If an employer cannot pay redundancy payments under the National Employment Standards (NES), section 120 of the Fair Work Act 2009 (FW Act) gives the Fair Work Commission (FWC) power to reduce an amount of redundancy pay to a lesser amount (including to nil) if the FWC considers it appropriate.

The FWC has recently determined a number of applications to vary redundancy pay, largely arising out of the effects of the COVID-19 pandemic. In Yu Kitchen Pty Ltd (2020), the FWC reduced two former employee’s NES-derived redundancy entitlements from over $3,000 to just $134.13 each. In this case, the FWC was satisfied the business had been “decimated by the pandemic” but saw no reason why the remaining $268.26 in the company’s bank account should not be divided between the employees.

However, in Worthington Industries (2020) the FWC refused to reduce NES-derived redundancy entitlements for three former employees from four weeks’ pay to 1 weeks’ pay. The company argued that making the redundancy payments would cause them financial hardship, but ultimately the FWC was satisfied the company had the means to make the full redundancy payments and the money in the bank to do so.

A Full Bench of the FWC has recently confirmed it has no power to reduce the redundancy entitlements derived from modern awards containing industry-specific redundancy schemes.

In Cameron Fraser; Construction, Forestry, Maritime, Mining and Energy Union v JFM Civil Contracting Pty Ltd (2020) the FWC rejected an application by the employer to reduce a former employee’s redundancy entitlement to nil pursuant to section 120 of the FW Act. This was despite a finding that the employer’s financial position was such that it had no capacity to pay the employee eight weeks’ redundancy pay due to financial losses and a downturn in available work.

The former employee’s employment was covered by the Building and Construction General On-site Award 2010, which contained an entitlement to redundancy pay under an industry-specific redundancy scheme. The FWC confirmed its power to reduce redundancy entitlements under section 120 of the FW Act only applies if the employee is entitled to redundancy pay under the NES, being section 119 of the FW Act. This means that if an employer and its employees are covered by a modern award that contains an industry-specific redundancy scheme, the employer will not be able to apply to the FWC to reduce the amount to be paid.

However, the situation is different if the redundancy entitlement arises under an enterprise agreement. In MUA v FBIS International Protective Services (Aust) Pty Ltd (2014) it was ruled that a provision for redundancy pay in an enterprise agreement did not exclude the operation of section 120 of the FW Act. A redundancy provision in an enterprise agreement that is the same as the NES operates in parallel with the employee’s NES entitlement.  Section 120 of the FW Act continues to apply as a minimum standard to the redundancy pay entitlement under the enterprise agreement.