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Employment
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15 June, 2015
The Full Court of the Federal Court found that the “ordinary and customary turnover of labour” exemption to redundancy pay in the National Employment Standards did not apply to a large service company which dismissed its employees when their service contracts came to an end. “[T]he reasonable expectations of employees are a critical, but not the only, factor in determining whether the particular termination was due to the ordinary and customary turnover of labour.”
Background
Under the Fair Work Act 2009 (Cth), employers are exempt from making redundancy payments where the employment is terminated “due to the ordinary and customary turnover of labour”: s.119(1)(a).
This decision was an appeal from two decisions of the Federal Court:
- United Voice v Berkeley Challenge Pty Ltd (2018) 274 IR 93; [2018] FCA 224 (Reeves J)
- Fair Work Ombudsman v Spotless Services Australia Pty Ltd [2019] FCA 9 (Colvin J)
Collier and Rangiah JJ (with whom Rares J agreed) resoundingly affirmed the decision of Colvin J.
In Berkeley Challenge, the employer “provided security, cleaning and related services” at a shopping centre for 20 years. On 29 August 2014, the shopping centre owner informed the employer that its contract would end on 30 September 2014, which was later extended to 7 October 2014. Some employees were engaged by the new incoming contractor. Others were not. Relevant employees were engaged on contracts of permanent employment, which did not foreshadow termination without redundancy pay if the employer lost the shopping centre contract.
On appeal, Collier and Rangiah JJ observed that a significant proportion of employees in the employer’s business were “tied” to a client contract. However, none of the evidence at trial “supported a finding that the reasonable expectations of affected employees were anything other than that they had ongoing employment”. There was no evidence that the employees were told it was ordinary and customary in the employer’s business for their roles to end if the contract was lost. There was no evidence of industry practices to “inform consideration of what was the ‘ordinary and customary turnover of labour’ in businesses of the kind in question”. And in fact, the employer had minimal turnover of labour because of “its long-standing contract with” the shopping centre owner, which “fed into the reasonable expectations of employees”.
The appeal was lost.
In Spotless Services, the employer provided “catering and hospitality services at the Perth International Airport” from “approximately October 1986”. There were a series of closures in June 2014, January 2015 and June 2015. The claims were brought by the Fair Work Ombudsman on behalf of three employees:
- Mr Campilan, who started working for Spotless Services in August 1982, and worked at the airport as an accountant since November 1998, initially full‑time but later as a part‑time employee. On 8 June 2015, Mr Campilan was informed that the contract had ended and “should no alternative options be available”, his employment “would be terminated on 24 July 2015 ‘as a consequence of ordinary and customary turnover of labour'”;
- Ms Wright, who started working as a supervisor at the airport in February 2011, and was “redeployed to various locations as a retail manager”. Her contract stated that she would be entitled to a “retrenchment benefit … if alternative employment was not located”. On 22 May 2015, Ms Wright received a similar letter to Mr Campilan, that her employment would end on 25 June 2015 and her employment was terminated for the same reason (without redundancy pay) on 30 June 2015; and
- Mr Ramble worked as an outlet manager at the airport from 6 October 2010. His contract did not link his continued employment to the service contract. On 22 May 2015, he received a similar letter to the two other employees. His employment was terminated on 25 June 2015.
Spotless paid each of the workers their redundancy pay on a without admission of liability basis in February 2017.
The Full Court similarly concluded that the employer had not discharged its burden of proving that the employees had no reasonable expectation of ongoing employment. Similarly, the primary decision was upheld.
Principles
To determine whether “ordinary and customary turnover of labour” exemption to redundancy applies, the relevant considerations are:
- What was the expectation of the employee concerned that the work was (or was not) ongoing?
- Was there a reasonable expectation by the employees that their employment would continue unless they committed misconduct or the employer ceased functioning?
- Did material provided to employees by the employer “or facts generally known about an industry” affect employees’ expectations of ongoing employment?
- Was the employee appointed on a permanent arrangement or were employees engaged on a finite basis or subject to “external factors”?
- Was the termination ordinary and customary –
- in the employer’s business;
- in a business of the employer’s kind;
- for business generally?
And if so, how does that affect the employee’s expectations of ongoing work?
- Considering the nature of the employee’s job, would they have an expectation that their employment would come to an end even though the business would be ongoing?
- Is the practice of turnover of labour is a long-standing practice “for that particular type of employment or business”?
- Is the termination caused by an unusual event (such as “permanent closure, loss of lease, or liquidation”) that is not ordinary and customary?
Each of these factors considered together will guide whether the exception applies to the termination.
Consequences of this decision
This decision reminds employers that it is important to have employment terms, conditions and expectations clearly set out in letters of engagement and employee communications throughout the employment relationship. If the employer wants to rely on the turnover of labour exception to redundancy pay, employment contracts must be drafted correctly to dispel any reasonable expectation by the employee that their employment will continue. Redundancy policies, too, should reflect the employer’s position that it is ordinary and customary for employment to be terminated if (for example) a client contract ends and they cannot be redeployed to the incoming contractor or another area of the business.
Conceptually, this is likely to affect not only service contractors, but also many not for profits and entities that rely on government funding. If an employee’s position is no longer sustainable if the business loses grant funding or is no longer on a tendered service provider panel, the employer may consider this is an ordinary and customary turnover of labour event. Do the employees see things that way, too?
If your business relies on a transient workforce, or has employees notionally tied to external contracts, we recommend you consider:
- If that contract is lost, can the employee be redeployed to other parts of the business?
- If the business cannot redeploy the employee, will we be in a position to make a redundancy payment (e.g. in a mass redundancy event)?
- Is it usual for a business like yours to end employment when a given event (losing a contract) occurs?
- What are employees’ terms of engagement?
- Are your policies consistent with termination without redundancy pay when a turnover event occurs?
- Are your employees long‑standing and settled in their employment?
- What communications have occurred in relation to an impending client contract review?
Finally, if a redundancy is because of economic downturn in the employer’s business, it is unlikely that the exception can be relied on. That is particularly relevant in these unprecedented times.
For more information, please contact the Employment group at McCabes.
