|
|||
|
|||
|
 |
|
| Period of continuous service |
Period of notice |
|---|---|
| 1 year of less |
1 week |
| 1 year and up to the completion of 3 years |
2 weeks |
| 3 years and up to the completion of 5 years |
3 weeks |
| 5 years and over |
4 weeks |
The TCR decision also set a basic scale of severance pay to be provided in federal awards. The scale reflected the scale developed in the NSW IRC in 1983. The scale was set at 2 weeks pay per year of service to a maximum of 8 weeks:
| Period of continuous service |
Severance pay |
|---|---|
| Less than 1 year |
nil |
| 1 year and less than 2 years |
4 weeks pay |
| 2 years and less than 3 years |
6 weeks pay |
| 3 years and less than 4 years |
7 weeks pay |
| 4 years and less than 5 years |
8 weeks pay |
As federal awards are allowed to prescribe redundancy pay, this standard is not reflected in the WR Act. However, a supplementary TCR decision in 1984 exempted businesses employing less than 15 employees from making redundancy payments. This general redundancy scale (Table 2) is currently reflected in payments which the Government will make to employees whose employer becomes insolvent resulting in the loss of accrued entitlements under the Commonwealth’s General Employee Entitlements and Redundancy Scheme (GEERS). These payments include:
In light of the AIRC’s redundancy decision, it is likely that the GEERS redundancy cap may need to be increased to reflect what is a new ‘community standard’ (see below at Table 3), even though legal entitlements of an individual may still exceed this new community standard in particular circumstances.
As the constitutional basis of the current Bill is limited, it is likely that GEERS may continue to meet redundancy entitlements of state award small business employees whose employer becomes insolvent, thus denying the employee/s an accrued redundancy entitlement (ie from the assets of the business). Presumably GEERS (EESS before it) has been meeting some state award small business employee redundancy entitlements since its inception in 2000, for example in respect of South Australian insolvencies, or more widely under the redundancy provisions of enterprise agreements. GEERS’ operational guidelines do not spell out a small business exemption, eg under the definition of an eligible claimant.
In a case before the AIRC commencing in 2002, the Australian Council of Trade Unions (ACTU) sought to have the 1984 8 week limit redundancy standard reviewed (with a number of other matters) and to bring federal award redundancy standards into line with higher redundancy standards applying in New South Wales and Queensland.
At the time of the hearings in this case in 2003, there was much community concern at massive payouts for redundant senior corporate figures. For example, former BHP Billiton head Brian Gilbertson received a payout worth up to $50m, after less than a year as its chief executive officer.(6) The ACTU redundancy claim sought to:
The claim was strenuously opposed by employer groups, particularly the Australian Chamber of Commerce and Industry (ACCI). The ACCI in its Impact of the ACTU claim(7) argued that if the small business exemption was removed, a small retail employer employing a worker on $500.70 a week would face a cost increase of more than 400 per cent for making him or her redundant after three years service (up from $1502.10 to $6509.10). A medium business (defined as having up to 50 employees) would face an increase of around 30 per cent if it made redundant a clerk earning $627.50 a week (up from $6275 to $8157). ACCI was adamant that the small businesses exemption is necessary to preserve jobs and prevent insolvencies and that small businesses do not have the same capacity as large businesses to access capital. (8)
The ACTU rejected these contentions, arguing that 100 000 small business employees a year are terminated through business restructures and that only 53 per cent of employees made redundant would be entitled to a maximum of seven weeks pay under the union proposal while some 30 per cent of employees made redundant would be entitled to no redundancy pay because they would fail to reach the threshold of 12 months service. The ACTU submitted in the case that 70 per cent of small businesses are profitable at the times they lay off staff. (9)
The Australian Industry Group (AiG) also rejected the ACTU claim but also sought to have federal redundancy provisions override inconsistent (higher) state award provisions. It sought for the AIRC to insert a new clause stating that federal test case provisions dealing with termination and redundancy pay are intended to 'occupy the field', or override state laws when they both deal with the same subject matter. The AiG argued this would be consistent with section 152 of the WR Act, and with High Court jurisprudence. The AiG submission claimed that recent decisions by various state industrial tribunals have cast 'considerable doubt' on the paramountcy of federal award provisions dealing with termination of employment, including redundancy pay, despite the commonly-held assumption over many years that federal awards were intended to cover the field.(10)
It might be noted that the scheme of termination of employment originally envisaged under the WR Act made some allowance for the constitutional limitations on which the scheme was based. Ergo, federal award employees not constitutionally covered by the federal termination scheme and dismissed (they believed) unfairly, were not precluded from accessing state termination jurisdictions for a termination remedy by the federal termination of employment provisions. Such employees excluded federally but allowed access to state tribunals would include those federal award employees working for partnerships, for example. Most states have amended their laws to specifically accommodate the federal scheme.
