FWO Strikes First Blow In Spotless “Ordinary And Customary Turnover Of Business” Challenge

By Chao Ni, Principal and Rene Karakinos, Lawyer, MST Lawyers

The long-standing issue of when the ordinary and customary turnover of labour exception applies for employers to avoid paying redundancy entitlements remains unclear.  An industrial battle continues over the words “ordinary and customary turnover of labour”. 

In the recent decisions of United Voice v Berkeley Challenge Pty Ltd and FWO v Spotless Services Australia, the Federal Court has applied two different legal tests, creating uncertainty in the law.

Section 119(1) of Fair Work Act provides “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.”

United Voice v Berkeley Challenge Pty Ltd [2018] FCA 224

On 2 March 2018, the Federal Court held that Berkeley Challenge (a subsidiary of Spotless Services) had wrongly applied the “ordinary and customary turnover” exception. 

That decision was given by Justice Reeves (see MST’s previous article on that case here).

Justice Reeves found that the key question to be asked to determine whether the ordinary and customary turnover exception applies is whether:

Berkeley, as the employer of the affected employees, discharged its onus to show that its decision to terminate their employment and, at the same time, to render their jobs redundant was, for it, common or usual and a matter of long-continued practice?”

Applying the test, Justice Reeves held that:

  • Berkeley had failed to introduce sufficient evidence to discharge its onus to show that its decision was common, usual and a matter of long-continued practice.
  • The relevant contract that had been lost which caused the redundancies had been in place for more than 20 years and that Berkeley had employed workers on that contract for between 4 and 21 years.
  • In light of the long-running contract, the decision to terminate was uncommon and extraordinary and not a matter of long-continued practice for Berkeley.

The significance of this decision is that (1) it renders the views of the employees irrelevant and (2) the approach leads to an implication that employers with a long term customer contract lose their ability to utilise the exception due simply to the passing of time.

Berkeley has since appealed that decision to the Full Court of the Federal Court.

 FWO v Spotless Services Australia [2019] FCA 9

On 16 January 2019, Justice Colvin of the Federal Court held that Spotless Services Australia had also wrongly applied the “ordinary and customary turnover” exception.

The case involved redundancy pay for three Perth International Airport workers after Spotless lost its service contract with the airport.

Justice Colvin applied a slightly different legal test to that which had been applied by Justice Reeves in Berkley

Justice Colvin held that the exception could only apply if the termination was to be expected by the employee in the particular circumstances of the case, including for example that:

  • It was inherently a normal aspect of a business of the kind conducted by the employer that would be evident to the employee.
  • It is both commonly observed and a matter that is habitual or of long-standing practice such that it is to be expected that for anyone in that type of job, the employment will not be ongoing.

Applying this test, Justice Colvin found that none of the employment contracts entered into by Spotless with its employees indicated that their employment would come to an end when the customer contract ends.  As such, the termination of their employment could not have been expected by the employees in these circumstances.

The most significant difference between Berkeley and Spotless is that the former looks at the employer’s decision (and ignores the views or expectations that are held by any employees), while the latter looks at the expectation of the employees having regard to the circumstances of the case. 

Employers should prefer the approach adopted by Justice Colvin in Spotless because it gives some control over accessing the ordinary and customary turnover of labour exception by setting employee expectations. 

Employers should watch this space for the different approaches between Berkeley and Spotless to be resolved (we expect this to occur in the upcoming Berkeley appeal decision).

If you have any questions about any redundancy pay issues, please contact the MST Lawyers Employment Law team by email or call +61 3 8540 0200 to speak with a specialist employment lawyer.