DECISION

Fair Work Act 2009
s.120 - Application to vary redundancy pay for other employment or incapacity to pay

Coal River Farm Investments Pty Ltd T/A Coal River Farm
(C2020/3528; C2020/3529)

Application to vary redundancy pay – incapacity to pay – impact of COVID-19 – employees oppose application – incapacity to pay not established - applications dismissed.

[1] Coal River Farm Investments Pty Ltd t/a Coal River Farm (the Applicant) has applied to reduce the redundancy entitlements of two former employees, Mr Salem El-Khoury and Mr Ben Claxton (the Employees), to nil on the grounds of incapacity to pay pursuant to section 120 of the Fair Work Act 2009 (Cth) (the Act).

[2] I have determined to dismiss the applications. The reasons for this decision follow.

Procedural Introduction

[3] In or around May 2020, the Employees were notified that their employment was terminated effective 1 June 2020. 1 The reason given for the termination in each case was redundancy.

[4] On 13 May 2020, the Applicant made applications to the Commission to reduce the statutory redundancy entitlements to nil because it cannot pay. The reasons provided in support of the applications are, in substance, identical.

[5] On 19 May 2020, I held an initial conference with the parties. At this conference I informed the Applicant that the claim of incapacity to pay would need to be substantiated by evidence and directions were agreed requiring parties to file submissions and evidence in support of their respective positions.

[6] On 20 May 2020, I issued directions requiring, inter alia, that the Applicant file any submissions, witness statements or additional material in support of its position that it could not pay the Employees’ redundancy entitlements by 3 June 2020.

[7] The Applicant failed to file any material as required by the directions.

[8] On 4 June 2020, my chambers wrote to the Applicant regarding non-compliance with the directions.

[9] On 5 June 2020, following correspondence with my chambers, the Applicant filed a document titled “statement for hearing 2020”.

[10] On 15 June 2020, at the initial hearing, it became apparent that the Applicant had failed to provide any evidence in support of its submissions. Consequently, I adjourned the hearing and to provide the Applicant a further opportunity to file evidence in support of its applications.

[11] On 16 June 2020, the Applicant filed a number of documents relating to its financial position.

[12] On 17 June 2020, with the consent of the parties, I issued confidentiality orders in both matters regarding the financial information provided by the Applicant. 2

[13] On 22 June 2020, a further hearing was held by telephone. Mr Leesong, the director of the Applicant, gave evidence and was subject to cross examination. Both the Employees gave unchallenged evidence.

Legislative Provisions

[14] The relevant legislative provisions for this application are as follows:

“FAIR WORK ACT 2009 - SECT 119

Redundancy pay

Entitlement to redundancy pay

(1)  An employee is entitled to be paid redundancy pay by the employer if the employee's employment is terminated:

(a)  at the employer's initiative because the employer no longer requires the job done by the employee to be done by anyone, except where this is due to the ordinary and customary turnover of labour; or

(b)  because of the insolvency or bankruptcy of the employer.

Note:          Sections 121, 122 and 123 describe situations in which the employee does not have this entitlement.

Amount of redundancy pay

(2)  The amount of the redundancy pay equals the total amount payable to the employee for the redundancy pay period worked out using the following table at the employee's base rate of pay for his or her ordinary hours of work:

FAIR WORK ACT 2009 - SECT 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.

…

FAIR WORK ACT 2009 - SECT 123

Limits on scope of this Division

Employees not covered by this Division

(1) This Division does not apply to any of the following employees:

(a) an employee employed for a specified period of time, for a specified task, or for the duration of a specified season;

(b) an employee whose employment is terminated because of serious misconduct;

(c) a casual employee;

(d) an employee (other than an apprentice) to whom a training arrangement applies and whose employment is for a specified period of time or is, for any reason, limited to the duration of the training arrangement;

(e) an employee prescribed by the regulations as an employee to whom this Division does not apply.

(2) Paragraph (1)(a) does not prevent this Division from applying to an employee if a substantial reason for employing the employee as described in that paragraph was to avoid the application of this Division.

Other employees not covered by notice of termination provisions

(3) Subdivision A does not apply to:

(b) a daily hire employee working in the building and construction industry (including working in connection with the erection, repair, renovation, maintenance, ornamentation or demolition of buildings or structures); or

(c) a daily hire employee working in the meat industry in connection with the slaughter of livestock; or

(d) a weekly hire employee working in connection with the meat industry and whose termination of employment is determined solely by seasonal factors; or

(e) an employee prescribed by the regulations as an employee to whom that Subdivision does not apply.