More recently however, the Commonwealth has shown some determination to replace what it perceives as ‘inconsistent’ state termination provisions by expanding Commonwealth coverage. The Workplace Relations (Termination of Employment) Bill 2002 is a good example, and the current Bill shows a similar intent with the current Bill.
In its 2004 Redundancy decision,(11) the AIRC granted some of the ACTU’s claims with modification, while rejecting others. It extended award based redundancy provisions for the first time since 1984 in the following scale:
| Period of continuous service |
Severance pay |
|---|---|
| Less than 1 year |
Nil |
| 1 year and less than 2 years |
4 weeks pay |
| 2 years and less than 3 years |
6 weeks pay |
| 3 years and less than 4 years |
7 weeks pay |
| 4 years and less than 5 years |
8 weeks pay |
| 5 years and less than 6 years |
10 weeks pay |
| 6 years and less than 7 years |
11 weeks pay |
| 7 years and less than 8 years |
13 weeks pay |
| 8 years and less than 9 years |
14 weeks pay |
| 9 years and less than 10 years |
16 weeks pay |
| 10 years and over |
12 weeks pay |
After 10 years or more the severance pay is reduced to 12 weeks pay, offsetting long service leave entitlements potentially payable after 10 years of service. The AIRC extended the above scale to small business, but capped maximum payments at 8 weeks pay for small business. It refused to extend payments to regular casual employees. It also rejected the claim for a higher rate of redundancy pay for workers aged over 45 years. However, the decision also allowed for individual businesses struggling to make payments to apply for an exemption from the redundancy standard.
According to Minister Andrews’ Second Reading Speech on this Bill, the effect of the AIRC’s redundancy decision is that:
A typical retail business with seven employees, each with six years continuous service, would now face a contingent liability for redundancy pay of almost $30,000.(12)
The Bill exempts businesses employing 15 or less employees from paying redundancy. In particular
small businesses which are constitutional corporations but covered by state awards are also exempted by the Bill from paying redundancy under the provisions of state awards, ie the current Bill proposes to ‘cover the field’ to the limit of constitutional authority
the AIRC will refrain from making orders to insert small business redundancy pay clauses into federal awards (consequent upon its redundancy decision of 26 March 2004)
for the purposes of determining the numbers of workers employed and potentially retrenched, the timing of redundancy is clarified
only casuals employed on a long-term systematic basis for 12 months or more are to be counted in a business’s staff, and
redundancy provisions in awards prior to the AIRC’s 2004 decision are unaffected. But award variations made from the time of the decision until the legislation commences will be cancelled – except in situations where entitlement to a payment has arisen.(13)
‘… in the interests of uniformity with New South Wales and in the light of the material presented about the effect of taking into account previous service, we are prepared to grant an exemption for employers of less than 15 employees. This exemption will also be subject to further order of the Commission.’
