Fair Work Act 2009

s.120 - Application to vary redundancy pay for other employment or incapacity to pay

Application to vary redundancy pay for other acceptable employment or incapacity to pay - enterprise agreement entitlement to redundancy pay - where agreement redundancy clause refers to s.120 of the Act - whether entitlement to redundancy pay is because of s.119

• [1] The Northcott Society (applicant) has made an application under s.120 of the Fair Work Act 2009 (Cth) (Act) to vary the redundancy pay entitlement of a former employee, Ms. Farla (respondent) from 7 weeks' pay to nil. The basis of the application is that the applicant obtained 'other acceptable employment' for the respondent within the meaning of s.120(1)(b)(i) of the Act and should therefore be relieved of the obligation to pay redundancy pay.

• [2] An enterprise agreement called the Northcott Enterprise Agreement 2021-2023 (Agreement) applies to the applicant and its employees. It was not in issue that the Agreement applied to the respondent up to and including the point at which the respondent's employment came to an end. Under clause 18 of the Agreement, in circumstances where an employee's employment is terminated for reasons of redundancy, the respondent would ordinarily be entitled to a payment of 7 weeks' pay for what is described in that clause as 'severance pay,' based on the period of continuous service the respondent had with the applicant. That period of service was between 2 and 3 years.

• [3] The application specifies the Agreement as the instrument under which the respondent's entitlement to redundancy pay arises.

120 Variation of redundancy pay for other employment or incapacity to pay

(a) an employee is entitled to be paid an amount of redundancy pay by the employer because of section 119; and

(i) obtains other acceptable employment for the employee; or

(2) On application by the employer, the FWC may determine that the amount of redundancy pay is reduced to a specified amount (which may be nil) that the FWC considers appropriate.

(3) The amount of redundancy pay to which the employee is entitled under section 119 is the reduced amount specified in the determination.

• [5] As is apparent from s.120(1)(a)[1] above, the section applies only if an employee is entitled to be paid an amount of redundancy pay by an employer 'because of' s.119 of the Act. This has been described as a jurisdictional prerequisite for an application under s.120.[2]

• [6] Sections 119 and 120 appear in Part 2-2 of the Act. That Part deals with the National Employment Standards (NES). Section 119 of the Act sets out a scale of redundancy payments payable to employees whose employment is terminated in circumstances described in s.119(1). The amount payable under s.119 to an employee such as the respondent with a period of continuous service of between 2 and 3 years, is 6 weeks' pay, that is, 1 week less than what is provided for in the Agreement.

• [7] There are 2 limbs in s.120(1) that must both be satisfied before s.120 applies at all. Before proceeding to determine whether the payments to the respondent should be reduced on the basis of the second limb, namely because the employer has obtained other acceptable employment for the employee, it is appropriate to determine whether the entitlement in question is one to which the respondent is entitled 'because of' s.119. One alternative is that the entitlement does not arise because of s.119 of the Act but because of the operation clause 18 of the Agreement.

• [8] Clause 18, Redundancy, of the Agreement relevantly provides:

1. Subject to clause 18.4, in addition to the period of notice determined under clause 17-Termination of Employment, an employee whose employment is terminated for reasons of redundancy shall be entitled to the following amount of severance pay in respect of Continuous Service with the employer:

Period of continuous service Under 45 years of age

Note: Severance pay payable under this clause 18.2 is payable in satisfaction of any redundancy pay set out in section 119(2) of the Fair Work Act.

a. Sections 119 to 122 of the Fair Work Act apply to employees covered by this Agreement as if a reference to "redundancy pay" in sections 119 to 122 is a reference to "severance pay" payable under this Agreement. In particular:

i. section 119 sets out the circumstances in which a redundancy can take place, and severance pay is payable;

ii. section 120 sets out the circumstances in which severance pay may be varied because the employer obtains other acceptable employment for the employee or cannot pay the amount; and

iii. section 122 affects the obligation to pay severance pay in transfer of employment situations.

• [9] The applicant did not argue that the entitlement did not arise because of the Agreement rather than because of s.119 of the Act. Instead, it was put in written submissions that the combined effect of clauses 18.2 and 18.4 of the Agreement was that the Agreement itself provided a mechanism for reducing an entitlement to redundancy pay by specifically stating that s.119 and s.120 apply to employees covered by the Agreement and that by extension, the Commission should simply apply the provisions of s.120 to reduce the entitlement in this case.

