COVID-19: FWC approves reduction in redundancy pay

The Fair Work Commission (FWC) has approved the first application for a reduction in redundancy pay during the COVID-19 pandemic.

Employers may apply to the FWC to vary redundancy pay under section 120 of the Fair Work Act 2009. The section allows an application to be made where the employer either (a) obtains other employment for the redundant employer, or (b) cannot pay the redundancy pay the employee is entitled to. The FWC has discretion to reduce the amount of redundancy pay (including to a nil amount) if it is considered necessary.

In Mason Architectural Joinery Pty Ltd [2020] FWC 1897, the small business Mason Architectural Joinery Pty Ltd (Mason Joinery) had taken many steps to reduce its overheads in the wake of a downturn of business. These steps included reduction of spending, sale of the company car and redundancy of two employees.

The employee was entitled to 3 weeks’ notice of termination and 7 weeks’ redundancy pay under the Joinery and Building Trades Award 2010. Mason Joinery was able to pay the employee his accrued annual leave and accrued roster days off entitlements as well as the notice amount. Mason Joiner was however unable to pay the full redundancy pay. Mason Joinery sought an order decreasing the redundancy amount.

Commissioner McKinnon was satisfied that Mason Joinery was under significant financial strain. The Commissioner noted that the business had not received income for two months and had lost some pre-booked jobs resulting in the viability of the business being highly dependant on the how long the pandemic situation would last.

The Commissioner noted that the employee was able to secure a new job only 8 days after his termination. The new job also paid $2 an hour more than the previous position with Mason Joinery. The notice of termination that the employee received was equivalent to 15 days’ pay and covered that 8 days of non-employment.

The employee had also taken a holiday that was pre-booked during his employment with Mason Joinery from 15 March 2020 to 21 March 2020 (a month after he started his new job). Upon his return the employee was required to self-isolate for 14 days. The Commissioner held that as the employee had been paid out his accrued annual leave the employee suffered no loss in this regard as the amount was sufficient to cover both the holiday and period of self-isolation.

Accordingly, the Commissioner held that it was appropriate to reduce the amount of redundancy pay for the employee to 1 week’s pay.

At James Conomos Lawyers our team are closely monitoring the legal developments arising from the COVID-19 pandemic and will continue to provide updates when available. If you would like to speak with a member of our team regarding any of the matters raised in this article, please do not hesitate to contact us on 1800 JCL LAW.