Recent Fair Work Commission decisions on reducing redundancy amounts payable by employers impacted by COVID-19

By 20 April, 2020 No Comments

The Fair Work Commission (FWC) recently approved an application by Mason Architectural Joinery Pty Ltd to reduce an employee’s redundancy payout from seven weeks to just one. Commissioner McKinnon ruled that due to circumstances surrounding COVID-19, the company was not in a financial position to pay the full redundancy entitlement. However, on the same day, the FWC rejected a similar application by Worthington Industries to reduce the redundancy pay of three employees.

Key Takeaways

  • Section 120 of the Fair Work Act allows employers to apply to reduce severance pay if they cannot afford to pay it.
  • The amount of redundancy may be reduced to what the FWC deems appropriate.
  • In light of the COVID-19 pandemic, the Government’s JobKeeper scheme needs to be taken into account when making decisions around redundancy.
  • If companies have the means to pay the full redundancy entitlements, or are eligible for the JobKeeper scheme, it is unlikely that a reduction will be made by the FWC.

The Decision for Mason Architectural Joinery Pty Ltd

Mason Architectural Joinery’s successful application to reduce a worker’s seven-week redundancy payout to just one week was the first ruling to cut redundancy payments during the COVID-19 pandemic. The application was approved after Commissioner McKinnon accepted that the company was in a poor financial position due to a downturn in work. Here, the employee was retrenched before March 1st when the JobKeeper Scheme had been implemented  and was therefore not entitled to payments under the scheme. Further, the employee had already been paid three-weeks termination pay and had secured a new job with higher pay. Mason Architectural Joinery Pty Ltd was a small business and at the time was unable to afford the full redundancy payment.

You can read the full decision here.

The Decision against Worthington Industries

In Worthington Industries case, the company had a turnover less than one billion dollars and experienced a forecast 30 per cent decline in revenue, thus making them eligible for the JobKeeper payments. The Company indicated that they did not intend on applying for the scheme as they were uncertain of how long the downturn would last. Worthington Industries instead promised to re-hire three full time workers as casuals and argued that paying full redundancy entitlements would cause financial hardship due to the impending reductions in turnover. Importantly in the case, the company indicated that it was able to pay the required redundancy payments, but it was not preferable due to the forecasted downturn.  Deputy President Clancy therefore ruled:

Worthington Industries currently has both the means to pay the full amount of the redundancy entitlement of each of the Respondent Employees and the money in the bank to do so. Having regard to this statement, I am not satisfied Worthington Industries comes within the circumstances [of section 120 of The Act]’.

You can read the full decision here.

The Difference

The primary difference between these two cases is that Worthington Industries was eligible for the JobKeeper Scheme, but instead chose to consider its financial position as time went by. Further, the company had the means to pay the entirety of the redundancy entitlements of the employees, but applied to the Commission for a reduction given its uncertain financial position and forecast reductions in turnover.  Comparatively, Mason Architectural Joinery Pty neither had the ability to apply for the JobKeeper scheme, nor had the means to pay the full redundancy entitlements at the time the application was made. The differences in these rulings indicate that the FWC will encourage eligible companies to take advantage of the JobKeeper scheme, rather than applying to reduce redundancy payments over predicted downturns.

Redundancy in Era of COVID-19

In the midst of the Coronavirus pandemic, redundancy may be an expensive option for employers. Businesses should initially consider their eligibility under the Government’s JobKeeper scheme. Eligible businesses will be entitled to $1500 per employee via the Australian Taxation Office, to be paid to employees under the existing payment system. This can be used to subsidise current wages or paid as a subsistence wage if the employee has been stood down, and the employer intends to re-hire the employee when business returns.

You can find more information about the JobKeeper scheme here.

Unsure about the options for your business during this uncertain time? Speak with one of our specialist employment lawyers by clicking here.

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