Oa No. 168 - Compensation Entitlement And Redundancy Packages

OPERATIONAL ADVICE NO. 168

COMPENSATION ENTITLEMENT AND REDUNDANCY PACKAGES

Contact:	Wayne Miranda
Phone:	(02) 334 9827

State Managers
State Claims Services Managers
State Review Services Managers
State Business Services Managers
State Executive Officers
General Managers
Group Managers
All claims services staff

The purpose of this Operational Advice is to outline the impact that a redundancy payment may have on an employee's compensation entitlement and to give decision makers some guidance on relevant issues to be considered to reach a fair and equitable decision in such matters.

Many of Comcare Australia's Customers have offered redundancies to a number of their employees whilst they have a compensable injury.  Also, many employees apply for redundancy packages themselves so both voluntary redundancies and involuntary redundancies are occurring.

IT IS IMPORTANT TO NOTE THAT:

• This Operational Advice DOES NOT address the issue of employees claiming compensation for stress, anxiety etc. allegedly attributed to the mental anguish associated with whether or not to accept the redundancy offer.  Decision makers should refer to the Stress Related Claim Investigation Guide for assistance and guidance in that regard.

• This Operational Advice DOES address the ongoing compensation entitlement of an employee who receives a redundancy package and, at the time of receiving that package, suffers from an accepted compensation condition.

(signed LC 29/8/94)

Lindie Clark
A/General Manager
Business Development & Customer Service Division

It is most important that the decision maker establishes whether the redundancy package was voluntary or involuntary.  This is imperative for the determination of compensation entitlements after the redundancy where the employee has an ongoing ability to earn.  The reason for this lies in the s.4 definition of “suitable employment”.

For claimants who were permanent employees as at the date of injury and did not terminate their employment, 'suitable employment' is employment by the Commonwealth.  Where the employee voluntarily gave up his Commonwealth employment, 'suitable employment' is any employment .  It can therefore be seen how important it is to establish whether termination of the employment was voluntary or involuntary.

What is the difference between a Voluntary and Involuntary Redundancy?

Decision makers should note that not all “voluntary” redundancies are truly voluntary.  There may, in effect, have been no real choice but for the person to have taken the “voluntary” redundancy.  Pressure may have been brought to bear by the employer; alternatively, if it was clear that an employee was going to be made redundant on an involuntary basis if they did not accept a voluntary redundancy, it is difficult to characterise the employee's decision to take a voluntary redundancy in these circumstances as truly voluntary.  Therefore, decision makers should not automatically assume that an alleged voluntary redundancy was, in fact, truly a voluntary decision when, calculating any ongoing entitlement.

If the employee signs an agreement accepting a voluntary redundancy, we should work under the assumption that the voluntary redundancy is voluntary.   Where the employee claims that the package was not truly voluntary, the onus of proof in these circumstances should be on the employee to prove otherwise.

Suitable Employment

In determining the compensation entitlements of an employee who has been made redundant it will be necessary to determine what the employee is able to earn in 'suitable employment' (section 19(4)).  If a decision maker is satisfied that the employee is fit for suitable employment, he/she must apply the provisions of section 19(4) to establish the amount per week that the employee is able to earn in that suitable employment.

Therefore, the basic issues when considering whether an entitlement to incapacity benefits exists pursuant to s19(4) after the acceptance of a redundancy package are; 1.Was the employee capable of performing all pre injury duties as at the date of redundancy; if not, 2.Was the decision to accept redundancy a voluntary or involuntary decision? 3.If voluntary, and the decision maker is satisfied that the employee relinquished suitable employment of his/her own free will, then “deeming” might be appropriate [see s.19(4)]. If involuntary, and if the claimant was a permanent employee at date of injury, then he/she should be paid compensation as if totally incapacitated until the employer makes suitable employment available.  If the employee was not permanent at date of injury, then “deeming” might be appropriate [see s.19(4)]

Some of the more common scenarios are outlined overleaf and should assist decision makers in deciding whether a compensation entitlement exists in a similar situation.  If any of these scenarios do not  assist decision makers in a claim that they are investigating, please ensure that the three (3) major issues above are considered and this should assist you in making a fair and equitable decision.

THE COMMON SCENARIOS

1.ENTITLEMENT SUBSEQUENT TO VOLUNTARY REDUNDANCY

(a)no incapacity

(b)some incapacity

(c)total incapacity

2.ENTITLEMENT SUBSEQUENT TO INVOLUNTARY REDUNDANCY

(a)no incapacity

(b)some incapacity

(c)total incapacity

(d)compensation entitlement where employee finds work after involuntary redundancy and then leaves that employment.

