Application by Stabilcorp Pty Ltd [2016] FWC 2287 (12 April 2016) [2016] FWC 2287 FAIR WORK COMMISSION DECISION Fair Work Act 2009 s.120 - Application to vary redundancy pay for other employment or incapacity to pay Stabilcorp Pty Ltd (C2016/191) DEPUTY PRESIDENT LAWRENCE SYDNEY, 12 APRIL 2016 Variation of redundancy pay. [1] On 3 February 2016 Peta Pinson, the Managing Director of Stabilcorp Pty Ltd (the Applicant) lodged an application to vary redundancy pay which would otherwise be available under the National Employment Standards, pursuant to s.120 of the Fair Work Act 2009 (the Act) on the ground of incapacity to pay. The application also stated that the applicant had only seven employees and was therefore exempt from liability to pay redundancy pay as a small business. [2] The Applicant is a construction and roads contractor located at Wauchope in Northern New South Wales. [3] The employee made redundant on 22 January 2016, was Mr Rodney O’Malley, also of Wauchope (the Respondent). The Respondent was a full-time mechanic in receipt of approximately $50,783 per annum. [4] The application stated that the Respondent commenced “10 months ago”. It also stated that he had been an employee of Diveva Pty Ltd (Diveva) which had been purchased by the Applicant in March 2015. He and six other employees had transferred their employment. [5] The hearing took place on 15 March 2016. The Applicant was represented by Mr R. Murphy, solicitor who appeared with Ms Peta Pinson, in Sydney. The Respondent appeared by telephone from Wauchope and was represented by Mr L. Hendy. Both Mr Murphy and Ms Hendy were granted permission to appear pursuant to s.596. [6] Both parties filed written submissions prior to the hearing on which they relied. Legislative Provisions [7] Section 117 contains the notice required to be given on termination and s.119 sets out the scale of redundancy pay. [8] Sections 120 and 121 provide: “ 120 Variation of redundancy pay for other employment or incapacity to pay (1) This section applies if: (a) an employee is entitled to be paid an amount of redundancy pay by the employer because of section 119 ; and (b) the employer: (i) obtains other acceptable employment for the employee; or (ii) cannot pay the amount. (2) On application by the employer, the FWC may determine that the amount of redundancy pay is reduced to a specified amount (which may be nil) that the FWC considers appropriate. (3) The amount of redundancy pay to which the employee is entitled under section 119 is the reduced amount specified in the determination. 121 Exclusions from obligation to pay redundancy pay (1) Section 119 does not apply to the termination of an employee’s employment if, immediately before the time of the termination, or at the time when the person was given notice of the termination as described in subsection 117(1) (whichever happened first): (a) the employee’s period of continuous service with the employer is less than 12 months; or (b) the employer is a small business employer. (2) A modern award may include a term specifying other situations in which section 119 does not apply to the termination of an employee’s employment. (3) If a modern award that is in operation includes such a term (the award term ), an enterprise agreement may: (a) incorporate the award term by reference (and as in force from time to time) into the enterprise agreement; and (b) provide that the incorporated term covers some or all of the employees who are also covered by the award term.” Agreement Coverage [9] It was conceded by Mr Murphy that the Respondent’s total service was over seven years based on the transmission of business from Diveva Pty Ltd to the Applicant. He commenced on 5 November 2008. Based on the scale in s.119 he would be entitled to 13 weeks’ pay in addition to four weeks’ notice. [10] Diveva was covered by the Coastal Asphalt and Civil Constructions Pty Ltd and Diveva Pty Ltd T/A Mid Coast Road Services, Enterprise Agreement 2010 [AE879047] (the Agreement). The Agreement was approved by the Commission on 12 July 2010 with a nominal expiry date of 20 July 2013. Clause 6.1 “Termination of Employment and Redundancy” contains the notice period for employees and Clause 6.3 “Redundancy” contains the redundancy payment schedule. Both are consistent with the NES. [11] On 4 February 2016, the Applicant applied to terminate the Agreement, pursuant to s.225 of the Act. Commissioner Riordan terminated the Agreement with effect from 11 March 2016. The Applicant’s Case [12] The Applicant conceded that the liability to pay redundancy pay to the Respondent arose from the Agreement. It conceded that the Applicant became bound by the Agreement as a transferrable instrument in accordance with s.313 of the