Under s.119 of the Fair Work Act, an employee is entitled to be paid redundancy pay by the employer if the employee’s employment is terminated because –
- the employer no longer requires a job done by the employee to be done by anyone, except where this is due to the ordinary and customary turnover of labour; or
- the insolvency or bankruptcy of the employer.
However, if the employer obtains other acceptable employment for the employee or cannot pay the amount, the employer may apply to the Fair Work Commission for the amount of redundancy pay to be reduced (s.120). Also, if the employee’s continuous service with the employer is less than 12 months or the employer is a small business, the employer does not have to pay redundancy pay, (s.121).
This article focuses on the “ordinary and customary turnover of labour” exception.
In a recent Federal Court case of United Workers Union v Compass Group Health Care Hospitality Services Pty Ltd [1] the Court found that a hospitality provider (Compass) could not rely upon the loss of their client’s contract to argue there was an ordinary and customary turnover of labour.
Initially, the South Australian Employment Tribunal found that Compass which supplied services to Elder Care’s Aged Care facilities, was not obliged to pay the terminated employees’ redundancy pay because of the ordinary customary turnover of labour exception – i.e – their employees could not expect that their employment would continue on a permanent basis given the nature of their employment.
The South Australian Tribunal found that the kind of business which Compass was engaged in, had an “ordinary and customary turnover of labour” (leading to terminations of employment when client contracts ended).
The Federal Court disagreed finding that the jobs of 31 employees involved working or providing services to an Aged Care facility for so long as the facility continued to operate.[2] The Court found that whilst the employees would have been aware that there was a possibility that the Compass may cease to carry on business one day, none of their written Employment Agreements stated their job was for a “finite or for a particular duration”. [3] Even though some of the Employment Agreements stated that the employee’s “employment was subject to operational requirements of the Company’s business, which is directly affected by the needs of our clients”, and employment forms stated that their “continuous employment …. cannot be guaranteed”, the Employment Agreements still conveyed a permanent employment arrangement.
Importantly, the Court held, that it was not for the employer to determine or characterize their commercial and employment arrangements as being less than permanent and the question of permanency does not focus on the employer’s business practices but whether it could reasonably be expected from the start of employment, that the job was not permanent or ongoing. [4]
The Court found that what is “ordinary and customary and affects the incidence of the job must be known to the (employee and employer)”, citing the earlier case of Berkeley.[5]
None of Compass’ employees had experienced nor observed, termination of employment of the kind which happened because of a loss of a client contract.[6] Also, their jobs were not of the type of being fixed or finite or suggesting a “working until business” (like a labour hire contract). The Court added that it was their job was “working for a business providing necessary and ongoing services at Aged Care Facilities on an apparently indefinite basis.” [7]
The Court rejected Compass’s argument that it could not (due to commercial practicalities) disclose to its employees when their client contracts could be terminated, citing “it is difficult to understand any commercial justification for withholding this information to its workforce which would be vital to them in understanding and planning for their future, being the date when the employer expected in the ordinary course that it would no longer require their jobs to be performed by anyone.”[8] The Court found that one of the reasons why Compass Group did not disclose to employees that its jobs were of a finite nature was that it hoped to keep renewing its client contracts and there was an indefinite and expectation of ongoing employment.[9]
Compass was ordered to pay all 31 employees who have had at least 1 year of continuous service and was not a casual, redundancy pay.
[1] [2023 FCAFC 92]
[2] Paragraph 42.
[3] Ibid.
[4] Ibid at para 45.
[5] Berkeley Challenge Pty Ltd v United Voice (2020) 279 FCR 249
[6] Ibid, para 58.
[7] Ibid, para 60.
[8] Ibid, para 62.
[9] Ibid, para 63.