Unpaid Wages and the Fair Entitlements Guarantee

The Fair Entitlements Guarantee (“FEG”) is a statutory safety net where the Australian Government will pay employee entitlements to eligible employees of a company that gets wound up in insolvency, or for people who have been made bankrupt.

The Federal Government will pay:

1. Up to 13 weeks of unpaid wages;
2. Any unpaid annual leave and long service leave;
3. Up to five weeks payment in lieu of notice; and
4. Up to four weeks per full year of redundancy pay.

The fair entitlements guarantee is provided in the Fair Entitlements Guarantee Act 2012 (Cth) (“the FEG Act”) and the Fair Entitlements Guarantee Regulation 2012 (Cth) (“the Regs”).

In this article our experienced litigation lawyers explain the Fair Entitlements Guarantee and how it applies to you in the insolvency of your employer.

Our lawyers can advise and assist with statutory demands, winding up applications, Fair Entitlements Guarantee claims, and the review of decisions in the Administrative Appeals Tribunal

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What is the Fair Entitlements Guarantee?

Section 6 of the FEG Act defines the various kinds of employment entitlements of a person whose employment by an employer has ended, including:

1. Annual leave entitlement;
2. Long service leave entitlement;
3. Payment in lieu of notice entitlement;
4. Redundancy pay entitlement; and
5. Wages entitlement.

Section 7 of the FEG Act defines “wages” to include the following:

1. Allowances;
2. Loadings;
3. Amounts payable for overtime;
4. Amounts payable at penalty rates; and
5. Other amounts that the governing instrument for the relevant employment identifies separately and makes payable regularly.

Read the definitions in sections 6 and 7 of the FEG Act to know what the above relates to.

Why does the Fair Entitlements Guarantee Exist?

The FEG exists to protect vulnerable workers from losing their employment due to the insolvency of the employer company.

In the explanatory memorandum to the Fair Entitlements Guarantee Bill 2012 (Cth) it says:

The scheme … is necessary to fulfil a significant community need to protect the entitlements of Australian employees who would otherwise stand to lose their entitlements if they lose their jobs due to insolvency of their employer.

In Jones (Liquidator) v Matrix Partners Pty Ltd Re Killarnee Civil and Concrete Contractors Pty Ltd (In Liq) [2018] FCAFC 40 Justice Allsop CJ said:

The protection of employees in the aftermath of the insolvency of businesses is, and has been for many years, a matter of high public policy. The vulnerability of those who work in an employment relationship to the financial consequences of the decisions of business controllers and the economic environment is well-known. It has been consistently addressed in terms of priority in access to funds and latterly by a qualification to the reach and operation of securities over the assets of the business enterprise. That statutory addressing of the question as a Parliamentary response has been informed by considerations of the protection of the vulnerable and of fairness in the operation of the insolvency regime…

Essentially, the objective of the scheme is to provide for the provision of financial assistance to former eligible employees where the end of their employment is linked to the insolvency or bankruptcy of their employer.

An employee must be an eligible employee for the purposes of FEG.

Who is an Eligible Employee?

Section 10 of the FEG Act defines the general conditions for eligibility, they are:

1. The person’s employment by a particular employer has ended;
2. An insolvency event happened to the employer;
3. The end of the employment:
   1. was due to the insolvency of the employer; or
   2. occurred less than 6 months before the appointment of an insolvency practitioner for the employer; or
   3. occurred on or after the appointment of an insolvency practitioner for the employer;
4. The person is owed one or more debts wholly or partly attributable to all or part of one or more employment entitlements;
5. The person has taken reasonable steps, to prove those debts in the winding up or bankruptcy;
6. If the person was owed any of those debts before the insolvency event happened, the person took reasonable steps before that event to be paid those debts;
7. When the employment ended, the person was an Australian citizen or, the holder of a permanent visa or a special category visa.

This eligibility criteria is subject to a number of exclusions.

Who is Not an Eligible Employee?

Section 11 of the FEG Act defines the exclusions.

A person is not eligible if they are an excluded employee pursuant to section 556 of the Corporations Act 2001 (Cth) – namely a director or previous director, a spouse of a director or previous director, or a relative of a director or previous director of the company.

• “Spouse” of a person is defined to include a de facto partner of the person.
• “Relative” in relation to a person, is defined to mean the spouse, parent or remoter lineal ancestor, child or remoter issue, or brother or sister of the person.

Different eligibility criteria apply to the Corporations Act and the Bankruptcy Act.  You should read Section 11 of the FEG Act.

Also, a person is not eligible if they converted from contractor status to employee status with the same employer within 6 months of the insolvency event.

One of the most crucial elements of the eligibility requirement is the causal link between the insolvency of the employer and the end of the person’s employment.

