In a recent decision, the Fair Work Commission refused to reduce the redundancy amount payable to a speech pathologist, where the employer’s financial difficulties were largely caused by its director.
The Facts
The employer was a provider of rehabilitation services that had terminated the employment of a speech pathologist for redundancy.
Although it was still operating and even hiring new staff, the employer applied to the Fair Work Commission under section 120 of the Fair Work Act for an order to reduce the amount of severance pay from 4 weeks to 1 week.
About the Act
Section 120 of the Fair Work Act allows an employer to apply to the Fair Work Commission to reduce or eliminate an employee’s redundancy pay entitlement if the employer is unable to pay the full redundancy amount. The Commission must also decide if it is “appropriate” to make an order to reduce the redundancy pay.
The Decision
The Deputy President declined to reduce the redundancy pay, finding that:
- The employer was still currently trading, paying its other employees and hiring its new staff.
- The test is whether the employer “cannot pay the amount”, not whether it would rather not pay.
- Although the employer’s latest profit and loss statement showed it was trading at a financial loss, its cash flow issues were self-imposed.
- Although the employer gave evidence that it had attempted to free up cash, for example, entering into lower-cost subscriptions, they made up only a very small percentage of the expenditure, and there was no evidence that the employer made serious attempts to renegotiate current agreements with more cost to the business.
- There was nothing preventing the employer from selling a motor vehicle in its fleet, and paying an employee mileage to use their own vehicle instead, to free up money to pay the redundancy entitlement.
- An expenditure of over $2,500 for 2 months on “staff wellbeing” costs such as birthday cards, cakes and catering, was a frivolous expenditure when the business was facing financial difficulty.
- He could not satisfied be that the employer cannot pay the amount in the reasonably foreseeable future.
The Deputy President also observed that:
- Even if the employer did not have the cash available to pay the amount, he would still deny the application as the financial difficulty appears to have been caused to large degree by decisions of the employer’s director rather than by external forces.
- The employer had been reckless to take on new staff when unable to pay the employee’s redundancy entitlements, which effectively meant that other employees would benefit from the redundancy, and would be unfair to the employee to reduce her redundancy entitlement to one week.
Implications
An employer that is applying to reduce redundancy payments because of an inability to pay can expect to have its operations and financial circumstances closely scrutinised. The employer should also be aware that an application may be refused even if the Fair Work Commission is satisfied that it is unable to pay the redundancy amount.
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