The Federal Court has ruled that a cleaning company could not rely on the ‘ordinary and customary turnover of labour’ exception to the payment of redundancy entitlements under the Fair Work Act 2009 (Cth), even though a major service contract had come to an end.[1]

From 1994, Berkeley Challenge Pty Ltd, part of a group of companies (Group), provided cleaning and security services for a shopping centre under a series of consecutive contracts. In 2014, when it was not successful in re-securing the contract, several employees were retrenched without redundancy pay.

Section 119(1)(a) of the Fair Work Act 2009 (Cth) provides that where an employer no longer requires an employee’s job to be done by anyone, the employee is entitled to be paid redundancy pay, ‘except where this is due to the ordinary and customary turnover of labour.’ Although it was accepted that this was a case of genuine redundancy, the issue in dispute was whether Berkeley was entitled to rely on this exception.

When will the exception apply?

The Court concluded 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.’

Did the loss of contract entitle Berkeley to rely on the exception?

The Group provided the Court with evidence to show that it was general practice for the employment of its employees to be connected to a specific client contract. The Group highlighted that its workforce constantly fluctuates depending on when contracts are won or lost. It sought to demonstrate that terminating employment due to the loss of a client contract was exactly the situation which the ‘ordinary and customary turnover of labour’ exception was intended to cover.

However, the Court pointed out that even though Berkeley had been acquired by the Group, Berkeley was the relevant employer, not the Group. Therefore, while it was clear that Berkeley terminated the employees’ employment due to the loss of the shopping centre contract, there was no evidence tendered about Berkeley’s labour turnover practices or frequency.

In light of the fact that Berkeley had a contractual relationship with the shopping centre that had lasted for more than 20 years, and the affected employees had been employed to provide the contract services for up to 21 years, the Court said:

the evidence appears to show the opposite of the circumstances in which the exception applies. That is, it appears to show that the terminations and the connected job redundancies were, for Berkeley, as the employer uncommon and extraordinary and not a matter of long-continued practice.

Consequently, Berkeley could not rely on the exception and was obliged to provide the relevant employees with redundancy payments.

What does this mean for employers?

This case has confirmed that the exception contained in s 119(1)(a) will apply to dismissals arising from loss of contracts where this is a normal feature of the business practices of the employer.

Whether the exception applies will be a question of fact depending on the evidence led by the employer as to the long standing practices of the employer’s business and the circumstances of each termination.

Before employers seek to rely on the exception, the question that should be asked is whether the termination of employment (the turnover of labour) is both common, or usual (ordinary), and a matter of long-continued practice (customary) for the particular employer in question – irrespective of what may be the situation for other employer entities within a group of associated companies.