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Covid-19 and Redundancy

by | Apr 21, 2020 | Workplace & Employment

Under section 120 of the Fair Work Act an employer can seek to reduce the redundancy payment to employees it is terminating.

In considering whether to reduce a redundancy payment, Fair Work Commission must be mindful of why redundancy payments exist in the first place.

In the 2004 redundancy case, the full bench of the then Australian Industrial Relations Commission stated that the purpose of redundancy pay is to compensate employees for matters such as the trauma associated with the termination of employment, the loss of non-transferable credits such as sick leave, the loss of security and seniority, lower job satisfaction and diminished social status and conditions.

When employers seek exemptions from redundancy payment obligations the onus is on them to establish the grounds upon which the FWC will exercise the discretion available under section 120(2) of the Fair Work Act.

Two recent cases of the Fair Work Commission demonstrate how the issue of redundancy is being approached in the COVID-19 age.

In both cases the employers made employees redundant because work for the respective employers was drying up.

In one case, Mason Architectural Joinery Pty Ltd [2020] FWC 1897, the FWC reduced a redundancy payment from seven weeks to one week because it accepted the employer was experiencing “significant financial strain” and the redundant employee was able to find other and slightly better paid employment with only eight days out of work.

In the other case, Worthington Industries [2020] FWC 1912, the FWC refused the employer’s application to reduce the redundancy payments of three employees from 4 weeks to nil.

What swayed the FWC in this case appears to have been an acknowledgment from the employer that despite projected decline in sales and foreshadowed cash flow issues it had the capacity to pay the redundancy entitlements of each of the employees in full.

These decisions both given on 9 April 2020 demonstrate that the FWC is taking a flexible and specific approach to redundancy and COVID-19 rather than a one size fits all.

If you would like further advice on redundancies or any other employment issues in the COVID-19 age, please contact our Workplace Relations team on (03) 9614 7111