Closing a gap in redundancy rights for workers in insolvent businesses

A win for small business employees when facing redundancies.

The Fair Work Legislation Amendment (Closing Loopholes) Act 2023, passed in December 2023, marks a pivotal moment for employee rights when facing redundancies in insolvent businesses.  The following changes commenced on 15 December 2023:

• Small business redundancy exemption provisions

• Regulated labour hire arrangements jurisdiction

• Workplace delegates' rights provisions

• Protections for those subject to family and domestic violence

• Amendments to compulsory conciliation conference in protected action ballot order matters

There are further amendments that will commence on 1 July 2024, 1 November 2024 and 1 January 2025.

The main interest for insolvency practitioners is the change in the small business redundancy exemption provisions which amends section 121 of the Fair Work Act 2009. Before December 2023, companies with fewer than 15 employees were usually exempt from paying redundancy pay when laying off staff. This aimed to help small businesses that were facing financial difficulties.

However, a loophole existed. If a larger company became insolvent and shrank to under 15 employees, and therefore legally considered a small business, some employees could have missed out on redundancy pay they were entitled to.

The Fair Work Legislation Amendment (Closing Loopholes) Act 2023 fixes this by closing the loophole. Now if a company becomes a small business, shrinking to fewer than 15 employees during an insolvency appointment (i.e. bankruptcy or liquidation), the employees will not lose their right to redundancy pay. This applies if they were employed before the employer became bankrupt or was a placed into liquidation.

As an example: “Company A” with 20 employees faces financial difficulties and enters in liquidation. The appointed liquidator makes 16 employees redundant, and 4 employees are continued to be employed for a further 2 months to assist the liquidator with the winding up of the company. Prior to this legislation amendment, the 4 employees may have lost their legal entitlement to redundancy pay due to the company's new "small business" status, as they now have less than 15 employees.  However, due to the recent changes, the 4 employees will now receive their redundancy pay, due to the company becoming a small business in liquidation.

The closing of this loophole signifies a commitment to protecting worker rights and ensuring fair treatment during times of economic hardship.

However, it is important to note that these changes apply only to terminations that occurred after 15 December 2023. Any redundancies or downsizing that caused the employer to become a small business employer prior to this date will not be covered by the new regulations.

If you have any questions about employee entitlements, please reach out to your local Worrells principal for a no-obligation and complimentary consultation.