Other employees not covered by redundancy pay provisions

(4) Subdivision B does not apply to:

(a) an employee who is an apprentice; or

(b) an employee to whom an industry-specific redundancy scheme in a modern award applies; or

(c) an employee to whom a redundancy scheme in an enterprise agreement applies if:

(i) the scheme is an industry-specific redundancy scheme that is incorporated by reference (and as in force from time to time) into the enterprise agreement from a modern award that is in operation; and

(ii) the employee is covered by the industry-specific redundancy scheme in the modern award; or

(d) an employee prescribed by the regulations as an employee to whom that Subdivision does not apply.”

Submissions of the parties

[15] The Applicant operates a number of sites (including restaurants) across Australia that manufacture, supply and sell food and drink. 3

[16] As a result of the government response to COVID-19, the Applicant’s operations were significantly impacted, including the closure of a restaurant engaging Mr El-Khoury and travel restrictions limiting business for the Coal River operations where Mr Claxton was employed. 4 The impact of COVID-19, and the government response to it, on businesses across Australia is a well-established fact and as a result I do not propose to detail these restrictions.

[17] Neither of the Employees dispute that they have been made redundant.  5

[18] The value of the redundancy entitlements is agreed as follows: 6

[19] In support of its contention that it cannot pay the redundancy entitlements, the Applicant makes the following submissions: 7

•  The Applicant’s food and beverage operation have experienced a 100% loss in revenue with no prospect of returning to pre-COVID levels for 24 months and the Applicant’s overall business has suffered an 80% reduction in revenue and has limited cash flow;

•  The Applicant relied heavily on tourists from Asia and interstate travellers which, under current government restrictions, are no longer available as patrons;

•  The Applicant relies solely on Job Keeper to pay the wages of 22 employees on the payroll, “a significant number of which are casual employees”;

•  The Applicant presently has significant liabilities including a sizeable debt to the Australian Tax Office (ATO);

•  The Applicant is presently attempting to source funds via a loan and has already secured some debt funding to cover the projected shortfall in revenue;

•  The Applicant has limited funds in its bank account which is being relied on for the purposes of cash flow; and

•  The Applicant will not be profitable for at least 6 to 18 months and will not return to its pre-COVID position for at least 24 months.

[20] At the request of the Commission, further evidence was provided by the Applicant prior to the hearing in the form of:

•  An extract from the ATO’s online business portal for the Applicant (the ATO Business Portal Extract);

•  The Applicant’s profit and loss statement as at 14 June 2020 (the P&L Statement);

•  A screenshot of a National Australia Bank internet banking portal showing the current balances for two credit cards and a business account (the NAB Screenshot); and

•  A screenshot of a document marked “Bills” which lists details including “Awaiting Payment” and “Overdue” (the Bills Screenshot).

[21] At the hearing, the Applicant raised a number of matters that were not previously canvassed in its written materials including that:

•  Mr Lessong had been funding travel related to the business with his personal funds because the Applicant had “no money”; 8

•  Not paying the redundancy entitlements would assist the Applicant as “it’s another cost…we just can’t afford to pay”; 9

•  Prior to the emergence of COVID-19, the Applicant committed to long term leases and expended significant costs in preparation for the opening of stores in Perth and Fremantle. This expenditure was dependent on the stores opening to generate revenue and failing to open these stores may result in the Applicant becoming insolvent; 10 and

•  There was a risk that the Applicant would be insolvent “in the next few months or so”. 11

[22] The Employees oppose the applications and challenge the Applicant’s financial evidence as “unverifiable”, capable of being “false or inaccurate” and being absent key details. 12

[23] Mr Claxton submits that the P&L Statement:

•  Does not note the revenue of all the Applicant’s businesses; 13

•  Does not take into account the Job Keeper payments the Applicant is receiving; 14 and

•  Is not signed or verified by an accountant and as such could easily be false or inaccurate. 15

[24] Mr El-Khoury submits that:

•  The P&L Statement identifies amounts of superannuation that are payable but this is “misleading” as “he is on a payment plan for the super so it’s not a bill he is paying all at once. Also with the ato amount owing I would have thought the super would have been part of that so he is counting it twice as money owing”; 16

•  The P&L Statement accounts for all wages as outgoing expenses but does not take into account the Job Keeper payments the Applicant is receiving; 17

