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COVID pain justifies redundancy pay cuts

An employer has received permission to reduce its redundancy payouts.
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COVID pain justifies redundancy pay cuts

COVID pain justifies redundancy pay cuts

17 June 2020

By Mike Toten

A printing company in serious financial trouble has received permission to substantially reduce its redundancy payouts to four long-serving employees – after it had notified them they were redundant.

The redundancies were triggered by COVID-19 restrictions, but the company was already in financial trouble before that.

The Fair Work Commission ruled that its financial situation and obligations to remaining employees took precedence.


Facts of case

The four employees worked for a company the employer had acquired about a year earlier. One was aged 61 and two of them had more than 10 years’ service. Their owed redundancy pay ranged from six to 13 weeks. The employer applied to reduce the payments to either one or two weeks’ pay.

Despite a cash injection by family members, that part of the business continued to run at a loss after acquisition. There were plans to relocate it to smaller premises to reduce costs, but when COVID-19 restrictions began, the owners decided that they had no option but to close that section of the business and retrench the employees.

The employer believed that JobKeeper did not apply in this case because the recent acquisition of the extra business meant it could not meet the test for reduction of turnover.

The employer provided evidence that it had only a small amount of cash in the bank, and needed to pay its other employees the following week. It had insufficient cash flow to pay the full entitlements.

The employees complained that the employer had confirmed their redundancies, then told them later it would apply to the FWC to reduce their payments.


Decision

The FWC accepted the employer’s evidence of its financial position. It allowed the employer to reduce the redundancy payments as follows:
  • For the employees owed 12 or 13 weeks’ pay: back to four weeks’ pay
  • For the employee owed six weeks’ pay: back to only two weeks’ pay

The reduced amounts were double what the employer had applied for.

The bottom line: COVID-19 has created some exceptional circumstances and the FWC and other tribunals have had to adapt very quickly to them. This case shows how an employer can argue that being in a very difficult financial position justifies reducing the entitlements it has to pay to employees. However, each case will be decided on its individual circumstances and the onus is on the employer to provide clear evidence that it is unable to pay out full entitlements.

Section 120(1)(b) of the Fair Work Act 2009 covers the circumstances in which an employer can apply to reduce redundancy payments. It includes “cannot pay the amount”.


Read the judgments

There are individual judgments for each employee, but the only variation in each is to deal with each employee’s work history.

HyperLife Pty Ltd t/a Acme Preston v Brennan [2020] FWC 3080, 12 June 2020

HyperLife Pty Ltd t/a Acme Preston v Black [2020] FWC 3081, 12 June 2020

HyperLife Pty Ltd t/a Acme Preston v Davis [2020] FWC 3082, 12 June 2020

HyperLife Pty Ltd t/a Acme Preston v Hamshere [2020] FWC 3083, 12 June 2020

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