Australia: Redundancy pay entitlements and the ordinary and customary turnover of labour exception: does it apply to you?

Last Updated: 31 March 2018
Article by Emily Dempster

A recent decision clarifies the factors that the Court will consider in determining whether the 'ordinary and customary turnover of labour' exception to the requirement to pay redundancy pay will apply.

In brief

A recent decision of the Federal Court of Australia, United Voice v Berkeley Challenge Pty Limited [2018] FCA 224 (Berkeley Decision), has provided valuable guidance regarding factors that the Court will consider in determining whether the 'ordinary and customary turnover of labour' exception to the requirement to pay redundancy pay will apply.

What you need to know:

  • Section 119(1)(a) of the Fair Work Act 2009 (Cth) (FW Act) contains an exception to the entitlement to be paid redundancy pay where the dismissal is due to the 'ordinary and customary turnover of labour' (Exception).
  • The Exception is generally relied upon in circumstances where an employee, whose employment is based on the employer retaining a particular contract, is dismissed when the employer loses that contract. However, the Exception will not automatically apply in every such situation as it depends on the facts and circumstances of each dismissal and the features of the employer's business.
  • Where an employee's employment is based on the employer retaining a particular contract, the employer should ensure that the relevant employment agreement clearly set out the confines of the employment including that the employment agreement is subject to, and conditional upon, the continuance of the contract and that the employee will not be entitled to redundancy pay if their employment is terminated due to the loss of the contract.

Read on for a brief description of the Berkeley Decision and the factors that the Court considered in determining whether the Exception applied.

The Facts

Berkeley Challenge Pty Limited (Berkeley) was a member of the Spotless Group of Companies (Spotless) and employed a number of employees to perform work at the Sunshine Coast Plaza Shopping Centre (Sunshine Plaza) pursuant to a contract between Spotless and the principal of the Sunshine Plaza.

In August 2014, Spotless was notified that its tender to continue to provide security, cleaning and related services to Sunshine Plaza had been unsuccessful. As a result of the loss of contract, Berkeley terminated the employment of the majority of its employees employed to perform work at Sunshine Plaza. Berkeley did not pay redundancy pay to these employees on the basis that the dismissals were 'due to the ordinary and customary turnover of labour' which invoked the Exception.

United Voice instituted proceedings on behalf of the Berkeley employees alleging that Berkeley had failed to meet its obligations under the National Employment Standards in the Fair Work Act 2009 (Cth) (FW Act) to provide notice of termination1 and redundancy pay to the affected employees.

The entitlement to redundancy pay is set out in section 119(1) in the FW Act which provides as follows:

"An employee is entitled to be paid redundancy pay by the employer if the employee's employment is terminated:

  1. 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 [emphasis added]; or
  2. because of the insolvency or bankruptcy of the employer."

Berkeley argued that it was not obliged to pay redundancy pay to the affected employees as the termination of their employment was due to Spotless losing its contract with the principal of the Sunshine Plaza and that this invoked the Exception.

In his decision, Justice John Reeves stated that the Exception only applies if the decision regarding the redundancy is, with respect to the employer's labour turnover, "...both common, or usual, and a matter of long-continued practice."2 Therefore, the critical question before the Court was whether Berkeley had discharged its onus to show that its decision regarding the redundancies was common or usual and a matter of long-continued practice.

Considerations

The Court considered a number of factors in determining whether the Exception was invoked including as follows:

  • the fact that the employees had been employed by Berkeley pursuant to permanent and ongoing employment agreements which did not:
    • contain a term of expiry;
    • state that employment was subject or conditional to the continuance of the contract with the principal at Sunshine Plaza;
    • state that employees would not be entitled to redundancy pay if the contract with Sunshine Plaza was lost;
  • the fact that whilst much evidence was tendered regarding Spotless' business activities and the turnover of the Spotless Group's employees, little evidence was provided regarding Berkeley's business activities or the turnover of its employees; and
  • the fact that by the time Spotless lost its contract with the principal of Sunshine Plaza, the contractual relationship had existed continually for more than 20 years during which Berkeley had consistently employed all the employees necessary to provide the services to Sunshine Plaza.

Ultimately, Justice John Reeves found that the Berkeley redundancies were uncommon and extraordinary and not a matter of long-continued practice. On this basis, Berkeley had not discharged its onus to show that the Exception applied to the termination of the employees employed at Sunshine Plaza and as such, those affected employees were entitled to be paid redundancy pay.

Conclusion

It is important to note that the loss of commercial contracts may invoke the Exception. As is clear from the Berkeley decision however, the loss of commercial contracts will not automatically invoke the Exception and whether or not the Exception applies is an issue that is determined as a question of fact and depends on the normal features of an employer's business and the circumstances of each termination.

If you have any queries about any aspects above, please do not hesitate to drop me a line.

Footnotes

1Whilst we do not discuss the notice of termination allegation in this article, for completeness, we note that ultimately Justice John Reeves found that Berkeley did not provide notice of termination to the relevant employees due to deficiencies in the written notice relied upon.

2 United Voice v Berkeley Challenge Pty Limited [2018] FCA 224, [77]

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Madgwicks is a member of Meritas, one of the world's largest law firm alliances.

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