The Causal Link to the Insolvency Event

In the explanatory memorandum to the Fair Entitlements Guarantee Bill 2012 (Cth) it says:

The causal link between the insolvency of the employer and the end of the person’s employment is a crucial element of the eligibility requirement.

Section 10(1)(c) of the FEG Act defines eligibility if the end of the employment – (i) was due to the insolvency of the employer; or (ii) occurred less than 6 months before the appointment of an insolvency practitioner for the employer; or (iii) occurred on or after the appointment of an insolvency practitioner for the employer.

Subsections (ii) and (iii) are straightforward and can be calculated in accordance with relevant dates.

However, subsection 10(1)(c)(i) is less easy to define because what does “due to the insolvency of the employer” mean?

To unpack this, we need to understand what “insolvency” means and what “due to” means.

In relation to company insolvency, read our article – When is a Company Insolvent?

In relation to the phrase “due to”, the dictionary defines “due to” to mean “attributable to”, “caused by”, “ascribed to”, and/or “ascribable to”.

So, the end of employment must be caused by the insolvency of the employer.

In Milardovic and Secretary, Department of Employment [2019] AATA 213 Member K Parker said:

A key issue in this case is whether Mr Milardovic’s employment ended due to the insolvency of VS. This requires the Tribunal to determine:

(a) when Mr Milardovic’s employment with VS ended;

(b) whether VS was insolvent at the time Mr Milardovic’s employment with VS ended; and

(c) if so, whether Mr Milardovic’s employment ended due to the insolvency of VS.

So, evidence in relation to the above will need to be provided to FEG in order for them to make the assessment.

For more information read the Eligibility for FEG Assistance Factsheet from FEG.

Making a Fair Entitlements Guarantee Claim

A fair entitlements guarantee claim can be made online at the Federal Government Website.

First you will have to register.  Once registered you will need to file your claim.

Read the very good How do I access FEG Online Services factsheet.

It is mandatory that you provide evidence of citizenship status at the time the employment ended so that FEG can assess your eligibility.

This can be passport, visa, birth certificate, Immicard, or Registration by Descent document.

You may also be asked to provide:

1. The signed employment contract or letter of appointment;
2. Any payslips;
3. PAYG payment summaries;
4. Bank statements for the 13 weeks prior to the relevant date;
5. Bank statements for the 30 days immediately after your employment ended;
6. Evidence of weekly or annual wage rate;
7. Separation certificate; and
8. Letter of termination.

If you are eligible because of section 10(1)(c)(i) of the FEG Act, you may also be required to make submissions in relation to why your employment ended due to the insolvency of the employer, namely:

• When the employment ended;
• Whether the company was insolvent at the time the employment ended; and if so
• Whether the employment ended due to the insolvency of the company.

How long do you have to make your FEG claim?

Time Limits for Fair Entitlements Claim

Section 14(2) of the FEG Act says:

(2) The claim must be made before the end of 12 months after the later of the following events:

(a) an insolvency event happens to the employer;

(b) the person’s employment by the employer ends.

An “insolvency event” is defined in section 5 of the FEG Act:

An insolvency event happens to an employer of a person:

(a)  when a liquidator of the employer is appointed (provisionally or otherwise) under the Corporations Act 2001 ; or

(b)  when the employer becomes a bankrupt under the Bankruptcy Act 1966 ; or

(c)  if the person is or was employed for a partnership by 2 or more of the partners–at the first time an event described in paragraph (a) or (b) happens, or has happened, to all of the partners by whom the person is or was employed.

So, the Fair Entitlements Guarantee claim must be from 12 months of the later of the employment ending, or the appointment of a liquidator or bankruptcy trustee.

Best Practice – Get your claim filed as soon as possible.

Once filed by an eligible employee, the authority will work out your entitlements.

The employee will be paid the basic amount for each (if applicable):

1. Wages entitlement;
2. Annual leave entitlement;
3. Long service leave entitlement;
4. Payment in lieu of notice entitlement; and
5. Redundancy pay entitlement.

If you are deemed ineligible or the amount of the payment is insufficient, then there are a couple of things that a person is able to do.  These include:

1. Seeking an internal review of the decision; and/or
2. Seeking a review by the Administrative Appeals Tribunal.

We will explain this process in more detail below.

Seeking an Internal Review of the Decision

Section 38 of the FEG Act says:

(1)  A person may apply to the Secretary for review of:

(a)  a decision whether the person is eligible for an advance; or

(b)  a decision on the amount of an advance the person is eligible for.

Generally, the application must be made within 28 days after the date of the notice of the decision.

The application for internal review must be in writing and must state the reasons why the application is being made; and set out, or be accompanied by, any information or documents relating to those reasons.