The exemption in the TCR standard clause is expressed to be ‘subject to an order of the Commission in a particular redundancy case’. In each of the following cases the Commission, after considering the circumstances of the industry, decided that the small business exemption should be removed from the award in question:
Re Municipal Employees (WA) Award 1982 and other awards
Building and Construction Industry TCR Case
Re Clothing Trades Award 1982
Re Furnishing Trades Award, 1981
Australian Municipal, Administrative, Clerical and Services Union and Armidale Family Day Care Ltd and others
Re Timber Industry Award 1990 and
Re National Joinery and Building Trades Products Award 1993.
When first introduced, the Employment Protection Act 1982 (NSW) (EPA 1982) provided that employers employing fewer than 15 employees were exempt from the ‘compulsory notification’. Sections 7 and 8 provided for compulsory notification to the Registrar where an employer proposed to terminate the employment of one or more employees. Upon such notification the relevant unions were notified (section 10) and a report provided to the President of the IRC NSW (section 11). The IRC NSW had the power to make orders, including orders for the payment of severance pay (paragraph 14(1)(a)).
The small business exemption only related to the compulsory notification requirements and did not affect the power of the IRC NSW to order severance pay for small businesses. Subsection 14(9) of EPA 1982 states:
‘An order under this Act has effect notwithstanding that the number of employees employed by the employer concerned falls below 15.’
The IRC NSW's approach to redundancy was subsequently reviewed in 1994 in Re Application for Redundancy Awards Case. The IRC NSW rejected a union application to remove the exemption, in the following terms:
‘[W]e are persuaded that it would be unjust to grant an employer an automatic exemption from the redundancy provisions simply because he employees less than fifteen employees.
It seems to us that the rationale behind such an exemption must assume, we think incorrectly, that an employer who employs less than 15 employees cannot afford to pay the redundancy benefits to his retrenched employees. It may well be that he has not the capacity to do so. But many employers who employ only a small number of employees have very lucrative businesses, whilst employers of a larger number of employees might make a relatively small profit . . . A provision of that kind is arbitrary and in our view is devoid of merit. All employees who are made redundant for whatever reason, are likely to suffer the same adverse effects no matter whether they were employed at a small enterprise or by a multi-national company. In our view all employees who are made redundant should prima facie be entitled to the same benefits. If any employer considers that he does not possess the capacity to pay the benefits bestowed by the redundancy provisions then he will have the right to come to the Commission to be exempt therefrom. Each case can then be dealt with on its individual merits.’
The Western Australian Industrial Relations Commission (WAIRC) considered this issue in 1985 in Amalgamated Metal Workers and Shipwrights Union of Western Australia v Anchorage Butchers Pty Ltd and others. In that case the WAIRC decided that:
In a subsequent 1986 decision of the WAIRC the small business exemption was incorporated (for the sake of consistency) but the WAIRC said:
Thus there is no single TCR standard in Western Australian state awards, (within the meaning of Principle 10, of that State's statement of principles for making awards in WA). The WAIRC has adopted the general small business exemption that operates federally, albeit with some reservations.
In our view, the small business exemption should be retained. Many small businesses operate in marginal circumstances.
An obligation to make severance payments has the very real potential to result in the insolvency of a number of small businesses.
The lack of financial resilience in small business previously referred to has not changed since 1994. We accept the Queensland Government's submission that small business would generally have smaller cash reserves to meet severance pay requirements, and redundancies occurring would represent a greater proportion of the overall labour costs of the business.
