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Industrial and Employment Law Alert: Rights of bankrupt employees limited - 2 November 2012

The Federal Magistrates Court recently found that an undischarged bankrupt was unable to seek compensation or a financial penalty against a former employer for unlawful dismissal, but was able to seek reinstatement instead.

In Brown v Premier Pet [2012], a bankrupt worker filed proceedings against his former employer alleging a contravention of the general protections provisions of the Fair Work Act. As is usual in such proceedings, the relief claimed included a claim for compensation. However, such claims can be affected, and in some instances severely curtailed, by the Bankruptcy Act.

Partner Andrew Tobin and associate Troy Wild explain how bankruptcy law can impact on certain employment-related claims, and outline the findings in this case.

Key takeaway points

  • If faced with the prospect of having to respond to proceedings brought under the general protections provisions of the Fair Work Act 2009 (Cth), employers should consider the standing of the applicant employee.
  • Where the employee is a bankrupt, and provided any claim for compensation does not include a component for pain and suffering/hurt/humiliation, the available remedies may be limited to reinstatement only.

Background to this case

In August 2011, the applicant, Mr Brown, filed an Application for FWA to Deal with a General Protections Dispute under the general protections provisions of the Fair Work Act. He alleged that he was unlawfully dismissed after he made a complaint that he was working beyond his rostered 38 hours a week.

At the time of making the application, and at the time of his termination, Mr Brown was an undischarged bankrupt.

The respondent employer, Premier Pet, argued that in light of the nature of the relief sought and the wide definition of ‘property’ in the Bankruptcy Act 1966 (Cth), any right to bring the proceedings vests in Mr Brown’s trustee in bankruptcy. On that basis, the respondent argued, the proceedings should be dismissed.

Property under the Bankruptcy Act

Under the Bankruptcy Act, where a debtor becomes a bankrupt, ‘the property of the bankrupt’ vests in the bankrupt’s trustee. Relevantly, any ‘after-acquired property’ of the bankrupt also vests in the bankrupt’s trustee as soon as it is acquired.

The Act provides that ‘property’ includes both real and personal property, including any estate, interest or profit associated with that property. ‘Property of the bankrupt’ includes both the property divisible among the bankrupt’s creditors, and any rights and powers related to that property that the bankrupt would be able to exercise if he or she had not become bankrupt.

However, the Act says that the property divisible among the bankrupt’s creditors does not include the bankrupt’s right to recover damages or compensation for personal injury or ‘wrong done to the bankrupt’, or any damages and compensation the bankrupt recovers related to that injury or wrong, whether before or after becoming bankrupt.

Findings in Brown v Premier Pet

Relying on a number of authorities, Federal Magistrate Jarrett found that a claim for compensation arising out of a wrongful or unlawful dismissal from employment is generally seen as ‘property’ for the purposes of the Bankruptcy Act.

FM Jarrett determined that Mr Brown cannot pursue a claim for compensation or the imposition of a pecuniary penalty on the respondent because those rights are ‘property’ rights vested in his trustee in bankruptcy as ‘after-acquired property’.

However, FM Jarrett found that Mr Brown’s application to seek an order for reinstatement did not involve him exercising ‘property’ rights under the Bankruptcy Act.

FM Jarrett held that Mr Brown’s “right to seek reinstatement and thereby to be put back in a position to earn income through personal exertion remains with Mr Brown. His trustee has no interest in seeking his reinstatement. His trustee, for example, could not ensure that if reinstatement was offered or taken up, Mr Brown would take up or remain in the employment”.

FM Jarrett concluded that “the right to seek an order for reinstatement is not a right which can be exercised beneficially for Mr Brown’s creditors”.

For more information about the rights of bankrupt employees under the Fair Work Act, please contact HopgoodGanim’s Industrial and Employment Law team.