• [10] The applicant placed reliance for that proposition on the decision in Airstep Flooring Pty Ltd t/as Imagine Floors v. Oskolov and Hamilton[3] (Airstep) where the Commission approved an application for a reduction in redundancy entitlements for 2 employees who were covered by an agreement that provided a more beneficial redundancy entitlement than the NES entitlement in s.119. The agreement in question also contained a clause (clause 37) that allowed the employer to apply to the Commission to reduce the amount in question in the event that, inter alia, the employer obtained suitable alternative employment for the employee with the company. The Commission in that matter described the application as one that was made under both clause 37 of the relevant agreement and s.120 of the Act.[4] The Commission went on to say that '... an application to vary redundancy benefits in an enterprise agreement cannot be made by a s.120 application alone; the entitlement to vary must arise from the Agreement. In this matter, the Agreement has such a clause in 37.'[5] In my view, the applicant's argument about the effect of clauses 18.2 and 18.4 must be rejected. I also think that the applicant's reliance on Airstep is misplaced and that the decision itself, with respect, does not correctly identify the nature of the applications that were being dealt with or provide a sound basis to conclude that the Commission is able to deal with an application of this kind where a term of an agreement makes some provision for the operation or application of s.120.

• [11] In the matter of MAX Solutions t/a Max Solutions Pty Ltd v. Alvarardo and Nguyen[6] (Max Solutions) the Full Bench considered an appeal against an earlier decision which had rejected two applications to reduce redundancy entitlements under s.120 of the Act in circumstances where an agreement provided for an entitlement to redundancy pay in similar though not identical terms to the amount provided for in s.119. At first instance the Commission had concluded that it was not empowered to entertain such an application. This conclusion was upheld on appeal, although the Full Bench rejected the conclusion at first instance that the redundancy entitlement arose from both the agreement in question and the NES. In reaching its conclusion, the Full Bench conducted analysis of the terms of the agreement and the redundancy provisions in the NES and the interaction between the two.

• [12] The Full Bench in Max Solutions noted firstly that the minimum standards in the NES comprise minimum employment entitlements of employees and that any obligations of an employee, or 'rights' of an employer under the terms of the NES, are properly characterised as qualifications to the employee receiving a benefit, not substantive employer benefits or rights.[7] The Full Bench then considered the provisions of s.55 of the Act. That section deals with the interaction between the terms of enterprise agreements and the NES. It provides as follows:

55 Interaction between the National Employment Standards and a modern award or enterprise agreement

National Employment Standards must not be excluded

(1) A modern award or enterprise agreement must not exclude the National Employment Standards or any provision of the National Employment Standards.

Terms expressly permitted by Part 2‑2 or regulations may be included

(2) A modern award or enterprise agreement may include any terms that the award or agreement is expressly permitted to include:

(a) by a provision of Part 2‑2 (which deals with the National Employment Standards); or

(b) by regulations made for the purposes of section 127_._

Note: In determining what is permitted to be included in a modern award or enterprise agreement by a provision referred to in paragraph (a), any regulations made for the purpose of section 127 that expressly prohibit certain terms must be taken into account.

(3) The National Employment Standards have effect subject to terms included in a modern award or enterprise agreement as referred to in subsection (2).

Note: See also the note to section 63 (which deals with the effect of averaging arrangements).

Ancillary and supplementary terms may be included

(4) A modern award or enterprise agreement may also include the following kinds of terms:

(a) terms that are ancillary or incidental to the operation of an entitlement of an employee under the National Employment Standards;

(b) terms that supplement the National Employment Standards;

but only to the extent that the effect of those terms is not detrimental to an employee in any respect, when compared to the National Employment Standards.

Note 1: Ancillary or incidental terms permitted by paragraph (a) include (for example) terms:

(a) under which, instead of taking paid annual leave at the rate of pay required by section 90, an employee may take twice as much leave at half that rate of pay; or

(b) that specify when payment under section 90 for paid annual leave must be made.

Note 2: Supplementary terms permitted by paragraph (b) include (for example) terms:

(a) that increase the amount of paid annual leave to which an employee is entitled beyond the number of weeks that applies under section 87; or

(b) that provide for an employee to be paid for taking a period of paid annual leave or paid/personal carer's leave at a rate of pay that is higher than the employee's base rate of pay (which is the rate required by sections 90 and 99).