The inference to be made from this survey on the small business exemption is that it does not appear to be uniform or absolute across the states or federally and that usually some discretion is reserved for the relevant tribunal whether to make an order for a small business redundancy depending on the merits of the case, as the AIRC’s 2004 redundancy decision noted:
The existence of a small business exemption in most state jurisdictions is clearly a factor which supports the retention of the exemption in federal awards. But it is not a determinative consideration. It must be balanced against other factors such as the inequities that may arise in circumstances where a business reduces employment over time, and the inconsistency of treatment of redundant employees based on the number of persons their employer employs.(14)
The ALP opposes the Bill but appears sympathetic to the notion of allowing small businesses an opt-out from the redundancy pay obligation on account of possible financial effects on the businesses viability, in other words a business concerned would have to make a case and argue that it could not meet the costs of redundancy/ies.(15)
Representing the Australian Democrats, Senator Murray has expressed an initial concern at the prospect of the Bill overturning a decision of the independent tribunal charged with considering the matter of redundancy in depth.(16)
As with the original 1984 redundancy decision, the AIRC made a supplementary decision to its March 2004 decision on 8 June 2004.(17) The supplementary decision declined employers’ proposals to restructure the schedule of redundancy payments applying to businesses with more than 15 employees (to account for the differing long service qualifying periods of the States and Territories), and the AIRC has retained the schedule shown in Table 3.
On the matter of exempting small business from the (capped) redundancy schedule determined in the March 2004 decision the AIRC decided that the argument put by the employers, particularly ACCI, had merit. This was that the small business obligation to meet redundancy pay would commence for their employees at this point forward (effectively from the June decision), ie previous service of individual employees would not be considered in determining an employee’s service:
… we think there is some merit in the proposal advanced by ACCI. In particular, we accept that small business employers may not have the financial reserves necessary to meet a redundancy situation immediately, even though currently trading profitably. For these reasons, notwithstanding its lateness, we have some sympathy for the submission. The reasons which have already lead us to adopt a less onerous severance pay scale for small business also support the submission. We have decided that the severance pay scale to apply to small business should not take into account service rendered prior to the operative date of any order giving effect to the March decision.(18)
The supplementary decision in effect defers the maximum small business redundancy payment/s arising from this test case until mid 2009 or later.
Item 1 – Paragraph 89A(2)(m) replaces existing paragraph 89A(2)(m) making redundancy pay by an employer of 15 or more employees an allowable award matter. Redundancy pay by an employer of fewer than 15 employees therefore would not be an allowable award matter.
Item 3 inserts subsection 89A(7A) which would prevent an exceptional matters order being made about redundancy pay by an employer of fewer than 15 employees.
Item 4 inserts paragraph 89A(8A)(a) which sets out the ‘relevant time’ at which the number of employees is to be calculated for the purposes of paragraph 89A(2)(m) and subsection 89A(7A). Paragraph 89A(8A)(b) provides that a reference to employees in either paragraph 89A(2)(m) or subsection 89A(7A) includes a reference to the employee who becomes redundant and any other employee who becomes redundant at the relevant time. A reference to employees also includes any casual employee who, at the relevant time, has been engaged by the employer on a regular and systematic basis for at least 12 months, but does not include any other casual employee.
Item 5 inserts section 153A which provides that a constitutional corporation which employs fewer than 15 employees is not required to make redundancy payments to its employees where a state law or state award requires it to do so.
Item 6 inserts subsections 170FA(3) and (4). Subsection 170FA(3) provides that the Commission must not make an order to give effect to Article 12 of the ILO’s Termination of Employment Convention in relation to the matter of redundancy pay by an employer of fewer than 15 employees. The intention behind sections 170FA, FB, FC and FD was to provide employees with access to severance payments where these were not available as an award entitlement.(19) The WR Act’s termination of employment provisions give effect to Articles 12 and 13 (only) of the Convention, and there exists in these provisions currently a small business exemption. Subsection 170FA(4) sets out the relevant time and the definition of employees including long term casual employees for the purpose of calculating a small business (see item 4).
Item 7 provides that the amendments contained in items 1 to 4 of this Schedule apply where the Commission is dealing with industrial disputes by arbitration after the Schedule commences whether the industrial dispute arose before or arises after the Schedule has commenced. This item also provides that the amendment made by item 5 applies to a state law or state award made, amended or varied, that imposes redundancy pay obligations on constitutional corporations that employ fewer than 15 employees.
