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It is widely understood that permanent employees who have a requisite period of continuous service are entitled to be paid redundancy pay when made redundant.

This is, however, subject to a number of limited exceptions – such as that  “small business employers” (ones with less than 15 employees) are generally exempt from having to pay redundancy pay (although in rare cases modern awards provide that the “small business exception” does not apply).

What is less widely understood is there an ability under s.120 of the Fair Work Act 2009 for an employer to apply to the Fair Work Commission to ask that it should not have to pay redundancy pay (or the amount of redundancy to be paid to be reduced) when it cannot afford to meet its obligations.

Two decisions of the Fair Work Commission made in the context of coronavirus (COVID19) – both made on the same day – illustrate when the Fair Work Commission will, and when it will not, make orders reducing redundancy pay obligations.

In Mason Architectural Joinery Pty Ltd [2020] FWC 1897 (9 April 2020) the Commission found the company was under “significant financial strain” and reduced the relevant worker’s redundancy entitlement from seven weeks’ pay to one.

In contrast, in Worthington Industries [2020] FWC 1912 (9 April 2020), an application to reduce three full-time workers’ redundancy payouts of four weeks was rejected. In doing so, the Commission noted that the employer had sufficient money in the bank to pay the redundancies, notwithstanding that the employer projected future cash flow issues and decline in sales due to COVID-19. Interestingly the Commission also noted that if the employer rehired the workers and claimed the fortnightly JobKeeper payment of $1,500 it would cover about 90% of the redundant workers’ wages.

 

Lessons for employers

The cases illustrate that where a business genuinely cannot afford to pay employees redundancy pay the Fair Work Commission may be inclined to redundancy payments – although this is a hard test to meet. It also appears that the Fair Work Commission may consider whether the employer can rely on the JobKeeper Payment as a relevant factor in reaching its determination.

 

Do you need further help?

If you wish to discuss any matters relating to redundancy or other workplace matters relating to COVID-19 and downturn in work, please do not hesitate to contact EI Legal.

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