Address the impact of the small business redundancy exemption in winding up scenarios to support equitable outcomes for claimants under the Fair Entitlements Guarantee (FEG)

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  • The National Employment Standards (NES) in the Fair Work Act 2009 provides an entitlement for an employee to be paid redundancy pay if their employment is terminated at the employer’s initiative because their role has been made redundant or because of the insolvency or bankruptcy of the employer. Small businesses (those with fewer than 15 employees) are exempt from the obligation to pay redundancy pay to their employees. The test on the size of the business is made immediately before the time of the termination of the employee, or at the time when the person was given notice of the termination - whichever happened first.
  • Unintended and inequitable outcomes occur for employees affected by the small business redundancy exemption in insolvency contexts (such as liquidation or bankruptcy of the employer). These outcomes occur when an employer progressively downsizes from a larger business into a small business in connection with insolvency, becoming exempt from paying redundancy. As a result, certain employees (those last remaining in employment) lose their entitlement to redundancy pay, including where employees have agreed to remain employed for short periods to assist insolvency practitioners with the orderly winding up of the business. This has attracted criticism on the state of the law from insolvency practitioners and members of the Administrative Appeals Tribunal in the context of claim decisions under the Fair Entitlements Guarantee (FEG - a safety net program of last resort providing financial assistance for unpaid employee entitlements when eligible workers lose their job due to the liquidation or bankruptcy of their employer).


  • The small business redundancy exemption is a longstanding feature of Australia’s workplace relations framework and one of several arrangements that seek to encourage employment by relieving small business employers of some of the costs of employing staff.
  • Changes are not proposed to the operation of the small business redundancy exemption outside of insolvency contexts, and it is not contemplated that there would be any additional obligations on viable businesses (including small businesses). This will continue to enable flexibility for viable businesses to fluctuate in size in response to commercial imperatives and preserve the small business redundancy exemption for viable small businesses, in recognition of their special circumstances.
  • The Department is seeking views on a discrete measure confined to addressing the unintended and inequitable outcomes for employees whose employment is terminated after their employer becomes a small business employer in connection with the insolvency process, while preserving the effect of the small business redundancy exemption on viable small businesses.

Key questions

  • Is this an issue that should only be addressed for the purpose of administering the FEG program, or more widely for all insolvency scenarios?
  • What safeguards could apply to ensure the solution does not impair the operation of the small business redundancy exemption for employers that are genuinely small businesses?
  • What other matters should be considered in settling the approach addressing the small business redundancy exemption in insolvency contexts?