Act. [13] The Applicant denied that the Respondent performed the same work for the Applicant as he had for the Respondent. The Applicant sought to show that these were separate companies working in different aspects of the civil construction industry. [14] It is apparent that the two have a number of common features: ● the same premises; ● the same telephone and fax numbers; ● staff who work for both companies; ● the principals are husband and wife. [15] However, the Applicant denies that they are associated companies within the meaning of the Corporations Act. [16] The Applicant submits that the redundancy is genuine as the role of mechanic has been outsourced. [17] The Applicant seeks to reduce the redundancy pay to zero because it is a small business employer which cannot afford to pay. The Respondent’s Case [18] The Respondent’s original submission was directed as establishing that the Applicant and Diveva are associated companies. This submission was based on the factors that the two companies had in common as noted above. This was designed to show that in reality there was one entity which had more than 15 employees and had financial resources such that it could not be shown that there was incapacity to pay. The structure of Deviva was, it was submitted, a device to avoid the payment of workers’ entitlements. Approach of the Commission [19] An applicant who seeks to remove an employee’s entitlement to redundancy pay bears a heavy onus in persuading the Commission to exercise its discretion pursuant to s.120. [20] In Moltoni Waste Management v P. Fairs and Ors [2012] FWA 5590 , Bissett C dealt with a s.120 application based on an incapacity to pay claim in a situation where the employer had ceased to trade and had no source of income. She stated: “[25] The discretion to grant an application to vary redundancy pay is a broad discretion. [26] On the basis of the material presented to me it is apparent that the company had no or minimal cash in hand at the time the applications were made. [27] I accept that at the time the applications were made MWM had ceased trading. Mr Moltoni does not indicate that he intends to place the company in voluntary administration. It is clear however that the company has substantial debts to Baw Baw Shire Council and, should the Council seek to act on those debts, the status of the company will inevitably change. [28] What has not been made clear is why the employee entitlements were not paid at the time of the termination of their employment. Mr Moltoni had the option of making these payments. The company was not under administration such that these decisions were taken out of his hand. That the Respondents were not paid at the time of the termination of their employment seems to have been a deliberate decision of the company. [29] It would indeed be wrong if an employer could voluntarily wind up their company, run down the accounts of the company over time and then apply to the tribunal for relief from the obligation to make redundancy payments. This is not to say an employer cannot cease to operate a business if they so choose. That is their right but the obligations of the business to employees cannot go unheeded in the process. [30] I am mindful of the fact that the Respondents in this matter were not highly paid. There are questions as to whether MWM has met its obligations to pay superannuation or full termination payments to the Respondents including outstanding leave entitlements. To grant the applications will further penalise them by denying them any right to access GEERS payments should these become available. [31] Further the granting of the applications will not absolve MWM of any obligation to the Respondents as they may still have claims for outstanding leave and other entitlements. [32] The granting of the applications will not alter the position of the MWM in any material sense - it will not save MWM from creditors (if there are any) nor will it ensure the company remains in a viable situation (given that it is not trading). [33] In all of these circumstances I have determined not to grant the applications as sought by MWM. I shall not reduce the amount of redundancy pay on the basis that the employer cannot pay. [34] The applications are dismissed.” [21] In Villa Crerarii Pty Ltd v Daniel Kohl [2013] FWC 903 Deegan C was prepared to make an order under s.120 on the following grounds: “[12] Clearly there is no cash available to the company at this point in time with which the redundancy payment might be made to Mr Kahl. While I sympathise with Mr Kahl’s situation I must have regard to the evidence that the current employees have not been paid their wages on time and that any payment to Mr Kahl might reduce their prospects of receiving