?". I noted that the answer to that particular "FAQ" was that if re-hired, the employer "will need to consult with the employee and consider prevailing workplace arrangements to settle redundancy terms." I expressed a preliminary view that the applications before me might perhaps be capable of being considered part of "prevailing workplace arrangements to settle redundancy terms"."
In their submissions
In making his decision, Deputy
Some observations
The cases of Mason and Worthington illustrate some of the factors the Commission will take into consideration when assessing applications from employers to reduce redundancy pay. Notably, even in a situation as unprecedented as the current COVID-19 crisis, employers will not be given carte blanche when it comes to a reduction in redundancy pay. The reasoning in Worthington also suggests employers should carefully consider their eligibility for any government subsidies (most notably, JobKeeper, the primary purpose of which is to keep staff employed) before effecting redundancies with the intention of then making an application for a reduction in redundancy pay.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Mr
Swaab
Level 1
NSW
2000
Tel: 292335544
Fax: 292335400
E-mail: srt@swaab.com.au
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