Varying redundancy payments due to COVID-19 hardship

In brief 2 min read

For some employers, managing the impact of COVID-19 on their business may ultimately involve making redundancies, and some may struggle to meet their obligations to employees with respect to redundancy pay. This article considers this scenario in the context of two recent Fair Work Commission decisions.

How does it affect you

• If an employer is unable to obtain alternative employment for an employee, or to pay their redundancy pay, the employer may seek an order under section 120 of the Fair Work Act 2009 (Cth) (Act) to vary the redundancy pay. This could provide relief for employers who are genuinely experiencing hardship caused by the pandemic and cannot pay employees their redundancy entitlements.
• Employees whose employers become insolvent and are unable to pay redundancy entitlements may then be able to recover payments under the government-backed Fair Entitlements Guarantee Scheme (FEGS). However, FEGS does not extend to businesses that are in voluntary administration, or those that are experiencing financial distress but are not yet insolvent.

Decisions

In its first COVID-19 related decision under s120 of the Act, the Fair Work Commission decided to reduce the redundancy payment due to a former employee from seven weeks down to one week.¹ The small business employer was experiencing immediate and significant financial difficulty despite having made efforts to decrease its overheads. Relevantly, the employee in question had been paid notice, had accrued annual leave and had successfully secured alternative employment with a higher hourly rate.

By contrast, in a separate case, the Commission refused to vary the redundancy entitlements of three former employees of Worthington Industries Pty Ltd (Worthington).² The business slowdown due to COVID-19 had resulted in Worthington dismissing five full-time employees and projecting a decline in sales and cash flow issues. Worthington argued it would suffer financial hardship if it had to pay the full redundancy amounts. The Commission offered to hold the matter open while the business considered whether it was eligible for the JobKeeper subsidy and could instead rehire the employees, but Worthington elected to proceed with the redundancies. The Commission ultimately found that the business had sufficient liquidity to pay out the full redundancy payments. As Worthington did not satisfy the requirement in the Act that it 'cannot pay the amount' of redundancy pay, its application was dismissed.