Relief from Redundancy during COVID-19 – Recent Fair Work Commission Decisions

With government restrictions beginning to ease in the wake of reducing numbers of COVID-19 cases in Australia, the financial effects of the pandemic continue to impact many industries. In response to the pressures of COVID-19, many organisations have made the unfortunate yet unavoidable decision to make roles redundant.

However, the financial impacts of COVID-19 are compounded when organisations, unable to retain employees, are also unable to pay redundancy entitlements. In certain instances, employers have made applications for a reduction in redundancy payments pursuant to section 120 of the Fair Work Act 2009 (Cth) (the Act). Recent decisions of the Fair work Commission (Commission) have highlighted what the Commission takes into account when hearing an application to reduce redundancy pay. While the Commission has, in some instances, granted applications to reduce redundancy, it has also ruled that despite the financial circumstances of the employer, it must still comply with the consultation provisions of applicable industrial instruments.

Mason Architectural Joinery Pty Ltd [2020] FWC 1897

To be granted a reduction in its obligation to pay redundancy, an employer must establish that (and the Commission must be satisfied) that the financial strain on a business is sufficiently severe to warrant the reduction.

In the case of Mason Architectural Joinery Pty Ltd [2020] FWC 1897 (Mason), the Commission granted the application made by a small architectural firm to reduce its obligation to pay seven (7) weeks’ notice to one (1) weeks’ notice to one of two redundant employees.

The Commission in Mason considered that the employee had received payment for notice, accrued annual leave and accrued rostered days off upon termination of his employment. Further, the employee had secured new employment which received a higher rate of pay. The employer submitted that it had also taken material steps to reduce its overheads (such as lowering spending) notwithstanding losing two client jobs due to the COVID-19 pandemic and going months without any income. On this basis, the Commission was satisfied that the employer was under significant financial strain to grant the reduction in redundancy.

Worthington Industries Pty Ltd v Ablahad and others (2020) FWC 1912

However, in the case of Worthington Industries Pty Ltd v Ablahad and others (2020) FWC 1912 (Worthington), the Commission rejected an application by an employer to reduce its obligation to pay four (4) weeks’ notice to one (1) weeks’ notice as the employer had “... money in the bank” to pay the redundancy.

The employer in Worthington submitted that it could not afford to pay the redundancy as a substantial amount of its operations were impacted by the COVID-19 pandemic including an increase in competition. At the Commission’s request, the employer provided estimates of projected downturn including an unlikely reduction in rent. During the proceedings, the employer’s representative indicated that while the employer had funds to pay the redundant employees their redundancy pay at the time, the employer would soon be in a deficit. Further, when given the chance to participate in the Federal Government’s JobKeeper Scheme, the employer opted to receive a decision on its application instead.

Notwithstanding the difficulties experienced by the employer in Worthington, the Commission held that the employer was in a position to pay the employees their redundancy and was ordered to do so. Accordingly, the application was dismissed.

Australian Municipal, Administrative, Clerical and Services Union v Auscript Australasia Pty Ltd [2020] FWC 1821

While the above cases illustrate the varying findings of the Commission, the case of the Australian Municipal, Administrative, Clerical and Services Union v Auscript Australasia Pty Ltd [2020] FWC 1821 (Auscript) emphasises that employers are not permitted to deviate from an obligation to comply with consultation obligations under applicable industrial instruments when considering redundancies during the COVID-19 pandemic.

In Auscript, the Commission held that the employer had not met its consultation obligations of the applicable enterprise agreement, and ordered the employer to refrain from making employees redundant until they had satisfied those obligations. Notably, the Commission stressed that consultation was not “conducted for mere show” and was not to be treated “perfunctorily or as a mere formality”. Rather, the Commission emphasised that consultation provides the employee with an opportunity to influence the decision. The Commission’s findings indicate that an employer will receive an adverse decision where there is a failure by the employer to consult with employees about redundancies notwithstanding whether the employer has experienced severe financial strain.

Take Home Messages

The above cases illustrate that employers seeking to make applications to reduce its obligations to pay redundancy will need to clearly set out the financial hardship it has experienced and in particular, that its financial position would not allow for redundancies payments to be made. Further, it is clear that the Commission’s discretion is exercised on a case by case basis – there is not a ‘one size fits all’ application.

However, it is also clear that when considering redundancies an employer must, as a first step, engage in genuine consultation with employees about the proposed redundancies in accordance with the terms of an applicable industrial instrument (in state and local government jurisdictions, a similar approach applies).

For more specific information on any of the material contained in this article please contact Virginia Liu on +61 8 8210 1279 or vliu@normans.com.au or Thomas Tagirara on +61 8 8217 1337 or ttagirara@normans.com.au.