these payments. [13] The legislation envisages that there will be cases in which it is appropriate to remove an employer’s obligation to make a redundancy payment on the ground that the employer is unable to pay. In very few cases would it be appropriate to do so, particularly given the effect such an order would have on the employee’s right should the company be wound up. The decisions acknowledge that an appropriate case for such an order is one where the order would have a beneficial effect on the prospects of other employees. It is my decision that this is such a case. If the company is required to make the payment to Mr Kahl it may well have the effect of putting in jeopardy the employment of the remaining employees. As Mr Kahl has found finding other employment in the area so difficult I am reluctant to take any course which may bring about such a result. [14] I am satisfied that in this case the employer cannot pay the redundancy pay entitlement of Mr Kahl. I will grant the application and reduce the obligation upon the employer to nil. An order to that effect will issue separately.” [22] In Company P. v D.S . [2014] FWC 4673 Hampton C summarised the principles to be applied in a s.120 application as follows: “[32] The ability of an employer to apply to the Commission for a variation in relation to its obligation to pay redundancy has its origins in the Termination, Change and Redundancy Case of 1984. [33] Drawing upon that decision and the various decisions of the Commission when applying provisions akin to those in the State award, the following principles appear: The provision means that the Commission “may” determine to reduce the amount of redundancy pay up to an amount of nil, indicating that the granting of full or partial relief from the obligation is an exercise of discretion in the circumstances of the case. The employer bears the onus of establishing that there are grounds justifying the exercise of the discretion. 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 concerned will be considered including whether making an order prevents the employee from recovering the entitlement through other means should the company be liquidated; 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 (GEERS) 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, are also relevant considerations.” Consideration [23] As I have already noted, the Applicant conceded that at the time the Respondent was made redundant he was employed pursuant to the Agreement. The fact that the Agreement was subsequently set aside is, it seems to me, irrelevant. The redundancy obligation, it is conceded, arises from the Agreement rather than s.119 of the Act. An application under s.120 relates to an entitlement which arises under s.119, not an agreement. Similarly, s.121 has no application. On this basis the s.120 application would be dismissed. [24] I raised this point at the hearing. Given that this was not the basis the parties had prepared their cases, they were given a week to provide written submissions. [25] Mr Murphy emailed on 18 March to advise that the Applicant had nothing further to add. [26] Ms Hendy filed a submission on 23 March 2016 to the effect that s.120 does not apply because the redundancy entitlement arises from the Agreement. She submitted that the Commission has no discretion to vary the terms of the Agreement. The Respondent submitted that an order for costs should be made against the Applicant. [27] Mr Murphy opposed the order for costs on 30 March 2016. Conclusion [28] For the reasons set out in paragraph [23] above, I have decided to dismiss the application. [29] Even if the redundancy entitlement had arisen under s.119, I would not have held that the Applicant had satisfied the onus of establishing grounds for incapacity to pay. There was no conclusive evidence of financial hardship. Indeed, the evidence of the practical linkages between the Applicant and Diveva supported a conclusion that there were adequate resources to pay. [30] The task for the Respondent is now to enforce the Agreement. I would recommend that the Applicant make the redundancy payment in accordance with the Agreement. [31] Settlement of the matter will not, in my view, be promoted by an order for costs as sought by the Respondent. I decline to order costs. [32] The application pursuant to s.120 of the act is therefore dismissed. DEPUTY PRESIDENT Appearances : L. Hendy , solicitor with R. O’Malley , Applicant (by telephone); R. Murphy solicitor with P. Pinson for the Respondent. Hearing details: 2016 Sydney: March 15. Final written submissions: Applicant 18 March; Respondent 23 March; Applicant’s response, 30 March. Printed by authority of the Commonwealth Government Printer <Price code A, PR578964>