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2022-2023
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
SENATE
FAIR WORK LEGISLATION AMENDMENT (SMALL BUSINESS REDUNDANCY
EXEMPTION) BILL 2023
EXPLANATORY MEMORANDUM
(Circulated by authority of Senators Lambie and David Pocock)
FAIR WORK LEGISLATION AMENDMENT (SMALL BUSINESS
REDUNDANCY EXEMPTION) BILL 2023
OUTLINE
The Fair Work Legislation Amendment (Small Business Redundancy Exemption) Bill 2023 (the
Bill) addresses the anomalous consequences of the small business redundancy exemption in
insolvency contexts by providing an exception to its operation when a larger business
downsizes to become a smaller business employer due to insolvency.
The purpose of the Bill is to promote the right to just and favourable conditions of work by
addressing an anomaly which arises in the pre-existing small business redundancy exemption.
This anomaly causes some employees to lose their legal entitlement to redundancy pay under
the National Employment Standards in the context of a business downsizing from a larger
business to a smaller business due to insolvency.
The pre-existing small business redundancy exemption is a longstanding feature of the
workplace relations framework under the Fair Work Act 2009. It encourages employment by
small businesses by relieving them of National Employment Standards redundancy pay
obligations, which can be a significant contingent cost of employing staff. To qualify for the
exemption, businesses must employ fewer than 15 staff.
An unintended anomaly arises in the operation of the small business redundancy exemption, in
some insolvency contexts. When a larger employer incrementally downsizes due to insolvency,
either in the period leading to liquidation or bankruptcy, or afterwards, they may fall below the
15-employee threshold and become a small business employer before the final few staff are
made redundant. These final employees, who often stay on to assist in the orderly wind-up of
the business, lose the entitlement they previously would have had to redundancy pay under the
National Employment Standards, accumulated over years of continuous service with their
employer.
The amendments would provide an exception to the operation of the small business redundancy
exemption in such downsizing contexts, thus preserving an employee's redundancy pay
entitlement in a range of scenarios in which the employer may have become a small business
employer due to insolvency. This ensures an employee's legal entitlement to redundancy pay
is not taken away based on when they were made redundant.
The Bill only applies to employees of employers that are bankrupt or in liquidation due to
insolvency. It does not affect ongoing, solvent businesses. It is intended the Bill will cover the
situation when a larger employer incrementally downsizes due to insolvency, either in the
period leading up to liquidation or bankruptcy, or afterwards, and the number of employees
falls below the 15 employee threshold for the small business definition, causing some
employees to lose their previous entitlement to redundancy pay. This may occur, for example,
where an insolvency practitioner makes most of the employees of a company redundant upon
their appointment, but retains the bookkeeping and payroll staff - fewer than 15 employees in
total - to assist with the orderly wind up of the business.
At present, the majority of employees would receive their redundancy entitlements. However,
the employees kept on to finalise the winding up would not because the employer would then
come within the small business redundancy exemption.
NOTES ON CLAUSES
Clause 1: Short Title
1. Clause 1 is a formal provision specifying the short title of the Bill.
Clause 2: Commencement
2. This clause provides that the Bill will commence on the day after it receives Royal
Assent.
Clause 3 - Schedules
3. This clause gives effect to the provisions in Schedule 1 to the Bill.
Schedule 1-- Small business redundancy exemption
Part 1 - Main amendments
Fair Work Act 2009
Item 1 - Section 12 (definition of appointment)
4. This item would repeal the existing definition of 'appointment' and replace it with a
definition of 'appointment' that includes the 'appointment of an insolvency practitioner',
to give meaning to the term in new paragraph 121(4)(d). The newly inserted text is
consistent with the definition of 'appointment' in section 5 of the Fair Entitlements
Guarantee Act 2012.
Item 2 - Section 12
5. This item would insert the following new definitions:
• 'Bankruptcy Act 1966';
• 'Bankruptcy trustee' (as defined in the Bankruptcy Act);
• 'Corporations Act 2001';
• 'Insolvency practitioner' (as defined in the FEG Act);
• 'Liquidator' (as defined in the Corporations Act); and
• 'Members' voluntary winding up'.
6. The new definitions would inform the interpretation of new subsections 121(4)-(7),
where those terms are used.
Item 3 - Section 121
7. This item would insert new subsections (4), (5), (6) and (7) into section 121, to provide an
exception to the operation of the small business redundancy exemption in current paragraph
121(1)(b), where an employer downsizes from a larger business to a small business
employer due to insolvency.
8. New paragraphs (4)(a)-(d) would ensure the current exemption to the obligation to pay
redundancy at paragraph 121(1)(b) does not apply in the circumstances where the employer
is bankrupt or in liquidation (other than a members' voluntary winding up) and has only
become a small business employer due to employee terminations.
9. New subparagraphs (4)(d)(i)-(iii) would provide a six month 'look back' period to apply
to determine the application of the exception, from six months before the bankruptcy or
liquidation, or the appointment of the insolvency practitioner, or, if the appointment of the
insolvency practitioner was immediately preceded by the appointment of other insolvency
practitioners, from the earliest appointment date.
