Australia: Ordinary is boring! (… Unless you are a business facing redundancies)

Last Updated: 19 July 2017
Article by Ryan Murphy

Ordinary is boring. The word itself means "no special or distinctive features". Do you turn your head when you see an ordinary car? Are you pumped up when your favourite band releases an ordinary song? Of course not.

And yet, there are times when ordinary can be a good thing from a business's point of view. There are times when ordinary can save an employer significant amounts of money. One recent decision by the Western Australian Industrial Relations Commission illustrates this point, and reminds businesses of the importance of 'ordinary'.

Redundancies are an unfortunate fact of business life. Sometimes there is not enough work for a business to maintain the number of staff that were previously needed. If a particular job is no longer required to be performed by anyone, that job is redundant. If a job is made redundant, the worker that had previously performed that job might be retrenched. In such circumstances, the employer is usually required to make a severance payment to the affected employee. The amount of that payment will depend on the employee's length of service, but it is generally between 4 and 16 weeks' pay, as governed by the National Employment Standards (NES). At least, that is the general rule.

As with most rules, however, there are exceptions. In sport, for example, you don't score a point if you miss the goals. The exception? AFL. (Chill out AFL fans, I'm one of you. We can take a joke!)

If sport is not your thing, consider the "I" before "E" except after "C" rule. That's fine, except if you run a feisty heist on a weird, foreign neighbour. The point is that rules often have exceptions.

The same applies in cases of redundancy. There are times when a business may face redundancies that it will not be obliged to make any redundancy payment at all. Some of the most common exceptions include:

  • if a business has less than 15 employees; or
  • if an employee has been with a business for less than one year; or
  • if an employee is employed on a casual, or fixed term, basis.

There is at least one more exception to the requirement to make redundancy payments, and in that case, it pays to be 'ordinary'. Let me explain.

If a business's reason for making a role redundant is because of the ordinary and customary turnover of labour, the business escapes the requirement to make redundancy payments.

So what is the 'ordinary and customary turnover of labour'?

This point was considered recently by the Full Bench of the Western Australian Industrial Relations Commission. The case involved Dennis Buckle, who worked as a facilities manager for Spotless Management Services Pty Ltd (Spotless) for seven years. Mr Buckle's role involved managing the buildings and facilities for a number of government departments and agencies, including Fire and Emergency Services (FESA).

In April 2016, Spotless was unsuccessful in its tender for the ongoing facilities management contract with FESA. In a practical sense, that meant there was no longer enough work to continue Mr Buckle's employment, so he was retrenched.

Mr Buckle's employment contract contained a clause that entitled him to be paid retrenchment benefits "in accordance with the retrenchment policy applicable to Spotless staff at the time." Unfortunately for Mr Buckle, Spotless didn't have a retrenchment policy. Without a retrenchment policy, the Commission found that the redundancy provisions in the NES should apply.

The NES sets out the minimum amount to be paid to a redundant employee. For Mr Buckle, that amount would have equalled 11 weeks' pay. However, the NES also contains the "ordinary and customary turnover of labour" exemption. On that basis, and in the particular circumstances, the Commission found that Spotless was not required to make any redundancy payment to Mr Buckle.

So what did Spotless do to successfully rely on the 'ordinary and customary turnover of labour' exemption? Businesses, take note:

  • A large amount of Spotless's work came from contracts obtained through a competitive tender process;
  • Spotless works in an industry where work can be transient and based on the coming and going of contracts. This is common in industries such as cleaning, catering, hospitality, security and maintenance;
  • Mr Buckle's employment was "tied to" the particular contract with Fire and Emergency Services, being the contract that was lost;
  • The redundancy of Mr Buckle's role did not arise from a restructure by Spotless, but a by loss of contract from a customer;
  • Spotless made efforts to redeploy Mr Buckle, including with the incoming company that was taking over the FESA contract, although those efforts were ultimately unsuccessful because there were no suitable positions available.

The 'ordinary and customary turnover of labour' exception won't apply to every redundancy. It exists to provide vital flexibility for businesses in industries where winning and losing contracts is a common occurrence. As such, it should remain front of mind for employers in those industries, and it should be expressly reflected in their contracts of employment.

Spotless's success in relying on the exemption hinged on the circumstances of their particular case. For that reason, we recommend seeking legal advice before attempting to rely on the 'ordinary and customary turnover of labour' exemption.

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