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Fair Work Commission confirms it has no power to reduce modern award derived redundancy entitlements

29 September 2020

#Workplace Relations & Safety, #COVID-19

Published by:

Victoria Fijalski

Fair Work Commission confirms it has no power to reduce modern award derived redundancy entitlements

A Full Bench of the Fair Work Commission (FWC) has recently confirmed it has no power to reduce the redundancy entitlements derived from modern awards containing industry-specific redundancy schemes. 

In the case of Cameron Fraser; Construction, Forestry, Maritime, Mining and Energy Union v JFM Civil Contracting Pty Ltd [2020] FWCFB 4866 here, the FWC Full Bench overturned an earlier FWC decision granting an application by the company to reduce a former employee’s redundancy entitlement to nil according to section 120 of the Fair Work Act 2009 (FW Act).

If an employer cannot pay redundancy payments under the National Employment Standards (NES), section 120 of the FW Act gives the FWC power to reduce the amount of redundancy pay to a lesser amount (including to nil) if the FWC considers it appropriate. However, in this case, the former employee’s employment was covered by the Building and Construction General On-site Award 2010 (BCG Award) which contained an entitlement to redundancy pay under an industry-specific redundancy scheme. Based on an analysis of the company’s financial position, the FWC found, at first instance, that the company could not pay the employee eight weeks of redundancy pay due to financial losses and a downturn in available work. On this basis, the FWC reduced the employee’s entitlement to redundancy pay under the BCG Award to nil.

On appeal, the Full Bench of the FWC found the Commissioner had acted beyond power in reducing the redundancy entitlement calculated under the BCG Award. The Full Bench confirmed the FWC’s power to reduce redundancy entitlements under section 120 of the FW Act only applies if the employee is entitled to redundancy pay under the NES, being section 119 of the FW Act. This means that if an employer and its employees are covered by a modern award that contains an industry-specific redundancy scheme, the employer will not be able to apply to the FWC for a reduction in redundancy pay.

The FWC has recently determined a number of applications seeking to vary redundancy pay, largely arising out of the effects of the COVID-19 pandemic. In the Yu Kitchen Pty Ltd [2020] FWC 4151 decision here, the FWC reduced two former employee’s NES derived redundancy entitlements from over $3,000 to just $134.13 each. In this case, the FWC was satisfied the business had been “decimated by the pandemic” but saw no reason why the remaining $268.26 in the company’s bank account should not be divided between the employees. However, in the Worthington Industries [2020] FWC 1912 decision here, the FWC refused to reduce NES derived redundancy entitlements for three former employees from four weeks’ pay to one weeks’ pay. The company argued making the redundancy payments would cause them financial hardship but ultimately the FWC was satisfied the company had the means to make the full redundancy payments and had money in the bank to do so.  

Lessons for employers

Employers considering redundancies must consider their obligations to make redundancy payments under a modern award or enterprise agreement. Some modern awards and enterprise agreements provide employees with more beneficial entitlements, including entitlements for employees of small business employers that would not otherwise be entitled to NES derived redundancy payments.  Employers looking to apply for a reduction in NES redundancy payments must be able to show the FWC that they cannot pay the amount. It will not be sufficient to demonstrate that it is merely beneficial for the employer to have the amount reduced.   

Authors: Charles Power & Victoria Fijalski

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Victoria Fijalski

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