Redundancy Series: Varying redundancy pay – making an application to the FWC

The Fair Work Act 2009 (Cth) (the Act) provides a mechanism by which an employer can make an application to the Fair Work Commission (FWC) to vary the amount of redundancy pay that must be paid to the employee. Employers can seek that the amount be reduced to a lower amount or reduced to zero.

In the sixth part of this redundancy series, we look at where an employer can make an application to vary redundancy pay on the basis that the employer cannot pay the amount.^[1]

It is critical to understand that the employer cannot rely on its own assessment to decide to reduce, or not pay, redundancy pay. An employer must make a successful application to the FWC to be able to lawfully take such action.

Making the application

In an application to vary redundancy pay on the basis that the employer cannot pay, the onus lies on the employer to demonstrate that there are grounds justifying the exercise of the FWC’s discretion in this way. That is, the employer must satisfy the FWC that it is appropriate to make the order.

In Mildren Automotive Pty Ltd,^[2] Commissioner Hampton drew upon previous decisions relating to this provision and provided a summary of the main principles that apply when an employer makes an application of this kind:^[3]

• The employer must satisfy the FWC that it is not financially competent or possessed of the necessary funds to make the payment, and has no reasonable source of funds.
• The assessment of financial competence will include consideration of the financial standing of the business including its cash position and the assets of the business.
• The effect upon the employees immediately impacted will be considered, including whether making an order prevents the employee from recovering the entitlement through other means, the effect that any order may have on the status of employees as potential creditors should the company become insolvent and the impact of any order on the employee’s rights under the General Employee Entitlements and Redundancy Scheme or similar schemes.
• The effect upon the continuation of the business, including whether reducing the entitlement of dismissed employees may have a beneficial effect on other employees, thereby enhancing their prospects of being able to remain in employment.

Satisfying the FWC that it should make such an order is a high bar to meet. It is not enough for an employer to demonstrate that it is merely beneficial or of assistance to reduce the amount to be paid. The evidence must be such that the FWC is able to find that the employer “cannot pay”.^[4]

For completeness, the incapacity to pay provisions will not apply when the entitlement to redundancy pay arises not from section 119 of the Act, but instead from a source such as an award. In the recent case of Cameron Fraser; Construction, Forestry, Maritime, Mining and Energy Union v JFM Civil Contracting Pty Ltd,^[5] the Full Bench considered an order made by the FWC to reduce the amount of redundancy pay to zero. In this instance, the redundancy payment arose from an industry specific scheme detailed in a modern award applying in the building and construction industry. In quashing the earlier decision, the Full Bench found that the order reducing the amount of redundancy pay payable pursuant to the modern award was not valid.”^[6]

The DLA Piper employment team has extensive experience in assisting employers with the redundancy process. Please don’t hesitate to reach out to our team who would be more than happy to discuss this topic with you.