If a person applies for a review of a decision, section 39 of the FEG Act says:

The Secretary must review the decision and:

(a)  affirm the decision; or

(b)  vary the decision; or

(c)  set the decision aside and substitute a new decision.

If the authority affirms the decision or varies the decision and it is still not reasonable, then an employee can apply to the Administrative Appeals Tribunal.

Seeking a Review by the Administrative Appeals Tribunal

The Administrative Appeals Tribunal (“AAT”) provide independent merits review of a wide range of administrative decisions made by the Australian Government, including Fair Entitlement Guarantee decisions.

Section 40 of the FEG Act allows an application to be made to the Administrative Appeals Tribunal by a person for review upon certain conditions in relation to eligibility or the amount of money payable.

Appeals to the AAT can be made online – https://forms.aat.gov.au/landing.htm?formCode=app-for-review

Generally, the application for review by the ATT must be made within 28 days of being given the internal review decision.

We strongly advise seeking legal assistance in relation to reviewing a FEG decision.

Can an Employee Wind Up a Company?

Section 459E of the Corporations Act 2001 (Cth) says:

A person may serve on a company a demand relating to:

(a)  a single debt that the company owes to the person, that is due and payable and whose amount is at least the statutory minimum; or

(b)  2 or more debts that the company owes to the person, that are due and payable and whose amounts total at least the statutory minimum.

The statutory minimum is $2,000.00.

So, if a company owes unpaid wages to the employee, and the unpaid wages amount is more than $2,000.00, then the person can serve a creditor’s statutory demand.

Serving the Employer with a Statutory Demand

If the employer is a company, then section 459E allows the employee to serve a creditors statutory demand for payment of the wages.

A statutory demand is a demand made on an insolvent company (not a person) for the payment of a debt or debts, including unpaid wages.

Once served with the statutory demand, the employer will need to do one of the following within a strict 21-day timeframe:

1. Pay the amount of the debt or debts; or
2. Secure or compound for the debt to the employee’s reasonable satisfaction; or
3. Apply to set the demand aside.

If the employer company fails to do any of these things within 21 days, then it is presumed to be insolvent and the employee (or employees) can apply to wind the company up in insolvency.

As soon as the company goes into liquidation, if the employee is an eligible employee, then the employee with be entitled to the Fair Entitlement Guarantee claim.

Read our Complete Guide to Statutory Demands

However, care must be taken to particularise the debts and the amount of the debts correctly or face a potential application to set the statutory demand aside.

Defect in the Demand Causing Substantial Injustice

One of the grounds that a statutory demand can be set aside is where there is a defect in the demand that may cause the employer substantial injustice.

Section 459J(1)(a) of the Corporations Act says:

(1)  On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:

(a)  because of a defect in the demand, substantial injustice will be caused unless the demand is set aside

There are a number of calculations in relation to unpaid entitlements that may cause a defect in the demand including correctly calculating:

1. Unpaid wages;
2. Unpaid annual leave;
3. Unpaid long service leave;
4. Unpaid payment in lieu of notice; and
5. Unpaid redundancy pay.

It is extremely important that these calculations are 100% correct.

Tekno Autosports Pty Ltd v Jenkins [2014] FCA 774 is a case relating to a statutory demand served on a debtor company in relation to unpaid wages.  In this case a number of disputes arose in relation to the amount of the debts, including a dispute as to whether the demand should be gross wages or net wages.  In his decision, Gleeson J said:

I am satisfied that there is a genuine dispute as to the amount of the debt insofar as it claims Mr Jenkins’ gross salary without deducting the tax required to be deducted by clause 3.4 of the employment contract.

Issuing a statutory demand for non-payment of wages and employment entitlements is more complicated than non-payment of invoices for example.

We strongly recommend engaging a qualified solicitor to draft and serve a statutory demand.

Winding Up the Company

Non-compliance with a statutory demand raises the legal presumption that the company is insolvent.

With that legal presumption assisting, the employee to make an application to wind the company up in insolvency.

If the company has a liquidator appointed, then the eligible employee (and all of the eligible employees) will be entitled to the Fair Entitlements Guarantee.

Our lawyers can advise and assist with statutory demands, winding up applications, Fair Entitlements Guarantee claims, and the review of decisions in the Administrative Appeals Tribunal

DEDICATED TEAM – COMMERCIALLY FOCUSED – PROVEN RESULTS

GET A FREE FEE ESTIMATE TODAY

OR CALL: 1300 545 133 FOR A PHONE CONSULTATION

To contact the FEG Hotline:

• Phone 1300 135 040

Mon – Fri, 9 am – 5 pm (AEST/ADST)

• Email FEG@jobs.gov.au