The Federal Court of Australia has made an important ruling regarding an exception to make redundancy payments to employees under the Fair Work Act 2009 (Cth) (FW Act). In the same case, the Court also examined the requirements for giving a valid notice of termination under the FW Act. The Court determined that the employer in question, a contract cleaning company, had failed to meet its statutory obligations to provide sufficient notice or redundancy pay to terminated employees. This decision has profound impact on employers relying on the “ordinary and customer turnover of labour” exemption to avoid making redundancy payments, confirming only employers who commonly terminate employees as a direct result of labour turnover may rely on the exception.

The case was brought by the United Voice union on behalf of the former employees of Berkeley Challenge Pty Limited (Berkeley).

Berkeley, who were acquired by Spotless Group Holdings Pty Ltd (Spotless) in 1999, had provided cleaning services to Sunshine Plaza since 1994. In 2014, Spotless was unsuccessful in winning a tender to continue providing cleaning services to Sunshine Plaza and, as a result, Berkeley terminated all employees.

Spotless, on behalf of Berkeley, issued employees with a letter entitled “Notification of Loss of Contract” (Letter), which indicated that Spotless would redeploy employees where possible and that the new contractor was open to receiving applications for employment from the Berkeley employees. Otherwise, as a result of loss of the contract, employees would be terminated at the end of the current Spotless contract period with Sunshine Plaza. The employees were not paid any redundancy pay.

Representing the terminated employees, United Voice sought, amongst other things, compensation for Berkeley’s failure to provide valid notices of termination and to pay redundancy payments.

“Ordinary and customary turnover of labour”

Section 119(1)(a) of the FW Act provides that employees are entitled to redundancy payments if their employer no longer requires the job done by the employee to be done by anyone, except in circumstances where this is due to “the ordinary and customary turnover of labour”. This exception has caused considerable judicial debate, with differing interpretations of the phrase, commonly found in industrial relations law, resulting in varied application.

Notably, the affected employees were employed by Berkeley under permanent contracts that did not specify a term of expiry and did not reference that their employment was subject to any continuance of contract with Sunshine Plaza.

The Federal Court found that the exception to making a redundancy payment applies if an employer terminates an employee and renders their job redundant in circumstances where the decision “is for that employer, with respect to its labour turnover, both common, or usual, and a matter of long-continued practice”. In those confined circumstances, the employer does not have to make a payment of redundancy pay.

In coming to his decision, Reeves J noted that Spotless and Lend Lease, on behalf of Sunshine Plaza, had had a contractual relationship for more than 20 years, and the affected employees had been employed for between 4 and 21 years. Job redundancies were, for Berkeley (as opposed to the broader Spotless business), uncommon, and “not a matter of long-continued practice”.

On this basis, Reeves J found that the employees had not been terminated due to the “ordinary and customary turnover of labour” and, therefore, did not fall within the section 119(1)(a) exception. Accordingly, Berkeley were liable to pay redundancy pay to each of the employees, in addition to a penalty for failing to have paid it as required in contravention of section 119.

Section 117(1) of the FW Act provides that employers must not terminate an employee’s employment unless they have given the employee written notice of the day of the termination.

In this case, the Court stated that “in order to validly terminate an employee’s employment, the employer concerned must give a notice which makes it unambiguously clear to the employee that his/her employment is to be terminated with effect from a certain day in the future”.

The Court held that the notice of termination given by Berkeley did not effectively notify the employees of their termination and was, therefore, invalid. While Berkeley did give employees the Letter, it did not clearly inform the employees that their employment was being terminated, but rather, gave notice of the loss of contract. Further, the letter did not adequately express which day the termination will be effective.

Accordingly, the Court determined that notice had not been affected, and ordered that Berkeley pay compensation for failure to give proper notice of termination under section 117. Penalties were also applied for the contravention of the FW Act.

Key take-away for employers

It is crucial that employers be aware that section 119(1)(a) of the FW Act does not provide a catch-all exception to pay redundancy payments where the employer considers the redundancies were due to “the ordinary and customary turnover of labour”. Rather, the construction of the exception will be considered in the context of the employer’s business and historical practices. Employers who have a long history of providing continuous employment may find that redundancies fall outside of the scope of section 119(1)(a) exception and they will, therefore, be liable for redundancy payments.

Employers must also ensure that when providing a valid notice of termination, the notice is unambiguous, in writing, and clearly states a future date of termination.