What will a David Jones insolvency look like?

Voluntary administration can be a frightening time for employees, but according to one employment law expert, insolvency laws provide strong protections for workers despite the business’s fraught position.

After confirming that it has commenced consultation with staff at 19 of its 38 stores, a core concern for David Jones management and its administrators will be the likely closure and the consequent redundancy process for a significant proportion of its workforce.

HR Leader spoke with Nicholas Potter, practice leader at LegalVision, to examine how the department store will navigate the process, the determination of separation packages, and how management should communicate information internally and externally.

Potter said that consultation generally means informing affected employees and their representatives about proposed changes, explaining the likely impact, and considering job loss mitigation strategies.

“HR teams would typically review redeployment opportunities, employment contracts, enterprise agreement obligations and potential redundancy entitlements,” he said.

In fact, he explained that employees retain workplace protections when their employer enters administration or receivership, and that employers must comply with consultation requirements; where 15 or more redundancies are proposed, for example, additional notification obligations apply.

Potter added that employees should be given the opportunity to safely raise concerns and discuss alternatives before decisions about employment are made.

In this way, he explained that a common mistake organisations make during such times is sharing incomplete information or making premature assurances about job security and entitlements.

When it comes to redundancy entitlements, Potter said management will consider “an employee’s length of service, employment arrangements and any applicable enterprise agreement”.

He said: “Under the National Employment Standards, eligible employees generally receive between four and 16 weeks of redundancy pay, depending on their continuous service. They may also be entitled to notice or payment in lieu, outstanding wages and accrued leave.”

Enterprise agreements may include additional entitlements.

Further, Potter warned employers to be aware of the unfair dismissal or general protections rights employees have where termination breaches employment law.

“If the business subsequently enters liquidation and cannot pay outstanding entitlements, eligible employees may be able to claim through the federal government’s Fair Entitlements Guarantee. This can cover certain unpaid wages, leave, notice and redundancy payments, subject to limits. Importantly, voluntary administration alone does not generally activate the scheme,” he said.

“In insolvency situations, whether employees ultimately receive their full entitlements will also depend on the company’s financial position.”

While employers can apply to the Fair Work Commission to reduce certain redundancy payments in extreme cases of economic hardship, Potter reinforced that financial difficulties do not automatically absolve employer obligations, nor do annoying store closures automatically mean every employee will be made redundant.

According to Potter, HR teams should prioritise clear communication processes that include regular staff updates and clarity between confirmed decisions and matters under consideration.

In uncertain times, he noted that it is vital to distinguish between administration and liquidation to avoid employee confusion around employment status, wages and outstanding entitlements.

When it comes to communicating with the public, Potter urged businesses to coordinate with their HR, legal and insolvency teams to ensure accurate and consistent messaging.

“Employers should avoid speculating about job losses, promising payments that have not been confirmed or disclosing individual employment information without authorisation,” he said.

“A designated spokesperson and clear approval process can help prevent conflicting statements. Public communications should explain what has been decided, what remains uncertain and where affected employees can obtain further information.”

Potter added: “Employees need accurate information about their rights, even when the business cannot yet provide certainty about its future.”

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