Item 8 provides that if, during the period from 26 March 2004 until Schedule 1commences, the Commission made an award or order that had the effect of requiring an employer of fewer than 15 employees to make a redundancy payment, or if the Commission varied an award or order that was made before or during that period to that effect, then from the commencement of this Schedule such an award or order ceases to have that effect.
Item 9 prevents a state law or award that is made, amended or varied during the period from 26 March 2004 until the Schedule commences and which has the effect of requiring a constitutional corporation employing 15 or fewer employees to pay redundancy pay, from having effect.
Schedule 2 makes the same amendments as provided for in Schedule 1, in the scenario that the Workplace Relations (Award Simplification) Bill 2002 becomes law and commences before this Bill receives Royal Assent. This is necessary because that Bill and the current Bill make changes to similar provisions of the WR Act.
Schedule 3 does the same where the Bill receives Royal Assent before the commencement of the Workplace Relations Amendment (Award Simplification) Bill 2002.
Schedule 4 provides any entitlement to a redundancy payment that arose before the commencement of a Schedule to this Bill is not affected by the Bill.
The Bill highlights the difficulty of altering what appear to be established standards – in this case the removal of the small business exemption in federal award redundancy provisions. With the limited time available to prepare this digest, it was not feasible to look at the reasoning behind the 1982 small business exemption as provided for then in New South Wales. However, it is likely that some concession was made for the general economic recession at that time, and it is reasonable to ask whether those circumstances continue to apply. Although the main purpose of the Bill is to counter the AIRC recent redundancy decision, the Bill also indicates the Government’s more pronounced intention to exclude inconsistent state award provisions, even though the AIRC’s decision does not alter or extend their redundancy provisions. The Bill also represents the Government’s first attempt to implant a small business exemption in the WR Act’s allowable award matters.
S. Deery and D. Plowman, Australian Industrial Relations (2nd edition), (McGraw-Hill, 1982, p. 386.
The Hon Peter Reith, House of Representatives, Hansard, 26 November 1997, p. 11259.
Note the Workplace Relations Amendment (Fair Dismissal) Bill 2002 at subsection 170CE(5C).
Australian Industrial Relations Commission, Print F6230 Print F7262.
Department of Employment and Workplace Relations, GEERS Operational Arrangements at: www.workplace.gov.au, under employee entitlements.
I. Howarth, ‘For the record, Gilbertson leaves BHP with $50m’, The Australian Financial Review, 25 May 2003, p. 1.
At: http://www.acci.asn.au/text_files/media_releases/2003/51-03att.pdf
‘Big employers face 30% redundancy cost increase: ACCI’, WorkplaceExpress, 26 June 2003.
Ibid.
‘AiG wants federal redundancy to ‘cover the field’ WorkplaceInfo, 28 January 2003.
AIRC, Redundancy case 2004, PR032004, 26 March 2004.
The Hon Kevin Andrews, Second Reading of the Workplace Relations Amendment (Protecting Small Business Employment) Bill 2004, House of Representatives, Hansard, 26 May 2004, p. 28986.
This might be the case where an employee has been made redundant after the AIRC’s decision and before the Bill beings passed as an Act and coming into effect.
AIRC, Redundancy case 2004, PR032004, 26 March 2004.
M. Fenton-Jones, ‘Appeals suggested for small business redundancies’, The Australian Financial Review, 1 June 2004 , p. 47. The ALP proposes to refer the method of allowing a small business to prove that it is incapable of meeting redundancy costs to a Senate inquiry, ‘Labor backs commission on payouts’, The Australian Financial Review, 8 June 2004. p. 49.
Senator Andrew Murray, interview on ABC Radio, PM, 26 May 2004 .
AIRC Redundancy case, Supplementary Decision, PR062004, 8 June 2004 .
Ibid at par 21.
See for example AIRC decision, S9143, 4 October 2000.
This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.
ISSN 1328-8091
© Commonwealth of Australia 2004
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Published by the Parliamentary Library, 2004.