Note 3: Terms that would not be permitted by paragraph (a) or (b) include (for example) terms requiring an employee to give more notice of the taking of unpaid parental leave than is required by section 74.

Enterprise agreements may include terms that have the same effect as provisions of the National Employment Standards

(5) An enterprise agreement may include terms that have the same (or substantially the same) effect as provisions of the National Employment Standards, whether or not ancillary or supplementary terms are included as referred to in subsection (4).

Effect of terms that give an employee the same entitlement as under the National Employment Standards

(6) To avoid doubt, if a modern award includes terms permitted by subsection (4), or an enterprise agreement includes terms permitted by subsection (4) or (5), then, to the extent that the terms give an employee an entitlement (the award or agreement entitlement) that is the same as an entitlement (the NES entitlement) of the employee under the National Employment Standards:

(a) those terms operate in parallel with the employee's NES entitlement, but not so as to give the employee a double benefit; and

(b) the provisions of the National Employment Standards relating to the NES entitlement apply, as a minimum standard, to the award or agreement entitlement.

Note: For example, if the award or agreement entitlement is to 6 weeks of paid annual leave per year, the provisions of the National Employment Standards relating to the accrual and taking of paid annual leave will apply, as a minimum standard, to 4 weeks of that leave.

Terms permitted by subsection (4) or (5) do not contravene subsection (1)

(7) To the extent that a term of a modern award or enterprise agreement is permitted by subsection (4) or (5), the term does not contravene subsection (1).

Note: A term of a modern award has no effect to the extent that it contravenes this section (see section 56). An enterprise agreement that includes a term that contravenes this section must not be approved (see section 186) and a term of an enterprise agreement has no effect to the extent that it contravenes this section (see section 56).

• [13] In the present context sections 61 and 56 of the Act should also be noted. The former section provides that the minimum standards provided for in Part 2-2, including redundancy pay, cannot be displaced, even if an enterprise agreement includes terms of the kind referred to in s.55(5). Section 57 provides that a term of a modern award or enterprise agreement has no effect to the extent that it contravenes s.55.

• [14] In Max Solutions the Full Bench noted that s.55 permits the inclusion of certain terms dealing with NES subject matter in enterprise agreements. Section 55(4) permits the inclusion of terms in modern awards and agreements that are ancillary or incidental to the operation of an entitlement under the NES, or which supplement the NES to the extent that the effect of those terms is not detrimental to an employee. Section 55(5) permits the inclusion of terms in agreements that have the same or substantially the same effect as provisions of the NES, whether or not ancillary or supplementary terms are included. In relation to s.55(6) the Full Bench cited with approval the following passage in the decision of the majority of the Full Court of the Federal Court of Australia in Construction, Forestry, Mining and Energy Union v. Glendell Mining Pty Ltd:[8]

[Section 55 indicates] that the terms and conditions of employment for which the FW Act provides may be those in the NES and (relevantly) supplementary terms in a modern award or in an enterprise agreement. To the extent that the award or enterprise agreement entitlement is the same as the NES entitlement, the two entitlements operate in parallel. The NES standards do apply to the award or enterprise agreement entitlements, but only to the extent to which the entitlements in the latter match those in the former. That follows from the preface in s 55(6) which indicates that the NES apply to terms in the modern award or enterprise agreement "to the extent" that those terms give the employee an entitlement which is "the same as" the NES entitlement.

• [15] The Full Bench also observed that the supplementary explanatory memorandum to the Fair Work Bill 2008 states that s.55(6) "is designed to ensure the integrity of the NES, while allowing flexibility in relation to 'above-NES entitlements.'"[9](emphasis added)

• [16] It is necessary to note that unlike the present situation, the agreement in question in Max Solutions did not contain a clause which refers to a mechanism by which the employer may seek to have a redundancy entitlement reduced, including s.120.[10] In that circumstance, the Full Bench concluded that s.55(6)(b) did not operate to apply s.120 of the Act to the agreement entitlement because it could not be regarded as a 'minimum standard' of employees but was instead a 'right' of the employer to apply to seek to have the employee entitlement reduced.[11] At [58] the Full Bench said:

It is difficult to envisage a situation where s 120 could satisfy the "minimum standard" requirement in s 55(6)(b) to affect an enterprise agreement entitlement to redundancy pay, or any circumstance where s 55(6)(b) could be relied upon to support an application satisfying the precondition in s 120(1).

