severance payments not made in transmission of business

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severance payments not made in transmission of business

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HRLink Issue No: 85/00

In instances where a business is transmitted to a new owner, and the employees do not lose continuity of service, redundancy or severance payments are not generally made. This is because the employees continue in employment, and the previous employer mitigates its obligation to make severance payments by assisting employees who are redundant into alternative employment (ie with the new owner).

In Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union v United Milk Tasmania Limited, Print S7351, [2000] 727 IRCommA, 23 June 2000, the Full Bench of the federal Commission rejected an appeal by the union against a decision that refused to award severance payments to employees who were transferred to a new employer when the business was sold.

Background

In December 1997, United Milk Tasmania Limited (UMT) sold its farm machinery division to Tasmanian Farm Equipment (TFE). Employees of the UMT farm machinery division were informed that their employment would be 'transferred' as of 1 January 1998 to TFE on the same conditions.

In subsequent meetings with TFE, former UMT employees accepted offers of employment with TFE at a lesser rate, rather than face the prospect of unemployment. There was no evidence that TFE made representations as to severance pay entitlements in the event of redundancy or other conditions of employment. By way of background, it is worth noting that UMT's policy was to make a severance payment to employees who became redundant based on 3 weeks' pay per year of service.

In late August 1998, the union filed an application on behalf of 5 employees that sought orders against UMT for severance pay at the rate of 3 weeks per year of service. Two former UMT employees had since the transmission of business, been made redundant by TFE in September 1998, and received severance pay based on 1 week's pay per year of service.

On 24 January 2000, the Commissioner at first instance dismissed a s170FB application by the trade union, for severance pay against UMT. These proceedings constituted the union appeal against the decision of Leary C, in which the Commissioner dismissed the application for orders pursuant to s170FB of the Workplace Relations Act 1996. Section 170FB provides that upon application by the union, the Commission may make an order under s170FA. The provisions of s170FA enable the Commission to make orders for the purpose of giving effect to the requirements of Article 12 or 13 of the Termination of Employment Convention. Article 12 of the ILO Convention relates to severance allowance and other separation benefits.

Appeal

The primary contention of the union was that the Commissioner at first instance erred in finding that the situation was not one to which s170FA applied. In so doing, the union contended that the Commissioner had made a finding that she had no jurisdiction to entertain the application. Such a finding, it was submitted, constituted a wrongful refusal to exercise jurisdiction.

The Full Bench of the Commission held that the jurisdictional objection by the union involved an 'over-technical' approach. According to the Full Bench, Leary C regarded it as significant that the employees secured employment with TFE. In holding that s170FA had no application, the Commissioner merely identified that the situation, was one in which the employees ceased employment with one employer but immediately commenced employment with a successor, thereby the situation was not of the kind that the s170FA was designed to address.

The union's second ground of appeal was that the Commissioner erred in concluding that UMT did not terminate the employment of the employees in December 1997. Once again the Full Bench did not concur. It was open to the Commissioner to find, as she did, that the employees agreed to end their employment with UMT and commence with TFE. None of the five employees involved in these proceedings testified that their employment had been terminated either summarily or on notice by UMT. Although all were apprehensive that if they did not accept employment with TFE they would be without employment. Nonetheless, it did not follow that UMT terminated their employment.

Pursuant to the Commission's decision in the Termination, Change and Redundancy Case (1984) 8 IR 34, severance pay is not required to be paid in cases of succession, assignment or transmission of business. Therefore, in a situation such as this where TFE recognised the previous service of employees with UMT, the Full Bench believed it open to the Commissioner to dismiss the claim for severance pay against UMT. This approach was supported by the Commonwealth, which submitted that in situations where employers assist employees who are redundant into alternative employment, there is no warrant for the making of an order to give effect to Article 12 of the Convention.

The union also claimed that UMT had given its employees undertakings that their entitlements would be transferred to TFE. These undertakings, argued the union, were breached by virtue of the fact that the employees made redundant by TFE were paid one weeks' pay rather than 3 weeks' pay per year of service. The Full Bench also rejected this line of reasoning, finding that it

...was open to the Commissioner to conclude that when TFE offered employment and the employees accepted it, in the absence of any misrepresentation by TFE, any earlier undertakings made by UMT became insignificant.

The granting of leave to appeal was declined.

 
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