How Ordinary And Customary Turnover Of Labour Affects Redundancy Entitlements

By Renee Karakinos, Graduate, MST Lawyers

In the recent case of, United Voice v Berkeley Challenge Pty Limited [2018] FCA 224, the Federal Court confined the circumstances in which the redundancy pay exception for ordinary and customary turnover of labour in section 119(1)(a) of the Fair Work Act 2009 (FW Act) applies.

Ordinary and customary turnover of labour exception in the FW Act (s 119(1)(a))

Section 119 of the FW Act provides that:

(1) An employee is entitled to be paid redundancy pay by the employer if the employee’s employment is terminated:

(a) 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; or

(b) because of the insolvency or bankruptcy of the employer.

Background

A subsidiary of Spotless Management Services, Berkeley Challenge, made 21 employees redundant after a long-standing services contract was terminated with Lend Lease. In March 2018, the Federal Court was asked to decide whether the exception provided in s119(1)(a) of the FWA, applied to absolve Berkeley of the obligation to pay the terminated employees redundancy pay.

Berkeley claimed it had no obligation to provide redundancy entitlements as the dismissals were due to the loss of a contract and therefore, ‘due to the ordinary and customary turnover of labour’. They claimed that it was an inherent feature of the Spotless Group’s business model that client contracts end.

In dismissing Berkeley’s claim, Reeves J held that:

“The exception applies if a particular employer decides to terminate a particular employee’s employment and to render that employee’s job redundant in circumstances where the redundancy component of that decision is for that employer, with respect to its labour turnover, both common, or usual, and a matter of long-continued practice”.

The contractual relationship between Berkeley and Lend Lease existed for more than 20 years, and the terminations and connected job redundancies were, for Berkeley, as the employer, uncommon, and extraordinary and not a matter of long-continued practice.

Implications

The Berkeley decision, being a Federal Court decision, will be preferred to older decisions of the Fair Work Commission and various State industrial tribunals. Therefore, this case highlights the appropriate meaning of the exception in s 119(1)(a) and in what circumstances it applies. Employers operating in similar service industries must carefully consider the context of the employment relationship and not assume the exception to redundancy pay will apply.

If you have any questions about redundancy entitlements, please contact the MST Lawyers Employment Law team by email or call +61 3 8540 0200.