In United Voice v Berkeley Challenge Pty Limited [2018] FCA 224 (2 March 2018) (United Voice v Berkeley Challenge), the Federal Court of Australia has determined that a contract services provider’s dismissal of employees, following an unsuccessful tender for a new contract, did not fall within the ‘ordinary and customary turnover of labour’ exemption from the requirement to make redundancy payments.

Below, we examine this decision, and explore its implications for businesses given concerns that employers will now be exposed to making redundancy payments in a range of situations that may not previously have triggered this obligation.

The background of the case

From 1999, Berkeley Challenge Pty Limited (Berkeley) was a member of the Spotless Group of Companies (Spotless). Commencing in 1994, Berkeley had provided contract services at the Sunshine Coast Plaza Shopping Centre in Queensland under a series of contracts with Lend Lease Property Management Pty Ltd (Lend Lease).

In 2014, Spotless unsuccessfully tendered for a new contract to provide the services to Lend Lease. As a result, Spotless (on behalf of Berkeley) informed its employees at Sunshine Coast Plaza in writing of the impending loss of the contract. On 7 October 2014, Spotless advised the employees of the termination of their employment as at the close of business on that date.

Were the dismissed employees entitled to redundancy pay?

The principal issue that arose for consideration in the case was whether the dismissed employees were entitled to redundancy pay in accordance with the National Employment Standards (NES) provisions of the Fair Work Act 2009 (Cth) (FW Act).[1]

Section 119 of the FW Act establishes the right of an employee, whose employment is terminated because the employer no longer requires the employee’s job to be done by anyone, to be paid an amount of redundancy pay determined in accordance with the employee’s length of continuous service with the employer.

However, Berkeley sought to rely on the exception to this obligation which is set out in section 119(1)(a): that is, where the redundancy ‘is due to the ordinary and customary turnover of labour’ (OCTL Exception).

Berkeley argued that the loss and gain of client contracts were normal features of Spotless’s business, with a consequent fluctuation of employee numbers. Employees were recruited to work on specific client contracts – if Spotless lost a contract, the employment of relevant employees would normally be terminated.

Justice Reeves of the Federal Court did not accept this argument, taking the view that in its statutory context, the OCTL Exception is confined to ‘a narrow set of circumstances’.[2]

According to Reeves J:

“… the Exception applies if a particular employer decides to terminate a particular employees’ [sic] 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. In that confined set of circumstances, the employer concerned does not have to pay the employee concerned any redundancy pay”.[3]

In this case, Reeves J considered that Berkeley had not discharged the onus of establishing that its decision to make the employees redundant satisfied the limited operation of the OCTL Exception.

The factual circumstances attaching to the relevant contract with Lend Lease - the contractual relationship had extended for over 20 years, and Berkeley had employed the affected employees for between 4 and 21 years – did not assist Berkeley. This was despite the evidence about Spotless’s contracting and redundancy practices, and the competitive pressures it faced.

Reeves J ultimately concluded that the relevant redundancies in this case were, for Berkeley, ‘uncommon and extraordinary and not a matter of long-continued practice’.[4]

As the OCTL Exception did not apply, Reeves J found that the affected employees were entitled to be paid redundancy pay entitlements; and that by not paying them, Berkeley had contravened sections 44 and 119 of the FW Act.

The quantum of both compensation for the employees and the civil penalties to be imposed upon Berkeley will be considered in further proceedings.

The notice of termination issue

Reeves J also found that Berkeley had not complied with section 117 of the FW Act, because it failed to provide the affected employees written notice of the termination of their employment in the manner required by that provision.

Rather, the written notification provided to employees had emanated from Spotless (not the employer, Berkeley) – and was a notification of Spotless’s loss of the Sunshine Coast Plaza contract, not a notice of the termination of the affected employees’ employment with Berkeley.[5]

According to Reeves J, a valid ‘notice of the day of the termination’ within the meaning of section 117(1) must make it ‘unambiguously clear that his/her employment is to be terminated with effect from a certain day in the future’.[6]

What are the implications for businesses?

The operation of the OCTL Exception has been in the spotlight for some time now, particularly in the context of whether redundancy obligations are triggered following the loss of a service contract.

By launching challenges to employer practices in the Courts and industrial tribunals, and agitating their concerns in the recently concluded Senate Inquiry into Corporate Avoidance of the Fair Work Act, unions are demonstrating their view that employers are ‘gaming’ the system by taking an expansive view of the OCTL Exception. The Fair Work Ombudsman (FWO) has also taken a similar keen interest in the practices of employers in meeting their redundancy obligations upon a loss of a service contract.

Relative calm, from an employer’s perspective, was thought to have been restored by a 2015 decision of a Full Bench of the Fair Work Commission (FWC) in Compass,[7] where the industrial history of the OCTL Exception was examined in detail and a finding that the employer was required to make redundancy payments following the loss of a service contract was overturned.

But still the unions persisted with their challenges in the Courts. Have they now achieved their objective with a Federal Court decision confining the OCTL Exception to ‘a narrow set of circumstances’? Given the particular factual scenario attaching to the matter before Reeves J in United Voice v Berkeley Challenge, that much is far from clear.

There is arguably little difference between the approach adopted by Reeves J in construing the OCTL Exception in the context of the NES, and the conclusions of the Full Bench of the FWC in Compass that there ‘is no basis… for excluding dismissals arising from loss of contract from the [OCTL Exception] where this is a normal feature of the business’.

The two key things that remain important in all cases are:

  • the business circumstances of the relevant employer; and
  • the context in which the decision to undertake terminations and to make jobs redundant is made.

While the controversy over the scope of the OCTL Exception continues to rage, employers who have an established practice of not making redundancy payments to employees following the loss of a contract should review their current arrangements to ensure that:

  1. The relevant business circumstances, contractual arrangements and decision making in each case are aligned to the notion that a loss of a contract (and subsequent loss of employment) do not automatically trigger a redundancy entitlement.
  2. Employees clearly understand the basis of their employment/engagement (particularly where their employment is tied to a specific contract).
  3. Any enterprise agreement covering the relevant employment protects the position relating to the operation of the OCTL Exception.
  4. Prompt advice is sought in terms of compliance related matters in each case to mitigate the risks of becoming a further target of an ongoing union campaign.