Can you reduce workers' redundancy pay to zero?

Company director cites inability to pay due to branch closure: Is it justified?

Can you reduce workers' redundancy pay to zero?

The Fair Work Commission (FWC) recently dealt with an application from an employer seeking to reduce the redundancy entitlements of two workers to zero.

The case arose from the closure of the employer's branch in Balcatta, Western Australia, due to insufficient business. The employer, Paymay Pty Ltd, is one of several companies operating under the umbrella of 'Moneyplus', a loan and finance provider with branches in Western Australia and the Eastern states.

The employer contended that it could not afford to pay the redundancy amounts and that the workers did not cooperate with its attempts to find them alternative employment.

The workers, on the other hand, argued that the employer's financial situation did not justify a reduction in their entitlements and that they had valid reasons for not providing their resumes as requested.

Background and legal framework concerning redundancy

According to the FWC, redundancy entitlements in Australia are governed by the Fair Work Act 2009 (Cth), which establishes the National Employment Standards (NES).

Under section 119 of the Act, employees are entitled to redundancy pay if their employment is terminated due to redundancy, with the quantum of the entitlement based on their period of continuous service.

However, section 120 of the Act allows for the variation of redundancy pay if the employer obtains other acceptable employment for the employee or if the employer cannot pay the amount.

The FWC said it has the discretion to determine whether the redundancy pay should be reduced and, if so, by how much.

Employer's financial situation and corporate structure

The employer presented evidence of its financial challenges, including consistent losses incurred by the Balcatta branch.

The company director explained the corporate structure, where Abaz Pty Ltd was responsible for lending money, Lapoon Pty Ltd for operating costs, and Paymay Pty Ltd for paying wages.

While the FWC acknowledged the branch's financial difficulties, it was not persuaded that the employer could not make the redundancy payments. The evidence showed that other entities within the group had previously channelled funds to cover wage payments for loss-making branches.

"[The company director] emphasised that each branch had to stand alone, he further acknowledged that other branches had been subsidising poorer performing branches," the decision noted.

Workers' conduct and alternative employment

The employer argued that the workers' conduct precluded the opportunity for it to obtain alternative employment for them.

The workers, who had been employed as a branch manager, and the other as a finance application processor, had declined to provide updated resumes when requested.

The employer claimed that the resumes were genuinely needed to pursue potential employment opportunities with a competitor.

The FWC considered the workers' reasons for declining the request. One worker wanted to move away from the finance industry, while the other wished to access superannuation and take a break.

"The conduct of declining to provide an updated resume merely because that former employee prefers to access the benefits of redundancy pay may constitute a failure to cooperate with [the employer] that … may well disentitle the employee to all or some of the redundancy payment," the decision said.

The FWC's decision

The decision reminded both employers and workers that they have mutual obligations during the redundancy process.

Employers must demonstrate a genuine inability to pay entitlements, while workers are expected to cooperate with reasonable requests related to potential alternative employment opportunities.

After weighing the evidence and arguments, the FWC determined that a 50% reduction in the workers' redundancy entitlements was appropriate.

The workers' conduct had ultimately hindered the employer from pursuing a process that could have potentially reduced its redundancy obligations.

"On balance, I consider it appropriate to vary the amounts of redundancy payment that otherwise would have been forthcoming to the workers. I am satisfied that a 50% reduction is warranted. The conduct of the workers ultimately precluded the [employer] from engaging in a process that may have caused [its] obligation for redundancy pay to be reduced," the FWC said.

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