Australia: Retrenchment due to ordinary and customary turnover of labour disentitles employee to redundancy pay

Last Updated: 26 June 2017
Article by Charles Power and Alicia Bray

Most Read Contributor in Australia, September 2018

For many decades Australian industrial law has generally recognised the concept that where particular employment is based on the employer retaining a particular contract, the loss of that contract leading to the dismissal of employees performing the work of that contract does not attract redundancy pay obligations.

This concept is enshrined in the 'ordinary and customary turnover of labour' exception that appears in the National Employment Standard (NES) redundancy pay provision in s 119(1) of the Fair Work Act 2009 (Cth) (the Act). Section 119(1) of the Act provides that an employee is entitled to be paid redundancy pay by the employer if the employee's employment is terminated at the employer's initiative because the employer no longer requires the job done by the employee to be done by anyone, except where this is due to the ordinary and customary turnover of labour. In other words, even though an employer is dismissing an employee because it no longer requires the employee's job to be performed by anyone – being the recognised test for redundancy – the fact the dismissal has the character of ordinary and customary turnover of labour means the NES redundancy pay entitlement does not arise.

In Spotless Group v Dennis Buckle [2017] WAIRC 323, an employer successfully established that this exception applied in the following circumstances:

  • The employer operated a contracting business providing a range of services to clients including catering and hospitality, security, maintenance and cleaning.
  • The employer recruited the majority of its employees to work on and be 'tied to' specific client contracts.
  • An employee worked under a contract between the employer and a client for the provision of facility maintenance services.
  • Following the loss of that contract to another contractor, the employer informed the employee that upon termination of the contract, if no acceptable alternative employment options could be identified with either the employer or the incoming contractor his employment would be terminated as a consequence of ordinary and customary turnover of labour.
  • The employee was not offered a position within the employer, nor with the incoming contractor and was not paid a redundancy payment, despite almost 7 years of service.
  • The employee's employment contract provided that upon termination of employment on grounds of redundancy, the retrenchment benefits payable to the employee will accord with the terms of the employer's applicable retrenchment policy. As it was, the employer did not have a written retrenchment policy, but adopted the practice of generally following the NES or applicable award or enterprise agreement.

The Western Australian Industrial Relations Commission referred to the contractual provision for redundancy and observed that in the absence of a retrenchment policy, the clause was uncertain and of no effect. However the Commission ruled that the policy was to apply the NES. Therefore, the employee's entitlement to retrenchment benefits under the redundancy clause in the employment contract accorded with the NES for redundancy pay. The NES disentitled the employee to a redundancy payment where employment is terminated due to the ordinary and customary turnover of labour. Given that was the case here, the employee was not entitled to redundancy pay.

Lessons for employers

There was no dispute in this case that the employment was terminated due to ordinary and customary turnover of labour. However care must be taken when treating redundancy situations arising from a down turn in trade or loss of custom as ordinary and customary turnover of labour. The exception only applies where there is a close association with the particular employment and a contract between the employer and the client.

In this case, the employer's redundancy provision did not include an express exception for the ordinary and customary turnover of labour. While the employer was fortunate that the Commission was willing to construe the provision as incorporating the NES, it would be prudent for employers wishing to enforce such a clause to include appropriate wording in their agreements.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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