An employer failed with its application to reduce a retrenched employee’s redundancy pay from four weeks to one week, claiming incapacity to pay. The Fair Work Commission (FWC) found that the employer had a history of spending money unnecessarily on other work-related activities, and could have taken steps to ensure the money was available, and that undermined its case. 

 

Facts of case 

The employer claimed that its business was running at a loss, but the FWC found that some of the reasons for that were “self-imposed”. It was still trading, paying other employees and hiring new staff. Many of the expenses appeared to be “frivolous”, such as staff parties and birthday celebrations (amounting to over $2,500 for the previous two months). The amount spent on these was disproportionately high for a business that claimed to be struggling. Also, the FWC said that the employer had made little attempt to reduce or renegotiate some of the high-cost elements of its operations. 

The employer’s redundancy pay entitlement was $10,384. 

The employer needed to free up some capital in the short term to continue trading. For example, it could sell one of its company vehicles and pay an allowance to the driver to use his/her own car. But when a partner suggested doing that, the idea was rejected. There were many other opportunities to reduce expenditure and liquidate assets, which combined with the employer’s ability to generate a trading income, would enable payment of current expenses such as redundancy entitlements. 

Overall, any short-term financial problems the business had were mainly caused by bad decisions rather than external forces. It was reckless to hire new staff and at the same time claim it could not afford a redundancy payment. 

 

Decision 

Given all the circumstances, it was unfair to reduce the employee’s redundancy entitlement. To do so would benefit the business and other employees at the retrenched employee’s expense. The FWC dismissed the employer’s application. 

 

What this means for employers 

Claiming incapacity to pay redundancy entitlements requires the employer to prove that it is genuinely in financial difficulty and is genuinely attempting to control other costs in both the short and longer terms. The employer has to prove that it simply cannot pay the amount – as distinct from trying to avoid paying it. 

Even if an employer cannot pay the amount immediately, the FWC will consider whether it would be able to do so in the foreseeable future – which was the case here. 

 

Read the judgment 

Freeway Family Doctors Pty Ltd Trading AS Medsana and My Rehab Team [2026] FWC 293 (2 February 2026)