Variation to redundancy pay during COVID-19

Two recent Fair Work Commission (FWC) decisions provide guidance to employers about the approach to varying redundancy pay during the time of COVID-19.

The key takeaways are:

  • the FWC may encourage you to consider alternatives to the termination;
  • the onus is on the employer to establish that it cannot pay the amount; and
  • anticipation of a decline in sales and cash-flow issues may not be enough to meet the exemption (particularly where an employer currently has the means to make the payment).

The legislation

Section 120 of the Fair Work Act 2009 (Cth) allows an employer to apply to the FWC to vary the amount of redundancy pay (including to nil), if it cannot pay the amount.

Decision one

In the first decision, the employer was a small business employer in financial difficulty. The business had received no income for two months. It had taken steps to reduce overheads, including selling a company car and making two positions redundant (including the employee the subject of the application).

The employee had been paid his notice period in lieu (3 weeks’ notice), accrued but untaken annual leave and accrued rostered days off.

The FWC considered that the employee:

  • had 8 days off work before starting another job;
  • took leave for a pre-booked holiday to Bali;
  • was required to self-isolate for 14 days in connection with the COVID-19 pandemic; and
  • was paid $2 per hour more in his new job.

The FWC determined to reduce the redundancy pay from 7 weeks to 1 week on the basis that:

  • the employer was under significant financial strain and could not afford to pay the full entitlement to redundancy pay;
  • the viability of the business depended on how long the COVID-19 situation lasts;
  • the employee was out of work and unpaid for 8 days;
  • the notice of termination pay was sufficient to cover the 8-day period; and
  • the payment for annual leave on termination covered the period taken for the holiday to Bali and the period of self-isolation.

Decision two

In the second decision, the employer made three applications to the FWC to reduce the amount of redundancy pay from four weeks’ pay to one week’s pay.

Interestingly in this case, the Deputy President made several comments about the employer’s eligibility for the JobKeeper scheme. The Deputy President suggested that the employer might like to take the time to consider how eligibility for the JobKeeper scheme might impact on its decision to terminate the employees’ employment. The Deputy President also noted that:

  • on the information submitted, the employer’s turnover was predicted to fall by the requisite 30%;
  • the employees were in employment on 1 March 2020; and
  • the JobKeeper payment appeared to equate to approximately 90% of the pre-termination fortnightly wages of each of the employees.

The employer did not accept the FWC’s invitation to consider how the JobKeeper payment might assist and pressed its application.

The FWC considered that:

  • the onus lies with the employer to establish the exemption to pay redundancy pay; and
  • on its own submissions, the employer currently had the means to pay the full amount and had money in the bank today to do so

The FWC declined to reduce the amount of redundancy pay.

If you would like to discuss this further and the implications for your business please contact our Employment + Workplace Relations Partner, Erin Lynch.

Erin Lynch, Partner
M +61 477 330 202
E erin.lynch@vincentyoung.com.au

The contents of this publication do not constitute legal advice and are for general information purposes only.  You should seek legal advice regarding your particular circumstances.