Two recent decisions by Full Benches of the Fair Work Commission (FWC) provide valuable guidance as to the circumstances in which an employer may be able to avoid making redundancy payment to employees whose employment has been terminated because of the ‘ordinary and customary’ turnover of labour.

  1. THE CONCEPT OF ORDINARY AND CUSTOMARY TURNOVER OF LABOUR

In its decisions in the Termination, Change and Redundancy Case in 1984, the then-Australian Conciliation and Arbitration Commission made clear that the redundancy entitlements created by that case ‘shall not apply where the termination of employment is “due to the ordinary and customary turnover of labour’’’.[1]

This form of words was derived from an earlier decision by the New South Wales Industrial Commission in the Employment Protection Case,[2] and has subsequently been carried over into many awards and industrial agreements.

It also finds expression in section 119(1) of the Fair Work Act 2009(Cth) (FW Act), which provides that an employee is entitled to be paid redundancy pay by an employer if their 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.[emphasis added]

Despite the fact that this form of words is in common legal and industrial usage, there is relatively little authority as to what it actually means in practice. There have, however, been two decisions in 2015 in which Full Benches of the FWC have shed some light on the matter.

  1. THE SPOTLESS CASE

In CFMEU, CEPU and AMWU v Spotless Facility Services Pty Ltd T/A Spotless,[3] the employer terminated the employment of 78 employees on grounds of redundancy following an unsuccessful tender for the renewal of a contract to provide maintenance services to the federal Department of Defence. Such a situation would commonly lead an employer to invoke the exception concerning ordinary and customary turnover of labour.

The relevant enterprise agreement contained a redundancy clause which created a generous entitlement to redundancy pay, but which did not contain the ‘ordinary and customary turnover’ qualifier.

The employer argued that despite the absence of the qualifier, the term ‘redundancy’ in the agreement took its meaning from section 119 of the FW Act, and from a number of modern awards which were expressly incorporated in the agreement. Like section 119, these agreements did include the qualifier.

The Full Bench rejected this proposition, finding that:

The meaning of the word ‘redundancy’ is not fixed and the term will take colour from its context. However, in any relevant context it is the abolition of a position which leads to that position being redundant. The cause of the abolition of the position – whether business restructure, technological advance, loss of contract/ordinary turnover or otherwise – is a separate matter, albeit one which may determine the entitlements of the redundant employee. Indeed the presence of the express exclusion in section 119 (and in the predecessor TCRcase) demonstrates that the abolition of a position as a result of ordinary and customary turnover is a redundancy; albeit one that does not give rise to an entitlement to redundancy pay. The exclusion would otherwise be entirely otiose ... [S]ection 119 does not define ‘redundancy’. It merely sets out the circumstances in which an employee will or will not have an entitlement to redundancy payunder the NES.[4]

  1. THE COMPASS CASE

Compass Group (Australia) Pty Ltd v NUW and UFUA[5] concerned the retrenchment of a number of employees, in consequence of their employer deciding not to submit tenders for the renewal of contracts to provide stores and transport and fire and rescue services to the Department of Defence.

In this instance the relevant agreement terms did include the ordinary and customary turnover qualifier, and also made express reference to the redundancy pay provisions in Part 2-2 of the FW Act.

At first instance, however, Commissioner Roe determined that the terminations were not attributable to the ordinary and customary turnover of labour.[6]

In reaching this conclusion, the Commissioner started from the assumption that, contrary to the normal reading of the Termination, Change and Redundancy Case, the Full Bench in that case had not in fact adopted the reasoning of the NSW Commission in theEmployment Protection Case. Further, in any event ‘the Australian economy has changed and contracting firms have greatly expanded in the decades since the TCR decisions’.

In light of this, Commissioner Roe decided that in order to determine whether a redundancy was because of ordinary and customary turnover of labour, it was necessary to ask four sets of questions:

  • Was the ‘employee dismissed for reasons relating to his/her performance, or where termination is due to a normal feature of a business?’
  • Had a reasonable or settled expectation of continuing employment been established? The length of employment and the nature of the contracts and the history will be relevant.
  • Is there intermittency in employment because of the nature of the business? Is this reflected in the casual, seasonal, or fixed term or fixed task nature of the employment arrangement?
  • What is the reason for the loss of business? The history of the employer’s contracts and the reasons for them ending will be relevant. Was the end of the contract the occasion for rather than the cause of the dismissal? Does employment generally end at the conclusion of the particular task or contract? [7]

On the basis of his answers to these questions, Commissioner Roe determined that ‘the particular employees selected were not terminated due to the ordinary and customary turnover of labour’; and that in consequence ‘they should be paid redundancy or severance payments based upon their years of service as per the NES scale’.[8]

On appeal the Full Bench disagreed with Commissioner Roe’s reading of the Termination, Change and Redundancy Case, and found that in addressing the four sets of questions set out at para [33] of his decision the Commissioner had ‘acted on an incorrect principle and his discretion miscarried on that point’.[9]

In the Full Bench’s view, the application of the ordinary and customary turnover of labour qualifier, in a given case, requires consideration of ‘the normal features of the business’ and ‘the business circumstances of the employer.’[10]

On their reading of the facts, the Full Bench concluded that:

Compass had a long standing practice not to make redundancy payments at the conclusion of contracts pursuant to the Exception [i.e. the qualifier]. If this position was sought to be altered, one would have thought that a variation to the terms of the standard redundancy clauses in the Compass enterprise agreements would have been made. No such variations were made. This suggests that the mutual intention of the parties to the agreement was to apply Compass’ interpretation of the standard redundancy pay wording.[11]

  1. IMPLICATIONS FOR EMPLOYERS

With respect, the approach adopted by the Full Benches in both of these cases is clearly correct.

Spotless serves as a warning to employers that if they wish to include redundancy provisions in an enterprise agreement they should ensure that they also include the ordinary and customary turnover qualifier – otherwise they run the risk of being found to be liable to make redundancy payments to employees in circumstances where terminations of employment would otherwise be attributable to the fact that the employer no longer requires the job done by the employee to be done by anyone. The exception relating to ordinary and customary turnover of labour will not be implied.

Compass, meanwhile, shows that if an agreement does contain the qualifier then, other things being equal (for example making appropriate attempts to redeploy the affected employees), employers can avoid exposure to making redundancy  payments where the terminations are due to what can properly be regarded as the ordinary and customary turnover of labour, considered in the context of the employer’s business and past practice.