As we step through the long standing effects of COVID-19, JobKeeper starts to dissipate in time and Employers look to restructure their business in response to less demand or increased efficiencies redundancies will be a very usual occurrence.
How can Employers reduce their redundancy entitlement payments? Here are 3 factors to consider………
Factor 1 – Acceptable employment elsewhere
Making an application to the FWC to reduce redundancy pay is not a quick or easy process. An application can be made to vary redundancy pay on one of two grounds – being:
- Pursuant to s 120(1)(b)(i) of the Fair Work Act 2009 (Cth) (FW Act) the employer finds the employee ‘acceptable employment’ elsewhere. There is much conjecture over the definition of ‘acceptable’. There is no set criteria to guarantee a successful application however, as a minimum the following steps should be taken:
- Most importantly, the alternative employment must be obtained prior to the employee’s redundancy taking effect.
- The employee must be given all relevant information regarding the new role before the current employment ends.
- Albeit, the assessment of whether an alternative role is “acceptable” or not is an objective one (employee’s views are not determinative) it would obviously be beneficial if the employee was accepting of the new role and relevantly states that in writing.
Factor 2 – Cannot pay the amount – there is discretion
- Pursuant to s 120(1)(b)(ii) of the FW Act employers can make an application to vary redundancy pay because it cannot pay the amount. Recent case law has shown the Fair Work Commission’s (FWC) use of its discretion to allow an employer to vary redundancy for financial reasons will vary case to case. One consistent element is that projected financial loss is very unlikely to satisfy the FWC that an employer cannot pay redundancy at the time it is due. Employers must sufficiently demonstrate they are financially unable to pay redundancy at the time termination occurs.
Factor 3 – Consider the case law
Successfully application Case study – Mason Architectural Joinery Pty Ltd  FWC 1897:
- Employer experiencing financial hardship due to COVID-19.
- The Employer had taken steps to significantly reduce overheads.
- Employer had received payment for notice, accrued annual leave and accrued rostered days off on termination of his employment. He had also secured new work at a higher rate of pay.
- FWC was satisfied it was financially impossible for employer to pay redundancy at the time redundancy occurred.
- The redundancy payable was reduced from 7 weeks to 1 week.
Unsuccessful application Case study – Worthington Industries Pty Ltd v Ablahad, Treloar and Subair  FWC 1912
- Employer was clearly experiencing cash flow issues.
- Employer pressed for a decision on its application in the interests of providing certainty to those involved and assist in projections.
- FWC acknowledged the difficult circumstances however noted the financial evidence provided were mainly based on projections and not sufficient evidence the employer couldn’t pay at the time of redundancy.
- FWC rejected the application on those grounds.
If a company is considering genuine redundancies consider the above 3 elements from a strategic perspective – there may well be options to reduce the redundancy pay.
About the Author
Jonathan Mamaril leads a team of handpicked experts in the areas of employment law and commercial law who focus on educating clients to avoid headaches, provide advice on issues before they fester and when action needs to be taken and there is a problem mitigate risk and liability. With a core value of helping first and providing practical advice, Jonathan is a sought after advisor to a number of Employers and as a speaker for forums and seminars where his expertise is invaluable as a leader in this area as a lawyer for employers.