3SUPERANNUATION ISSUES

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1.ENTITLEMENT SUBSEQUENT TO VOLUNTARY REDUNDANCY.

(a) Employee is able to perform pre-injury duties immediately prior to VOLUNTARY redundancy.

This scenario is that of a male ASO5 who sustained a compensable back injury in 1992.  He has had no compensable time off work for quite some time and was performing his pre-injury duties up until the date of redundancy.  The claimant subsequently claims compensation citing his compensable back injury as the reason for his failure to get another job subsequent to redundancy.

In such a case, the employee has demonstrated an ability to earn at a level which precluded an entitlement to incapacity payments.  To be entitled to compensation the employee would have to establish that the inability to find employment was due to his/her incapacity.  However, as the employee had no incapacity immediately prior to the redundancy, no entitlement exists.

It will be open to the employee to demonstrate that this is not the case.  He would need to show that there has been a recurrence or deterioration of the condition causing an incapacity to be entitled to any compensation; and that assertion would need to be supported by medical evidence, i.e. fit to work 20 hours per week.

Decision makers should, in such cases, seek confirmation of the medical evidence clarifying the type of duty that he is fit to perform @ 20 hours/week - informing the doctor of the nature of pre-redundancy duties that the employee had been performing for whatever period of time.

If decision makers are ultimately satisfied that the compensable condition has reduced the employee's ability to perform his pre injury duties, the entitlement should be adjusted accordingly by substituting a “notional” ability to earn and calculating the compensation entitlement.

(b)Employee is unable to perform all pre-injury duties immediately prior to VOLUNTARY redundancy.

This scenario is that of a female ASO6 who sustained a neck injury in 1991.  She was permanently redeployed to a permanent part-time position as a result of the compensable condition.

In such a case, the employee is deemed to be able to earn the salary of the permanent part time position and would continue to receive compensation payments.  That level of compensation would forseeably continue until there were changed medical circumstances or the employee was offered or secured other suitable employment which paid more than the pre-redundancy position.

For the purposes of this example, the NWE = $750.00 — P/T earnings = $400.00, the government funded component of the lump sum superannuation amount (SA) is $20,000.00 and the SC amount is $20.00 (5% of base salary)

(c) Employee unable to perform any pre-injury duties immediately prior to VOLUNTARY redundancy.

Where an employee is unable to earn as a result of a compensable condition and then accepts a voluntary redundancy we must assume (in the absence of evidence to the contrary) that any inability to earn after the redundancy is also due to the compensable condition.

In determining the level of compensation decision makers will need to look at the medical evidence and the results of any rehabilitation assessments or programs undertaken.  If the incapacity is long-standing and rehabilitation has been tried without success, or was not considered feasible, it will be extremely difficult to demonstrate that the employee has an ability to earn.  There would be an ongoing entitlement to incapacity under s.19 or 21 until the medical situation changes or the employee demonstrates an ability to earn.

As a general rule, we should advise Customers not to offer redundancies to employees who are unable to earn because of a compensable condition unless the employee is totally and permanently incapacitated.  They may end up paying for the package as well as ongoing compensation.  Unfortunately, however, many Customers are under the misapprehension that their liability “walks out of the door” with the employee on acceptance of a redundancy package.

2.ENTITLEMENT SUBSEQUENT TO INVOLUNTARY REDUNDANCY

In all situations regarding employees who have been involuntarily made redundant there are two main issues to consider:

• the employee cannot be said to have refused suitable employment or a rehabilitation program (s19(4)).

• If the employee was a permanent employee at the date of injury, suitable employment for the purposes of the Act is employment with the Commonwealth.  The employee cannot be deemed to be able to earn in any other employment.  Therefore, unless the employee is actually earning, almost all claimants who are involuntarily retrenched will, for the purposes of the SRC Act, be totally incapacitated

It may be pertinent to refer to the Second Reading Speech by the then Minister for Social Security, the Hon Brian Howe, to understand the reasoning behind this part of the legislation.

