The Federal Government is currently considering reforms to the Corporations Act 2001 to curtail alleged misuse by employers and insolvency practitioners of the Fair Entitlements Guarantee Scheme (FEG).

A Department of Employment Consultation Paper has been issued as part of the consultation process. The Consultation Paper suggests that the increasing costs of the FEG scheme are attributed in part to a rising number of claims due to ‘sharp corporate practices’ of employers and insolvency practitioners, such as phoenix company arrangements. The Consultation Paper proposes a number of legislative amendments to curb such practices.

The FEG was formerly known as the General Employee Entitlements and Redundancy Scheme (GEERS). Until 2011, GEERS contained a redundancy protection cap of 16 weeks’ redundancy pay to employees of employers who had become insolvent and unable to pay employee entitlements. In 2011, the former Labor Federal Government increased the entitlement to up to 4 weeks’ pay per year of service, uncapped. Ai Group expressed concern at the time that such a generous increase in benefits was very risky, but nonetheless this ‘uncapped benefit’ was legislated for in 2012 through the Fair Entitlements Guarantee Act 2012.

Employers should be aware of the implications and risks of offering very generous redundancy protection to employees, including in circumstances of potential insolvency.

Do you require further assistance?

For information or assistance in terminating employees on the basis of redundancy, please contact Ai Group’s Workplace Advice Service on 1300 55 66 77.

Alternatively, if you would like assistance in understanding the operation of the FEG scheme, please contact your local Ai Group Workplace lawyer in Sydney, Newcastle, Wollongong, Melbourne or Brisbane.