What happens to workers' claims if an employer becomes bankrupt?
The Fair Work Commission (FWC) recently handled a case involving two employees who submitted unfair dismissal claims against their employer, which had already initiated its liquidation process.
They were employed as an assistant quality controller and a process worker, respectively, and filed applications asserting that they were unjustly dismissed from their positions at the company.
On October 24, 2023, the Commission was informed that the employer had entered voluntary administration and did not challenge the employees' claims.
The employees received a letter from the company's head of human resources on July 18, 2023, notifying them that their employment would be terminated with five weeks' notice.
It did not refer to any reason for dismissal. The workers said they believed that they had been dismissed for reason of redundancy. On termination, they were paid out their accrued annual leave and long service leave, but they did not receive any redundancy payments.
Employer in liquidation
The workers said that their dismissals were unfair because they were not given a reason for termination. They said that the way in which they were dismissed after lengthy periods of service was unfair and that the “unfairness” was worsened by the fact that they received no redundancy pay.
Meanwhile, the employer did not participate in the proceedings. On 24 October 2023, the administrators advised the Commission that they did not propose to defend the unfair dismissal applications and confirmed that the company was not in liquidation.
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However, at the FWC hearing on 15 November 2023, the workers provided a letter from the administrators dated 8 November 2023, stating that a resolution of creditors had determined to place the company into voluntary liquidation.
Can the dismissal claims continue?
The FWC said that the workers could not continue their unfair dismissal claims without a court order allowing them to do so.
It said that “after the passing of a resolution for voluntary winding up, ‘no action or other civil proceeding is to be proceeded with or commenced against the company except by leave of the court and subject to such terms as the court imposes’.”
“It is clear that the workers’ unfair dismissal claims are actions or civil proceedings. The Commission is not a court and cannot grant leave for the proceedings,” it said.
Workers should go to court
In its decision, the FWC found that the dismissals were unfair. However, it said it can no longer decide on the merits of the case since the company was already put in liquidation.
“Had the company not been placed into liquidation and the applications had proceeded, [the Commission] would have concluded that the [workers’] dismissal was unfair.”
“Based on the material before the Commission, there is no indication that there was a valid reason for dismissal related to the workers’ capacity or conduct.”
“The [workers] were treated very poorly by the [employer] after many years of service,” it said. However, the Commission said that the workers still have a remaining course of action despite the applications’ dismissal in the FWC.
“In relation to the question of redundancy entitlements, given the [employer] is in liquidation, they may now lodge a claim under the Fair Entitlements Guarantee scheme,” it said.