“......'Suitable Employment' for an employee who is permanently employed by the Commonwealth will mean employment by the Commonwealth or a statutory authority.  In the case of a casual employee, suitable employment may include self-employment or employment in private industry.  This distinction reflects the Government's commitment to maintaining the employer/employee relationship and reinforces the nexus between an employee's contract of employment and his or her rights to compensation”

Decision makers will see that the definition of suitable employment in s.4 of the Act consolidates Mr Howe's comments;

“suitable employment”, in relation to an employee who has suffered an injury in respect of which compensation is payable under this Act, means:

(a)in the case of an employee who, on the day on which he or she was injured was a permanent employee of the Commonwealth and who did not subsequently terminate that employment (involuntary redundancy!!!) - employment by the Commonwealth in work for which the employee is suited having regard to..........................................

(b)in any other case - any employment (including self employment) ............”

Customers and decision makers should also be aware that this accords with the policy of rehabilitation which permeates the Act.  At the time of drafting the Act it was thought to be inappropriate for an employer to involuntarily retire an employee after the employee suffered a compensable injury in employment with the employer.  In order to discourage this method of getting rid of incapacitated employees the Act was drafted to encourage rehabilitation of incapacitated employees.  Thus, there is effectively a penalty of ongoing liability if an incapacitated employee is involuntarily retired or made redundant.

(a)Employee is able to perform pre-injury duties immediately prior to INVOLUNTARY redundancy.

Obviously, if the employee has no incapacity then it follows that he/she has no entitlement to compensation.

If the employee subsequently establishes that he/she is incapacitated for work as a result of the injury to some degree, the employee will only be deemed to be able to earn if he/she

• is in fact earning in some employment (19(4)(a)); or

• has, subsequent to accepting the redundancy, received an offer of suitable employment with the Commonwealth and refused (s19(4)(b)-(d)).

Therefore, it is most likely that any incapacity after the involuntary redundancy, once the decision maker is satisfied that the incapacity is compensable,  will be total incapacity, as it is probable that neither of the above stated criteria would apply.

(b)Employee is unable to perform all pre-injury duties immediately prior to INVOLUNTARY redundancy.

As stated above, the employee will be entitled to total incapacity benefits under section 19, 20, 21 or 21A unless;

• he/she is earning in some employment, or

• he/she has received an offer of suitable employment with the Commonwealth and refused it.

(c)Employee is unable to perform any pre-injury duties immediately prior to INVOLUNTARY redundancy.

As in (b) above.

As stated earlier in this Advice, Customers must be aware of the consequences of making an employee with a compensable condition redundant.  This is particularly true of involuntary redundancies as:

• it is almost impossible to argue that the employee has refused suitable employment; and

• "suitable employment" must be with the Commonwealth.

The result is that if the employee is unable to find their own employment he/she will generally be entitled to full compensation.

(d)Compensation entitlement where employee finds work after INVOLUNTARY redundancy and then leaves that employment.

If an employee has been able to obtain employment after being involuntarily made redundant and then ceases that employment without reasonable excuse, that employment is suitable employment.  Consequently, the person is deemed to be able to earn what they were actually earning in that employment.  For example, an employee who found employment as a taxi driver and earned on average $400.00 per week would be deemed able to earn that amount if he/she left the taxi driving employment without reasonable excuse.  Obviously, if the employee's compensable condition deteriorates whilst in that employment it may not be suitable employment and the deterioration could constitute a reasonable excuse for leaving.

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3.SUPERANNUATION ISSUES

These issues are covered quite comprehensively in Part 8 of L.I.P. No. 3.  However, decision makers should be aware of one particular issue that is not addressed in the L.I.P.

An employee who is made redundant may have an option to preserve the superannuation benefit in the superannuation scheme, generally to be paid later - on retirement, invalidity or death.  If an employee chooses this option he/she should be considered to be in receipt of superannuation and should have the post-redundancy entitlement calculated under section 21.

Similarly, if an employee rolls over the superannuation benefit to another superannuation scheme or Approved Deposit Fund, the employee should be considered to have received the superannuation benefit and should have the post-redundancy compensation entitlement calculated under section 21.

However, in certain circumstances, an employee may only be entitled to a refund of accumulated superannuation contributions and the government funded component of his/her superannuation entitlement is automatically preserved, generally to be paid later - on retirement, invalidity or death.  In such circumstances, as the employee did not have an option to access the government funded superannuation, he/she should be considered NOT to be in receipt of superannuation and should have the post-redundancy entitlement calculated under section 19 rather than 21.

THEREFORE;

• If rolled over, section 21 applies as employee is deemed to have received superannuation.

• If preserved, at the request of the employee, section 21 applies as employee is deemed to have received superannuation.

• If automatically preserved, with the employee having no option, section 19 applies as employee has not received superannuation.