The Federal Magistrates Court recently found that an
undischarged bankrupt was unable to seek compensation or a
financial penalty against a former employer for unlawful dismissal,
but was able to seek reinstatement instead.
In Brown v Premier Pet , a bankrupt worker filed
proceedings against his former employer alleging a contravention of
the general protections provisions of the Fair Work Act. As is
usual in such proceedings, the relief claimed included a claim for
compensation. However, such claims can be affected, and in some
instances severely curtailed, by the Bankruptcy Act.
Partner Andrew Tobin and associate Troy Wild explain how
bankruptcy law can impact on certain employment-related claims, and
outline the findings in this case.
Key takeaway points
If faced with the prospect of having to respond to proceedings
brought under the general protections provisions of the Fair
Work Act 2009 (Cth), employers should consider the standing of
the applicant employee.
Where the employee is a bankrupt, and provided any claim for
compensation does not include a component for pain and
suffering/hurt/humiliation, the available remedies may be limited
to reinstatement only.
Background to this case
In August 2011, the applicant, Mr Brown, filed an
Application for FWA to Deal with a General Protections
Dispute under the general protections provisions of the Fair
Work Act. He alleged that he was unlawfully dismissed after he made
a complaint that he was working beyond his rostered 38 hours a
At the time of making the application, and at the time of his
termination, Mr Brown was an undischarged bankrupt.
The respondent employer, Premier Pet, argued that in light of
the nature of the relief sought and the wide definition of
'property' in the Bankruptcy Act 1966 (Cth), any
right to bring the proceedings vests in Mr Brown's trustee in
bankruptcy. On that basis, the respondent argued, the proceedings
should be dismissed.
Property under the Bankruptcy Act
Under the Bankruptcy Act, where a debtor becomes a bankrupt,
'the property of the bankrupt' vests in the bankrupt's
trustee. Relevantly, any 'after-acquired property' of the
bankrupt also vests in the bankrupt's trustee as soon as it is
The Act provides that 'property' includes both real and
personal property, including any estate, interest or profit
associated with that property. 'Property of the bankrupt'
includes both the property divisible among the bankrupt's
creditors, and any rights and powers related to that property that
the bankrupt would be able to exercise if he or she had not become
However, the Act says that the property divisible among the
bankrupt's creditors does not include the bankrupt's right
to recover damages or compensation for personal injury or
'wrong done to the bankrupt', or any damages and
compensation the bankrupt recovers related to that injury or wrong,
whether before or after becoming bankrupt.
Findings in Brown v Premier Pet
Relying on a number of authorities, Federal Magistrate Jarrett
found that a claim for compensation arising out of a wrongful or
unlawful dismissal from employment is generally seen as
'property' for the purposes of the Bankruptcy Act.
FM Jarrett determined that Mr Brown cannot pursue a claim for
compensation or the imposition of a pecuniary penalty on the
respondent because those rights are 'property' rights
vested in his trustee in bankruptcy as 'after-acquired
However, FM Jarrett found that Mr Brown's application to
seek an order for reinstatement did not involve him exercising
'property' rights under the Bankruptcy Act.
FM Jarrett held that Mr Brown's "right to seek
reinstatement and thereby to be put back in a position to earn
income through personal exertion remains with Mr Brown. His trustee
has no interest in seeking his reinstatement. His trustee, for
example, could not ensure that if reinstatement was offered or
taken up, Mr Brown would take up or remain in the
FM Jarrett concluded that "the right to seek an order for
reinstatement is not a right which can be exercised beneficially
for Mr Brown's creditors".
Long experience representing many of Australia's leading employers has taught us that in employment litigation the identity of an employee's representative is a major factor in how employee litigation runs.
Australian employees receive certain entitlements (such as annual leave and superannuation) where contractors do not.
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