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HG Insolvency Alert: Government seeks to cap redundancy entitlements in insolvencies 9 September 2014

On 4 September 2014, the Government introduced the Fair Entitlements Guarantee Amendment Bill 2014 to the House of Representatives (Bill).  The Bill is intended to amend the Fair Entitlements Guarantee Act 2012 (Cth) so as to limit the entitlements payable by the Government to those employees made redundant due to the liquidation or bankruptcy of their employer. 

In this Alert, Partner Paul Betros and Trainee Solicitor Tim Edwards discuss the Bill and its proposal to cap those entitlements at the equivalent of 16 weeks of the eligible employee’s pay.

At present, the Fair Entitlements Guarantee Scheme (FEGS) entitles eligible employees to a maximum payout that is equivalent to four weeks’ pay for each year of service with the terminating employer.  This has been the case since 31 December 2012, before which the General Employee Entitlements and Redundancy Scheme (GEERS) also operated to limit Government redundancy payouts to the equivalent of 16 weeks’ pay.  In short, the Bill proposes to reinstate GEERS. 

The Bill also represents a Government initiative to align the FEGS with the National Employment Standards contained in the Fair Work Act 2009 (Cth) (NES).  The NES presently requires employers who have terminated employees for reasons of genuine redundancy to pay entitlements equivalent to a maximum of 16 weeks’ pay.  The Bill’s assent would therefore mean that employees who are made redundant because of their employer’s liquidation or bankruptcy will be entitled to the same payout as employees who are made redundant by solvent employers.

As the Bill only sets an upper limit on payable entitlements, its greatest visible impact will be on those employees who have worked for the same employer for more than four years continuously.  As an example, an employee who has served four years with the same employer will be eligible to maximum entitlements equivalent to 16 weeks’ pay under both the current scheme and the amended FEGS.  In contrast, an employee who has served 10 years with one employer will be eligible for a maximum payout equivalent to 40 weeks’ pay under the current scheme, but only 16 weeks’ pay under the amended FEGS. 

Thus, the Bill would reduce the relevance (and importance) of how long an employee has continued to work for a single, but now insolvent employer when calculating that employee’s eligibility for redundancy entitlements.

Given the nature of the issues, it is clear that the Bill will face fierce opposition from “pro-employee” stakeholders such as unions and the Federal Opposition.  Like all Federal legislation, its passage through the Senate may prove to be a long and winding road, subject to compromise with the Opposition and the minority parties holding the balance of power in the Senate.  Indeed, Nostradamus himself would be hard pressed to predict whether any future piece of legislation will even remotely resemble the terms of the original bill!  Nonetheless, we will keep you posted.

For more information on Insolvency and Restructuring matters, please contact HopgoodGanim’s Insolvency and Restructuring team.

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