A promise found to be not so redundant – a cautionary tale for insolvency practitioners
An employee who was promised a redundancy package by an administrator in exchange for her ongoing service and assistance in the administration and winding-down of a company has succeeded on appeal in respect of her Fair Entitlements Guarantee (FEG) advance claim for redundancy pay, in the Administrative Appeals Tribunal (AAT).
In the recent decision of Bullivant and Secretary, Attorney-General's Department [2020] AATA 2047, the issue was whether or not an undertaking by an administrator to protect the employee's redundancy pay entitlement if she stayed on, constituted an agreement within the meaning of section 5 of the Fair Entitlements Guarantee Act 2012 (Cth) (FEG Act) sufficient to trump the small business redundancy pay exemption in section 121(1) of the Fair Work Act 2009 (Cth) (FW Act) (SBE Exemption).
The SBE Exemption provides that a small business employer, being one with fewer than 15 employees, is not generally required to pay redundancy pay when making an employee redundant. During the winding up process and at the time of the employee's termination, the company became a "small business employer" by reason of a drop in staffing levels to below 15, following widespread redundancies by the administrator.
The employee, who had stayed on with the company at the administrator's request, lodged an FEG claim for redundancy entitlements once she herself was made redundant, only to have her application denied by the Attorney-General's Department due to the SBE Exemption.
The employee argued that the undertaking provided by the insolvency practitioner and a letter from the administrator, indicating that she would be entitled to redundancy pay of nearly $16,000, comprised a formal agreement upon which she could rely on as evidence to claim redundancy entitlements.
In its defence, the administrator rejected the suggestion that the letter comprised a formal agreement, arguing that it was merely intended to assist the employee in lodging a FEG advance claim for redundancy entitlements, emphasising that the letter stated the information was subject to a full review by the FEG "who will make their own determination as to the entitlements owing to you".
Ultimately, the AAT found in favour of the employee and overturned the Attorney-General's Department finding that the employee was not entitled to a FEG advance for redundancy pay.
In reaching this decision, the AAT held that where an insolvency practitioner undertakes to specific employees that in return for their assistance, their entitlements to redundancy pay will be protected, they must hold to that promise and cannot later hide behind the SBE Exemption. Otherwise, such a promise would be "dishonest or at the very least negligent".
This decision serves to highlight that insolvency practitioners should exercise caution in making arrangements, undertakings or agreements with employees in the same or similar circumstances, in order to avoid exposure to liability and the risk of the AAT finding that any such arrangement was an agreement within the meaning of the FEG Act, sufficient to exclude the SBE Exemption from applying to that employee.
Please contact our insolvency, bankruptcy and restructuring or employment teams for more information.
The material in this article was correct at the time of publication and has been prepared for information purposes only. It should not be taken to be specific advice or be used in decision-making. All readers are advised to undertake their own research or to seek professional advice to keep abreast of any reforms and developments in the law. Brown Wright Stein Lawyers excludes all liability relating to relying on the information and ideas contained in this article.
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