Employees whose employment has been terminated due to the liquidation or bankruptcy of their employer may be eligible for government financial assistance, referred to as an advance, intended to cover certain unpaid employment entitlements.
Who is eligible?
The Fair Entitlements Guarantee Act 2012 (the FEG Act) may apply to a person if their employer enters liquidation or bankruptcy on or after 5 December 2012 (referred to as an ‘insolvency event’). If the insolvency event occurred prior to 5 December 2012, the employees may be eligible for assistance under the former scheme, the General Employee Entitlements and Redundancy Scheme (GEERS).
Subject to some exclusions, an employee is eligible for FEG assistance if:
- Their employment with the relevant employer has ended
- The end of the employment:
- was due to the insolvency of the employer
- occurred less than 6 months before the appointment of an insolvency practitioner for the employer, or occurred on or after the appointment of an insolvency practitioner for the employer
- the employer is owed employment entitlements
- the employee has taken reasonable steps to prove those debts in the winding up or bankruptcy of the employer
- if the employee was owed employment entitlements before the insolvency event occurred, he or she took reasonable steps to have them paid
- at the time the employment ended, the employee was an Australian citizen or the holder of a permanent visa or special category visa
- the employee, or a person on their behalf, have made an effective claim that they are eligible for an advance
In order to make an effective claim, employees must lodge a FEG claim form with the Department within strict time limits and include all mandatory information and documentation. The claim must be made:
- no more than 12 months after the end of the employment or the date of the insolvency event (whichever is later); and
- before the discharge of the former employer’s bankruptcy (if the employer was a bankrupt).
The FEG Act only applies to “employees”, which excludes other classes of workers, for example, contractors and sub-contractors. Other specific classes of employee are also ineligible for FEG assistance, such as:
- an employee who has a personal connection with the employer; and
- an employee who became an employee of the employer shortly before the insolvency event following a period working as a contractor.
What amounts can be paid?
The following unpaid employment entitlements may be covered:
- wages – up to 13 weeks of unpaid wages ending at the earlier of the following times:
- the time the employment ended
- the first time an insolvency practitioner had power (however expressed) to control or manage the employment by the former employer
- annual leave
- long service leave
- payment in lieu of notice – to a maximum of 5 weeks
- redundancy pay– to a maximum of 4 weeks per full year of service and pro-rata for less than a full year of service, if the governing instrument provides such an entitlement.
FEG does not cover employer superannuation contributions required under the Superannuation Guarantee. If an employee has unremitted employer superannuation contributions, they are advised to contact the insolvency practitioner regarding their rights as an employee creditor.
Employees are not eligible for an advance for payment in lieu of notice and redundancy if the former employer’s business is transferred to a new employer and, within 14 days of the end of their employment, the new employer offers to employ the employee:
- to do work that is the same, or substantially the same, as the work they did for the former employer; and
- on terms and conditions substantially similar to, and considered on an overall basis, no less favourable than those under which the employee was employed immediately before their employment ended.
The amount of any advance is calculated based on the terms and conditions of the governing instrument under which the employee was employed (for example, an industrial award, a collective agreement, a contract of employment, etc.).
In relation to each unpaid employment entitlement, the Department will reduce the entitlement by any amounts that the employee has already been paid or amounts that are payable by anyone for that particular entitlement. For example, if an employee is entitled to receive a payment from a fund such as a redundancy trust fund or long service leave industry trust fund, the FEG amount will be reduced by the amount that is payable from the relevant fund.
When calculating the amount of an advance, entitlements are capped by the FEG maximum weekly wage – currently $2,364.00 – which is indexed annually. If the employee earned more than this wage, the Department will calculate the employment entitlements as if the employee earned the FEG maximum weekly wage.
The Department may also disregard any recently agreed terms and conditions of employment. For example, if the employer agreed to more favourable terms and conditions of employment in the 6 months before the end of the employment and it was unreasonable to expect that the employer could satisfy this obligation, the Department may calculate the amount of the advance as if the terms and conditions had not been changed.
Under the FEG Act, the amount of the advance may also be reduced if:
- the employee owes debts to the former employer; or
- the insolvency practitioner expects that there will be money available to pay the employment entitlements in the next 112 days.
Who provides relevant information to the Department?
While the Department generally relies on the information provided by the insolvency practitioner, it is important that employees also provide the Department with as much information as possible to help it decide if an employee is eligible for FEG assistance and, if so, to calculate the amount of any advance.
What are the key differences between FEG and GEERS insolvency practitioners should be aware of?
- Employees must lodge a claim within 12 months from the end of their employment or the date of the insolvency event (whichever is later). This is a strict timeframe cannot be extended.
- Employees must be Australian Citizens, permanent residents or hold a special category visa at the time their employment ends.
- Unlike GEERS, there are no eligibility requirements relating to Deeds of Company Arrangements or personal insolvency agreements.
- Unlike GEERS, FEG entitlements are paid up to the end of employment and simply reduced by the portion that an Insolvency Practitioner is required to pay as a cost of the winding up.
- Under FEG, employees have a right to an external review by the Administrative Appeals Tribunal if they are not satisfied with the decision of the Department.
- Please note that the assessment of claims involving a transfer of business or employment to a new entity will also need to be considered. However, the process will be simplified in July 2014.
How can we help?
We can assist insolvency practitioners to manage requests for assistance and information from employees and the Department in compliance with this legislation. Our next OpusRed Alert will provide further information about the specific assistance that the Department expects insolvency practitioners to provide under FEG.
Please contact us to have a no obligation fee-free discussion at any time. Call Sam Pandya on 1300 676 787 or send us an email enquiry through our contacts page.