• [17] In this case it should also be noted that the agreement entitlement is not the same as the entitlement in the NES. Section 55(6) provides that the agreement entitlement operates in parallel with the NES entitlement and the provisions of the NES relating to NES entitlement apply only to the extent that the agreement terms give an agreement entitlement that is the same as the NES entitlement. Here the Agreement itself makes reference to s.120 and says it applies to employees covered by the Agreement. Provided clauses 18.2 and 18.4 are capable of inclusion as an agreement term, do not contravene s.55 or seek to displace the NES, those provisions operate in accordance with their terms.

• [18] The Full Bench in Max Solutions did however conclude that clause 9.4 of the agreement in question did not detract from the NES, that it was a clause capable of inclusion in an agreement as a s.55(4) and/or s.55(5) term and that the entitlement to redundancy operated as a distinct entitlement for employees to whom the agreement applied.[12] I am of the same view in relation to clause 18 of the Agreement. Clause 18.2 supplements the NES by providing a more beneficial entitlement and clause 18.4 is capable of inclusion because it is a term that has the same or substantially the same effect as provisions of the NES, namely the sections that form part of the NES that are referred to in that clause. The provisions do not displace the minimum standards provided for in the NES in the sense addressed by s.61. Nor are they rendered inoperative because they contravene s.55. I am of the view that the redundancy entitlement in question arises because of the terms of the Agreement and not because of the operation of s.119 of the Act.

• [19] However, I do not consider that the terms of clause 18 provide a basis for the present application to proceed. First, as was the case in Max Solutions, the application here is for a reduction to the Agreement entitlement. It is not an application for the reduction of an amount to which the employee is entitled 'because of' s.119.

• [20] Second, the application has been made pursuant to s.120 of the Act. It is not correct to characterise the application as one that is made under a clause of the Agreement. If on a proper construction of the terms of an agreement, the agreement incorporates the processes of the Act such as those contained in s.120, then those terms may be enforced as terms of the Agreement in the ordinary way. However, it does not follow that clause 18 invests the Commission with jurisdiction to deal with the matter as if it were an application under s.120. The Commission is only permitted to deal with matters where the Act confers the jurisdiction for it to do so. Section 595 provides that the Commission may deal with a dispute only if it is expressly authorised to do so under or in accordance with another provision of the Act. An example of provisions in the Act which allow the Commission to deal with a dispute where the parties have agreed that it may do so in the terms of an agreement is contained in s.738 and s.739 in relation to dispute settlement provisions in awards and agreements. However, this is not an application or a dispute of that kind.

• [21] It is possible that by incorporating the references to s.119 to s.122 of the Act in clause 18.4 of the Agreement, the parties had intended to permit applications of this kind to be made to the Commission 'under' s.120 but this is not and cannot be the effect of the subclause.

• [22] Even putting aside the difficulty referred to in the preceding paragraphs, the parties have said that s.120, amongst other sections, applies to employees covered by the Agreement. They have not sought to modify the terms of s.120 in any way or specify that the processes apply where, for example, an entitlement arises because of the Agreement and not because of s.119. Thus, even in an enforcement proceeding, it would seem to follow that if the terms of the Agreement itself incorporate s.120, they do so on the basis that s.120 operates as it is in the Act, that is, only if the entitlement is one that is payable 'because of' s.119. As I have concluded above, this is not the case with the entitlement that is the subject of this application.

Having regard to these conclusions, it is unnecessary to consider the question of whether the employer obtained other acceptable employment for the respondent. The application is dismissed.

[2] MAX Solutions t/a Max Solutions Pty Ltd v. Alvarardo and Nguyen [2022] FWC FB 229 at [58].

[3] [2015] FWC 176.

[4] Ibid at [11]. Although the decision also described the applications as having been made under s.120 of the Act at [1].

[6] [2022] FWC FB 229.

[7] Ibid at [28] and [29], quoting Family Friendly Working Arrangements Case [2018] FWCFB 1692 at [143]- [145].

[8] [2017] FCAFC 35 at [116].

Printed by authority of the Commonwealth Government Printer