Redundancy pay: how much is enough?


Redundancy pay: how much is enough?

These FWC cases cover issues of whether the employer can establish an argument that it has an ‘incapacity to pay’ redundancy pay and whether various loadings should form part of redundancy pay.


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These cases from the Fair Work Commission cover issues of whether the employer can establish an argument that it has an ‘incapacity to pay’ redundancy pay and whether various loadings should form part of redundancy pay.
Incapacity to pay application, but company still trading
The employer, Eudunda Community Children’s Centre Inc (ECCC), applied for relief of liability to make redundancy payments to ex-employees upon closure of their facility due to incapacity to pay. The applicant argued ECCC had no unfettered assets or cash reserves to meet employee redundancy pay entitlements and no prospect of meeting such claim. The company intended to build assets to be sold and be voluntarily wound up after sale.
A former employee and United Voice objected to the application. The employee had no access to the General Employee Entitlements and Redundancy Scheme (GEERS) as the employer was not insolvent. Even if the employer’s application was granted and redundancy pay extinguished, the employees would still have no access to GEERS.
It was argued that the application was not in the public interest and of no advantage to employer, save for obviating the need to declare insolvency. It was also not in the employees’ interests because it would deny them access to GEERS and their right to redundancy pay would be extinguished.
Commissioner Steel found all parties acted without malicious intent and acted in regard to their prudential requirements as officers and board members. The intention was to sell the building as an ongoing strategy to remove debt and return a viable asset to community. At an earlier time, employee provisions were considered to be met by such a transaction, however, redundancy pay was not contemplated. When this liability was realised, the strategy was not altered save for making an application to have the liability extinguished. The Commission considered it premature for the applicant to submit it could not meet its redundancy pay liability given the parties were still in discussion about the asset sale.
The Commission identified a potential benefit to the applicant (ie it would remove a remaining debt and, hence, the potential issue of insolvency). In contrast, the absence of insolvency excluded employees from access to GEERS. For these reasons the application was declined.
Re Eudunda Community Children’s Centre Inc [2013] FWC 5552 (9 August 2013)

Incapacity to pay not established
The applicant-employer sought to vary redundancy entitlements payable to six employees to nil on the ground that it could not pay the amount. The employer relied solely on the information provided with its application.
The respondent-employees made submissions including that the employer had not made attempts to find them other suitable employment. Those employees who had found other work had done so themselves.
The Commissioner — Spencer C — referred to the decision in PYL Nominees concerning a similar application. In the present matter, the profit and loss statement revealed a profit in the millions. The employer’s submission regarding its financial status included that it would be unattractive to liquidate its assets. It had sold an investment property to meet its debts.
The critical issue was: why should employees forego their entitlement to redundancy payment in circumstances where there was an absence of material justifying the employer’s incapacity to pay? The onus rested solely on the employer to prove its case.
In the circumstances, it was appropriate to give greater weight to the predicament of employees. The employer had not satisfied the Commission it was unable to pay. There was a lack of evidence that it had obtained suitable acceptable alternative employment for the employees.
Redundancy pay to each of respondents was not to be reduced.
Re Webbers Retravision Gladstone [2013] FWC 5417 (6 September 2013)

Elements of redundancy pay calculation
This case concerned an application for dispute resolution under the Cryovac Australia P/L (Fawkner) & National Union of Workers Enterprise Agreement 2012–2015. The issue was whether annual leave loading, first-aid and leading-hand allowances should form part of severance pay for 7-day/12-hour shift workers who were being made redundant. The decisions in Wanneroo (2006) 153 IR 426 and Amcor (2005) 222 CLR 241 were followed so as to consider the construction and context of the agreement.
Though the payment of leave loading in cl 20.2 appeared to be unambiguous, it had to be considered in the context of other provisions in agreement. Clause 32 specified unique entitlements for 7-day/12-hour shift work including a loaded rate of pay. Annual leave loading was built into average pay. The FWC found the argument that payment of leave loading during a period of leave and at termination attracted different rates must be incorrect without express language to that effect. It was unjust that only 7-day/12-hour shift workers would be compensated twice for annual leave at termination. Clause 34.5 excluded the payment of annual leave loading if an employee leaves or is terminated. The FWC found that cl 20.2 acted to ensure redundant employees who were not on a loaded rate would receive annual leave loading. The applicant-union sought to rely on an unexecuted deed of release regarding leave entitlements provided to an employee.
The FWC found the deed did not assist, and provided a calculation that was contrary to both parties. The Commission — Gostencnik DP— was satisfied the respondent’s calculation was correct. There was no requirement under cl 20.2 to pay additional loading. The claim for first-aid allowance was withdrawn. The matter was to be relisted solely to determine the claim for payment of leading-hand allowance.
National Union of Workers v Cryovac Australia P/L [2013] FWC 7036 (16 September 2013)
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