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On 5 December 2012, the Fair Entitlements Guarantee Act (2012) (FEG) came into effect. This act will apply to employees whose employment ends as a result of their employer entering liquidation or bankruptcy from 5 December 2012 forward. The previous scheme, known as the General Employee Entitlements and Redundancy Scheme (GEERS) will still apply to employees whose employment ends due to an insolvency event that occurs prior to 5 December 2012. As opposed to GEERS, the Fair Entitlements Guarantee Act enshrines the right to payment of outstanding entitlements in legislation, and strengthens these rights in certain respects.

In the main, the FEG replicates the assistance provided through the previous GEERS administrative scheme, providing for the advance of the following unpaid employee entitlements by the Commonwealth Government to the employee in the event the employer enters liquidation or bankruptcy:

• Wages (up to 13 weeks)
• Annual leave 
• Long service leave 
• Payment in lieu of notice (up to five weeks), and
• Redundancy pay (up to four weeks per year of service).

However the operation of the FEG Act differs in some respects from GEERS. The following is a summary of some of the main provisions of the Act, and where they differ from GEERS.

Timeframe to lodge a claim

The FEG provides that an effective claim for assistance may only be lodged within 12 months of the date of liquidation or bankruptcy, or the end of employment (whichever is later). There is no flexibility to extend this timeframe. If a claim is received outside this timeframe (whether lodged directly with the department or by an insolvency practitioner on behalf of the claimant), the claimant will not be eligible for assistance. Note that GEERS provided some discretion to extend this timeframe; however, the FEG Act does not.

Residency requirements

Under the FEG claimants must be an Australian citizen or the holder of a permanent or special category visa (under the Migration Act 1958) at the time their employment ended. There is no flexibility with this time requirement under the FEG Act. Under GEERS a claimant was eligible if they met residency requirements within 12 months of liquidation or the end of employment.

Deed of Company Arrangement (DoCA) and equivalent bankruptcy arrangements such as Personal Insolvency Agreements

The FEG does not include eligibility requirements relating to DoCAs and equivalent bankruptcy arrangements. Provided that all other eligibility criteria are met, assistance will be paid to employees. Under GEERS eligibility rested on whether the DoCA met certain requirements in relation to maintaining provisions of the Corporations Act 2001 relating to priority of employee entitlements and distribution of funds.

Assistance paid to end of employment.

Under the FEG, where an employee continues to be employed after an insolvency practitioner is appointed, assistance is also payable for any entitlement or proportion of entitlement that accrues or crystallises during that employment, provided that the insolvency practitioner is not legally responsible to pay the entitlement as part of the cost of wind up the company. Put simply, under the FEG the entitlement is calculated up to the end of employment, less any portion required to be paid by the insolvency practitioner as a cost of winding up. Under GEERS entitlements were only calculated up to the date of appointment of the insolvency practitioner.

Transfer of Business and Transfer of Employment

Initially there is no change. However, from 1 July 2014, the FEG will no longer impose a flat rule that entitlements for payment in lieu of notice (PILN) and redundancy are not payable if the employee is offered employment by the new operator within 14 days of their employment ending with the previous operator. From 1 July 2014, assessment of entitlements payable in transfer of business cases will be based on the provisions of the claimant’s governing or employment instrument, such as the Fair Work Act 2012. Generally, this means that payments will only be excluded under the FEG where the new operator is required to recognise the employee’s service and entitlements.

Discretion within the scheme

As the FEG is a legislative scheme any discretionary decisions are closely prescribed in terms of the circumstances and conditions under which discretion may be exercised. Under the FEG, discretion can only be used for uncommon circumstances to:

• Allow payments to be made to employees of a company in administration before liquidation provided there is a high degree of certainty that liquidation will occur in the future and there is a public interest in facilitating early access to the scheme;
• Make a regulation establishing a separate scheme to provide assistance for workers that are not employees; i.e. contractors
• Paying FEG assistance by way of an instalment.

It should be noted that these areas of discretion should not be initiated by an insolvency practitioner as a usual approach in administration. This differs considerably from GEERS, in that GEERS is an administrative scheme, and as such, has flexibility for discretion to be exercised to allow claims that meet the objectives of the scheme.

Rights of Review

The FEG provides three avenues of review:

• Under s.37 the department may initiate a review of a decision – it is expected that this avenue would be used to reassess claims where convincing new evidence has been provided or there is an anomaly in the original decision; 
• Under s.38 the claimant may make a formal request for the department to review a claim decision; and 
• Under s.40 the claimant may apply for an external review by the Administrative Appeals Tribunal (noting this option is only available where the claimant remains dissatisfied with an outcome to a s.38 review).

Under GEERS there was no avenue for external review of a claim decision.

The FEG Act clarifies the current arrangements for the payment of employee entitlements on the insolvency or bankruptcy of their employer, and puts these arrangements on a more secure constitutional footing. 

From the point of view of employees, more generous provisions relating to redundancy payments and some additional flexibility in relation to payment arrangements will be welcomed. From the point of view of other creditors of the employer, more certainty should also be beneficial.

Cronin Litigation can assist with lodging a claim under the FEG Act. Our staff will outline the process in an easy step by step manner and ensure that your entitlements are acknowledged and protected in the event your employer enters liquidation or bankruptcy.