•  The P&L Statement displays data starting in March 2020, which appears “bleak”, but as January and February are the two biggest months this does not provide the full financial picture; 18

•  The P&L Statement extends to the period ending 30 June 2020 but was created on 14 June 2020; 19

•  The NAB Screenshot does not show “anything” and absent the specific transaction details of the account there is not any evidence as to the financial capacity reflected by this document; 20 and

•  None of these documents make reference to any government grants or tax incentives the Applicant receives.  21

[25] The Employees also provided screenshots to the Commission from recruitment website SEEK for “Coal River Farm” recruiting a “Store Manager” to “Lead Brand New Perth or Fremantle Cheese and chocolate Offering”. 22 Mr Claxton submits that this listing illustrates that the Applicant is not in fact in financial difficulty but instead choosing to focus “ample” funds on growing its business rather than paying redundancy entitlements.23

[26] In respect of their personal circumstances:

•  Mr Claxton submits that he has two young children (one of whom has special needs) that he supports together with his wife and denying him his redundancy entitlement would place his family in financial hardship. 24 Mr Claxton further submits that the industry for his role in Tasmania is extremely small and even if he were to pursue a role outside his specialisation it will still take some time given the lack of current opportunities;25 and

•  Mr El-Khoury submits that his entitlement will be used to meet his financial commitments and that a period of extended unemployment may mean he has to sell his home. He further submits that while his partner has taken steps to temporarily increase her hours these hours will conclude at the end of June and the increased travel costs result in these hours providing limited assistance for their financial situation. Mr El-Khoury also submits that he has made inquiries regarding another job but there are no roles available in an industry that suit his skills. 26

Consideration

Threshold requirements

[27] There is no dispute and I am satisfied that:

•  The Employees’ were made redundant;

b) The Employees are not excluded, by virtue of any provision of sections 119, 120, 121 or 123, from their entitlement to redundancy under section 119; and

c) The Applicant has standing to make an application under section 120 to vary the amount of redundancy payable to the Employees.

[28] For completeness, I note that I make no finding that the circumstances of these Employees would otherwise amount to a “genuine redundancy” within the meaning of section 389 of the Act.

Is the Applicant incapable of paying the redundancy entitlements of the Employees?

[29] As outlined above, the total value of the redundancy entitlements that are subject of these applications is $24,000.

[30] Section 120 provides an avenue for an employer to apply to the Commission to vary an obligation that would otherwise exist to make redundancy payments in accordance with section 119, if it has either obtained acceptable alternative employment or cannot pay. There is no question that acceptable alternative employment has not been obtained.

[31] The following principles which I have adopted in reaching my decision, are helpfully summarised by Hampton C, 27 as follows:

a) The employer bares the onus of establishing that there are grounds justifying the exercise of the discretion; 28

b) The Commission is empowered such that it “may” determine to reduce the amount of redundancy down to nil, indicating that granting full or partial relief is an exercise of discretion in the circumstances of the case; 29

c) The employer must satisfy the Commission that it is not financially competent or possessing the necessary funds to make the payment and has no reasonable source of funds; 30

d) The assessment of financial competence will include consideration of the financial standing of the business including its cash position and assets; 31

e) The impact on the employees immediately concerned will be considered, including whether making an order would impact on an employee’s ability to recover entitlements through other means should the company become insolvent or enter liquidation, including their standing as creditors and ability to access the General Employee Entitlements Redundancy Scheme   (since succeeded by the Fair Entitlement Guarantee) or similar schemes; 32 and

f) The impact on the continuation of the business, including whether granting the application would have a beneficial effect on other employees, thereby enhancing their prospects of being able to remain in employment. 33

[32] I have analysed each of the financial documents identified in paragraph [20] above, as well as the submissions of the parties in relation to them, and find the following:

a) The ATO Business Portal Extract identifies values for the Income Tax Account and Integrated Client Account of the Applicant. A plain reading of this document shows that the Applicant has a significant debt with the ATO, a factor I have considered in determining the Applicant’s financial position;

b) I note that the P&L Statement shows the Applicant has seen a significant decrease in sales between March and June 2020 while its costs have remained relatively consistent. While the Applicant did not adduce any evidence as to its earnings prior to the impact of COVID-19, it can reasonably be inferred, given the Applicant’s industry and COVID-19’s impact, that there has been a decrease in revenue and profit. I have also noted, as conceded by Mr Lessong, 34 that the P&L Statement does not reflect payments the Applicant receives via the Job Keeper program, relates to an incomplete period as noted at paragraphs [23] to [24] above and is a document prepared by the “financial controller” who “extracted these directly from our accounting packages”;35

