FWC rejects company’s redundancy reduction bid


Business downturn not enough to prevent entitlements being paid

FWC rejects company’s redundancy reduction bid
The FWC was critical of the company's approach to redundancy entitlements

 

A company that was able to repay one of its directors a $100,000 personal loan but argued it could not afford to pay two employees under $12,000 in redundancy entitlements has had its application thrown out by the Fair Work Commission (FWC).

‘Company A’, under a confidentiality order, asked to reduce the redundancy entitlements of two former employees to nil on grounds of incapacity to pay.

The FWC heard the company was impacted in early 2019 by loss of work from a significant customer – at its peak representing 80 per cent of the business's work – and another contract.

While the business got "a little busier" in October 2019, it noted there were "presently no substantial orders".

In November and December 2019, it "let go of" its storage yard, a cost reduction of $64,000 per year, and made two roles redundant, holding on to 14 full-time and four casual employees.

The two respondents were notified on December 6 that their employment was terminated effective December 20.

The first respondent accepted the redundancy, while the second did not, believing there were other duties he could perform given his qualifications in transport and logistics and sheetmetal.

In response, the company argued he was employed to support its storage of trucks, and had been retained to drive trucks around for customers, a service the the company could no longer afford to offer.

Any remaining truck driving duties "would be split between two team leaders who would do so among the other duties they are engaged to perform".


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The FWC determined the company was required to pay entitlements as it was not considered a ‘small business employer’ with under 15 employees (it had at least 16 full-time, one part time and four casual employees at the relevant time), and both respondents were employed for at least 12 continuous months.

The first respondent, employed for 18 months, was entitled to four weeks’ redundancy at $3,731.60, while the second was employed for four years and eight months with a redundancy entitlement of eight weeks at $7,904; a combined total of $11,635.60.

In determining whether there was a case to reduce those entitlements to nil, an analysis found the company had just under $200,000 available cash as at January 10, 2020.

This was down from $350,000 on December 30, 2019, due to the repayment of a personal loan worth $100,000 to another director of the same firm, alongside other bills and holiday pay.

The cash reduction cited by the directors was rejected by the commission.

"It is plain that the Directors of Company A are concerned about their business becoming insolvent and are deploying a range of measures aimed at reducing costs whilst balancing their desire to continue operating," it notes.

"However, there is no evidence that the redundancy entitlements cannot be paid.

"There is no suggestion that an order to reduce the redundancy pay entitlements to nil would save the business from insolvency or other financial consequences or otherwise, sufficient to support a finding it ‘cannot pay’.

"To the contrary, the evidence as at 10 January 2020 is that there is sufficient cash in the bank to pay the entitlements of both Respondents being a combined total of $11,635.60."

The commissioner was critical of the circumstances surrounding the personal loan being prioritised ahead of redundancy entitlements.

"In the face of evidence that other commercial debts are being elevated in priority over that due to these individuals who have been made redundant, I am not satisfied (without more evidence) that there is sound basis to form the view that Company A cannot pay.

"For example, the Director at the Hearing did not provide any credible explanation for why another Director was repaid $100,000 just days after notice of redundancy was given, in preference to these individuals being paid their combined total of redundancy payments being $11,635.60.

"Conceivably, a further loan from that Director is a reasonable source of funding to pay the Respondents."

As such the application was dismissed, with redundancy entitlements to be paid in full.

 

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