10. New subparagraph (4)(d)(iv) would apply where the terminations that caused the employer
to become a small business employer were due to the insolvency of the employer. It would
apply, for example, in the following circumstance: a receiver and manager is appointed to
an employer because the employer is in default due to insolvency. During the appointment,
the employer terminates the employment of one or more employees with the result that the
employer becomes a small business employer. The receivership concludes and the
employer enters liquidation six months and one day after the conclusion of the receivership.
11. New subparagraphs (4)(d)(i)-(iii) do not apply to the employer because of the length of
time between the conclusion of the receivership and the liquidation. However, new
subparagraph (4)(d)(iv) applies because the terminations that caused the employer to
become a small business employer were due to insolvency.
12. New subsection (5) would provide the new definition of members' voluntary winding up
to clarify the use of that term in new subsection (4). A members' voluntary winding up
under section 495 of the Corporations Act 2001is a process for winding up solvent
companies and requires a declaration of solvency by members. Liquidations due to a
members' voluntary winding up are excluded from new paragraph (4)(b) so that it only
applies to insolvent liquidations.
13. New subsection (6) clarifies the operation of new subsection (4) in circumstances where an
employer enters liquidation due to a members' voluntary winding up but subsequently turns
out to be insolvent. If and when the employer enters liquidation (other than a members'
voluntary winding up), following the process set out in section 496 of the Corporations Act
2001, the new subsection (4) would apply to the employer, and for the purposes of new
subsections (4)-(6), the original appointment date of the members' voluntary winding up
is treated as the date the company went into liquidation.
14. New subsection (7) would clarify when a partnership is bankrupt or liquidation for the
purposes of new paragraph (4)(b)
Part 2 - Application provision
Fair Work Act 2009
Item 4 - In the appropriate position in Schedule 1
15. Item 4 would insert new Part 18 in the appropriate position in Schedule 1 (Application,
saving and transitional provisions relating to amendments to this Act) of the Fair Work Act
2009.
16. New clause 124 would insert 2 new definitions that apply to new Part 18:
• 'amended Act' would mean the Fair Work Act 2009 as amended by the Fair
Work Legislation Amendment (Small Business Redundancy Exemption) Act
2023; and
• 'amending Act' would mean the Fair Work Legislation Amendment (Small
Business Redundancy Exemption) Act 2023.
17. New clause 125 would ensure that despite the operation of new paragraph 121(4)(d), the
amendments to section 121 will only apply to employees whose employment has been
terminated post-commencement and where the insolvent employer downsizing to become
a small business employer occurred post-commencement.
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Fair Work Legislation Amendment (Small Business Redundancy Exemption) Bill 2023
This Bill is compatible with the human rights and freedoms recognised or declared in the
international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny)
Act 2011.
Overview of the Bill
Currently, the Fair Work Act 2009 exempts small businesses from having to make redundancy
payments under the National Employment Standards (NES). When a larger business becomes
insolvent, the last employees to lose their jobs may miss out on redundance pay because by
that time the business has slipped under the 15-employee mark and become a small business.
The Bill provides an exception to the operation of the small business redundancy exemption in
downsizing context which will preserve an employee's redundancy pay entitlement in a range
of scenarios in which the employer may have become a small business employer due to
insolvency. This ensures an employee's legal entitlement to redundancy pay is not taken away
based on when they were made redundant.
The Bill is intended to address inequitable outcomes for employees, including those who
remain employed to assist with the wind-down of an insolvent business, and promote the right
to just and favourable conditions of work by addressing an anomaly which arises in the
preexisting small business redundancy exemption.
The amendments to the Fair Work Act 2009 would promote the right to just and favourable
conditions of work by addressing an anomaly which arises in the preexisting small business
redundancy exemption. This anomaly causes some employees to lose their legal entitlement to
redundancy pay under the NES in the context of a business downsizing from a larger business
to a smaller business due to insolvency.
The pre-existing small business redundancy exemption is a longstanding feature of the
workplace relations framework under the Fair Work Act 2009. It encourages employment by
small businesses by relieving them of NES redundancy pay obligations, which can be a
significant contingent cost of employing staff. To qualify for the exemption, businesses must
employ fewer than 15 staff.
An unintended anomaly arises in the operation of the small business redundancy exemption, in
some insolvency contexts. When a larger employer incrementally downsizes due to insolvency,
either in the period leading to liquidation or bankruptcy, or afterwards, they may fall below the
15-employee threshold and become a small business employer before the final few staff are
made redundant. These final employees, who often stay on to assist in the orderly wind-up of
the business, lose the entitlement they previously would have had to redundancy pay under the
NES, accumulated over years of continuous service with their employer.
The amendment would provide an exception to the operation of the small business redundancy
exemption in such downsizing contexts. It is intended to address inequitable outcomes for
employees, including those who remain employed to assist with the orderly wind-down of an
insolvent business, and support the more efficient conduct of external administrator, controller
and bankruptcy trustee appointments.
Human rights implications
This Bill positively engages the following rights and freedoms:
• the right to the enjoyment of just and favourable conditions of work under
Articles 6 and 7 of the International Covenant on Economic Social and
Cultural Rights.
Conclusion
This Bill is compatible with human rights as it promotes the right to just and favourable
conditions of work.
Senator Jacqui Lambie and Senator David Pocock