c) The NAB Screenshot is undated, does not identify the identity of the account and credit card holder nor does it show the history of recent transactions. At the hearing, Mr Leesong stated that this indicated “how much cash we have for the purpose of the application” and rejected Mr Claxton’s assertions that the balances shown may have been artificially reduced. 36 The document reflects a positive balance and at the hearing Mr Leesong gave evidence that “ ..as I look today our bank balance…with a 26,000 dollar hit we are just well, firstly, we wont be able to – its just another – its another cost which is going to cost – like, we just cant afford to pay….”.37 I accept this document provides a partial picture of the Applicant’s financial position and is indicative of the Applicant having limited assets available to pay its liabilities. However, absent further evidence, I am unable to glean from it a full assessment. Consequently, I afford it limited weight in my decision; and

d) The Bills Screenshot is also undated, provides no information identifying the party or entity to whom the information relates, what the information is or how it relates to the Applicant. At the hearing, Mr Leesong gave evidence that the Bills Screenshot detailed “outstanding creditors we have…outstanding bills we have to pay” and that it was from the same “financial package” as the P&L Statement. 38 Despite this explanation, the Bills Screenshot does not particularise the creditors or specific liabilities – it merely asserts an amount as outstanding. Consequently, I am unable to make any findings in relation to the document and afford it no weight in my decision.

[33] Mr Leesong accepted at the hearing that the job advertisements on SEEK related to businesses the Applicant was attempting to open in Perth and Freemantle and that these positions had been filled but had not yet commenced. 39 Mr Leesong conceded that the costs for setting up these enterprises were largely not reflected in the P&L Statement as it was a “balance sheet item”. I accept that the Applicant’s opening of new businesses in Western Australia would have required a degree of capital investment, although the exact value of the investment is uncertain due to the absence of evidence on this point.

[34] In his written statement, Mr Leesong submitted that the Applicant was “in the process of sourcing some additional funds” and “had already secured….debt funding”. 40 However, at the hearing Mr Leesong gave evidence that the Applicant “might” be able to secure a loan but that there is “no funding imminent”. Due to a lack of evidence on this issue, I am unable to make a precise finding as to what (if any) financing the Applicant has secured or been denied.

[35] With respect to the matters raised by the Applicant at the hearing, referred to at paragraph [21] above, I observe that the Applicant did not adduce evidence supporting these assertions, despite being given ample opportunity to provide evidence in support of its case during these proceedings. Accordingly, I can only give these matters limited weight.

[36] I note that profit for the period March to June has reduced substantially and the Applicant has a significant debt to the ATO. I also have regard to the limited material before me as to the current status of discussions between the Applicant and the financial institutions as to the availability of finance to the Applicant. That said, I also have regard to its aspiration to open two new stores and employ staff in those stores. I also note that the P&L Statement, whilst showing a decline in profit up to 14 June 2020, is nevertheless showing a gross profit. The document itself, as conceded by Mr Leesong, does not contain the complete month of June and does not reflect Job Keeper wage subsidy payments.

[37] Whilst I am not prepared to accept Mr Claxton’s submission that the financial material submitted by the Applicant is likely to “mislead”, I do have regard to the overall paucity of evidence before me as to the Applicant’s financial position. Despite being provided ample opportunity to adduce evidence to the Commission as to its financial position, the Applicant chose to rely on an unverified P&L, a screenshot of a bank account with no name and a document purporting to evidence the Applicant’s creditors containing no information or detail. Even if I were to accept Mr Leesong’s evidence as to the foreshadowed cash flow issues, the evidence before me as to the Applicant’s complete financial position, is, in my view, insufficient to establish an incapacity to pay and enliven section 120(2) of the Act.

[38] Accordingly, I am unable to conclude that the Applicant does not have sufficient means to pay the redundancy entitlements.

[39] I accept Mr Leesong’s submission that the Applicant is facing significant challenges and that its future financial prospects are uncertain. I acknowledge the very difficult challenges faced by the Applicant in the current uncertain environment and note that it is a time of great stress and concern for the Applicant and many other business owners. However, it is insufficient to demonstrate that it that it is merely beneficial or of assistance to reduce the amount to be paid by way of redundancy.

[40] Having regard to all the materials before me, I am not persuaded that the Applicant cannot pay the Employees their redundancy pay entitlements within the meaning of section 120(1)(b)(ii) of the Act. While I am sympathetic to the Applicant’s uncertain and difficult operating environment, primarily due to the impact of COVID-19, I am not satisfied that in these particular circumstances the evidence is such that I am able to make a finding that the Applicant “cannot pay”. Consequently, the discretion under section 120(2) is not enlivened and there can be no order to reduce the redundancy pay entitlements of the Employees.

[41] The applications are dismissed.

COMMISSIONER

Appearances:

Mr D. Leesong for the Applicant

Mr Claxton for himself

Mr El-Khoury for himself

Hearing details:

23 June 2020 (by telephone)

Printed by authority of the Commonwealth Government Printer

<PR720801>

 1   Transcript PN171.

 2   PR720261.

 3   Transcript PN166, PN272 – PN287.

 4   Form F45A dated 13 May 2020.

 5   Transcript PN81, PN212, PN214.

 6   Transcript PN82 – PN99, PN174 - PN177, PN199 - PN206.

 7   Applicant’s Statement Re: Redundancy Variation Application (Applicant’s Statement).

 8   Transcript PN225.

 9   Transcript PN307 – PN308

 10   Transcript PN139.

 11   Transcript PN298.

 12   Further Claxton Submissions at [3]; Further Submissions of Mr El-Khoury.

 13   Further Claxton Submissions at [3(a)]

 14   Further Claxton Submissions at [3(b)].

 15   Further Claxton Submissions at [3(c)]

 16   Further Submissions of Mr El-Khoury.

 17   Further Submissions of Mr El-Khoury.

 18   Further Submissions of Mr El-Khoury.

 19   Further Submissions of Mr El-Khoury.

 20   Further Submissions of Mr El-Khoury.

 21   Further Submissions of Mr El-Khoury.

 22   Submissions of Ben Claxton dated 10 June 2020 (Claxton Submissions) at Annexure A; Submissions of Mr El-Khoury.

 23   Claxton Submissions at [4].

 24   Claxton Submissions at [7].

 25   Claxton Submissions at [6].

 26   Submissions of Mr El-Khoury.

 27   Application by P.C [2014] FWC 4673 at [33]. Although collated in this decision, these principles have been referred to and relied on in a variety of decisions before the Commission.

 28   Application by P.C [2014] FWC 4673 at [33] citing Timbercraft Pty Ltd [2011] FWA 6283.

 29   Application by P.C [2014] FWC 4673 at [33] citing Timbercraft Pty Ltd [2011] FWA 6283; Ashmont Preschool Incorporated T/A Ashmont Preschool Centre Inc. v Louise Evans, Suzanne Walsh, Erin Roberts, James Smith, Brenda Burns, Edith Holt, Jacqueline King, Joanne Lockett, Jodie Hodgson, Amanda Sleaman, Megan McCarthy, Codie Harper, Cheryl Flanagan, Megan Crouch, Amanda Ryan [2018] FWC 6426 at [20].

 30   Baywood Products Pty Ltd v Mr Mervyn Inall [2010] FWA 9303 at [32].

 31   Villa Crerarii Pty Ltd v Daniel Kahl [2013] FWA 903 at [12].

 32   Villa Crerarii Pty Ltd v Daniel Kahl [2013] FWA 903 at [10] citing PYL Nominees Pty Ltd [2011] FWA 1581 at [28]; Moltoni Waste Management v P Fairs, R Ellen and K Birkett [2012] FWA 5590.

 33   Ashmont Preschool Incorporated T/A Ashmont Preschool Centre Inc. v Louise Evans, Suzanne Walsh, Erin Roberts, James Smith, Brenda Burns, Edith Holt, Jacqueline King, Joanne Lockett, Jodie Hodgson, Amanda Sleaman, Megan McCarthy, Codie Harper, Cheryl Flanagan, Megan Crouch, Amanda Ryan [2018] FWC 6426 at [21]; Moltoni Waste Management v P. Fairs [2012] FWA 5590 at [30].

 34   Transcript PN105, PN253 – PN254.

 35   Transcript PN232.

 36   Transcript PN220 – PN223.

 37   Transcript PN308.

 38   Transcript PN8 - PN11.

 39   Transcript PN141, PN160 - PN163.

 40   Applicant’s Statement.